Cal Biz Climate Ranks Pathetic 32nd

JUNE 30, 2011


The Legislature passed a budget this week that assumes $10.6 billion in higher tax revenues flowing into the state’s coffers next year.

That sum includes not only the $6.6 billion Gov. Jerry Brown projected in the budget proposal he submitted last month, but also $4 billion on top of that the Legislature’s Democrat majority projected in the budget the governor just signed.

There simply is no way to generate the revenues the governor and the Legislature assume without either a tax hike (which the governor and his fellow Democrats wanted, but which the Legislature’s Republican minority rejected) or a stimulus that revives the moribund state economy to the point that $10.6 billion flows into the state treasury.

Since tax hikes are off the table, that leaves the stimulus. And the very best way to grow the state’s economy — to generate a the kind of revenue windfalls the state enjoyed with the dot com-boom, followed by the housing boom — is to enact a package of reforms aimed at improving California’s business climate.

It so happens that CNBC has just released its annual ranking of America’s Top States for Business. It is based on 43 measures of competitiveness developed with input from business organizations such as the National Association of Manufacturers and Council on Competitiveness. Those 43 measures are separated into 10 broad categories by which the states are compared.

In 2011, California ranks 32nd out of the 50 states. Particularly troubling is that the Golden State ranks dead last in “business friendliness” and 47th in “cost of doing business.”

Worst Business Environment

Business friendliness is based on a state’s regulatory and legal environments. And by the estimation of corporate executives and small business owners, California is perceived to have the worst such environments in the entire country.

Cost of doing business includes a state’s tax burden — not only its business taxes, but also its individual income taxes and property taxes. Utility costs also are factored in, as are costs of wages and rental costs for office and industrial space. In this category, on which many companies decide where to base or expand their operations, California ranks near bottom among the states.

To transform the Golden State from one of the worst to one of the best for business, the governor and the Legislature need to enact reforms that lower the state’s regulatory burden, particularly its more draconian environmental requirements such as the California Environmental Quality Act (CEQA) and AB 32, the Global Warming Solutions Act of 2006, as well as curbing the lawsuit abuse that afflict the state’s businesses.

California’s business taxes need to be brought in line with states that rank in the top third, rather than bottom third, in cost of doing business. It should revisit mandates that raise, rather than lower, utility costs around the state, increase the costs of hiring or retaining workers, and inflate the cost of renting an office or industrial space.

Tough Battle

Of course, it will be an uphill battle to improve the Golden State’s business climate, with the organized interests in Sacramento that oppose efforts to reduce the state’s regulatory burden; that fight measures aimed at curbing frivolous lawsuits against businesses; that continue to seek tax hikes; that impose costly energy mandates, and that propose new mandates on employers.

But if some near miracle happened and the governor and Legislative Democrats and Republicans actually enacted a package of reforms that improved California’s business climate to the point it ranked among the top 10 — rather than bottom 20 — states, it would provide an economic stimulus that would easily generate an additional $10.6 billion in net tax revenues.

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