CEOs Favor Pro-Growth, Low-Tax States

Click here for the full ranking of 2015 Best & Worst States for Business. 

CHIEF EXECUTIVE CANVASED 511 CEOs across the U.S. asking them to evaluate four or more states with which they are directly familiar. They were asked to rate each with respect to three categories they regard as highly important: taxes and regulations; quality of the workforce; and living environment, including such considerations as quality of education, cost of living, affordable housing, social amenities and crime rates.

After Texas and Florida, North Carolina edged out Tennessee for the third and fourth ranking, with Georgia, Indiana, Louisiana, Nevada, Arizona and South Carolina filling out the fifth through 10th places respectively. Following California and New York, business leaders see Illinois, New Jersey, Massachusetts and Connecticut as the worst places, largely due to the perception that they are high-tax and over-regulated environments.

But there are degrees of disenchantment. One of the biggest factors in CEOs’ thinking is the attitude that local and state authorities have toward business and the perceived capriciousness of regulations, particularly those imposed on smaller firms least able to bear the costs. In this respect, if it were possible to rank 60th out of 50 states, California would likely rank No. 61. Joseph Vranich, an expert on corporate relocations, has counted more than 200 major companies with tens of thousands of employees that left the Golden State over the last four years.

While Google, Apple, Intel and HP are not likely to leave, neither do they expand locally if they can help it. Google server farms tend to be built in lower-tax states like Nevada, Arizona and Iowa. Were it not for its climate and excellent university system, it is a wonder that more California companies don’t leave. For example, voters and politicians in San Francisco and Oakland approved new minimum wage mandates. Predictably, the move to alleviate income inequality has had the opposite effect on area service providers. Restaurants have been cutting back employment or even closing their doors. Many restauranteurs told the San Francisco Chronicle that the $15 minimum wage puts them in a position where they are no longer able to absorb the costs of doing business.

Such a phenomenon would be unthinkable in, say, Indianapolis, Indiana; Columbus, Ohio; or Madison, Wisconsin, where politicians are grounded in the day-to-day realities of how disincentives and costs affect employment. However, California is a lotus land free of feedback loops—at least any that Sacramento recognizes.

Texas continues its economic miracle despite the hit it has taken with the slowdown in oil fracking. Since the recession began in December 2007, 1.2 million net jobs have been created in Texas. Only 700,000 net jobs were created in the other 49 states combined. However, the slowdown in the energy industry has also taken its toll in job creation, with Texas dropping to fourth in the month of January and California rising to the top owing to a Bureau of Labor Statistics (BLS) revision. Texas and other top-producing oil states have been hurt by a 50 percent-plus drop in the price of crude oil since July. As a result, oil-related companies have announced tens of thousands of job cuts and reductions in capital spending.

But California’s labor force—18.9 million—is 43 percent larger than Texas’ 13.2 million, so the 12-month job gain for California translates into 3.2 percent, while Texas saw a 3.5 percent employment increase. Moreover, Texas’ unemployment rate of 4.4 percent is 40 percent lower than California’s 6.9 percent, one of the nation’s highest. Industrial development is helping diversify second-ranked Florida’s economy. Each year, the Sunshine State edges closer to its goal of overtaking Texas as the best state for business.