Governors luring away CA jobs

April 30, 2013

By Brian Calle

As Gov. Jerry Brown recently traveled to China to promote trade and search for Chinese investment for the state’s controversial high-speed rail project, two other state governors, Bob McDonnell of Virginia and Gary Herbert of Utah, made a joint trip to California to meet with businesses to promote the economic climates of their respective states. When I met with the two gentlemen, they told me their goal, like the governors of so many other states, was to point out the favorability of their states’ business taxes and regulatory approaches.

It is becoming commonplace for governors of other states to visit California with the aim of enticing businesses to move or expand their operations in more tax-friendly localities with fewer government regulations. While the political junkets always seem to make headlines, the more interesting storyline is twofold. First, these various governors are coming almost solely to California in their recruitment efforts and, second, the interstate competition for economic vitality is divided along ideological lines—higher taxes versus lower taxes.

Expeditions to poach business from California are en vogue. In 2012, Arizona officials flew some 100 California CEOs into Phoenix for stays and tours of the metropolitan area. Gov. Rick Perry upped the ante when he visited California earlier this year to lure companies to expand in Texas; he even put out a radio ad to promote the trip. Shortly after Perry’s jaunt, Iowa Governor Terry Branstad declared California a “happy hunting ground” and said he, too, would be visiting the Golden State to recruit businesses.

Tag-team trip

And then came Herbert and McDonnell, perhaps the most telling of the recent advances on California business because it was a tag-team trip from governors of arguably the two most economically sound states in the union.

Both Utah and Virginia are at the top of the lists of many national periodicals for business friendly states. Utah has secured the No. 1 spot in Forbes Magazine as the “Best State For Business And Careers” for three years in a row. The state was also at the top of the 2012 State New Economy index for “Economic Dynamism” and is in the top 10 for CNBC’s 2012 Top States for Business, and Chief Executive magazine’s 2012 Best States for Business. Virginia also ranks highly in many of the aforementioned rankings and won “Top Performing State” by Governing Magazine, and a “Top Pro-Business State” by Pollina Corporate Real Estate.

On those same lists, California is ranked far less favorably and, in some cases, at the bottom.

Political leaders in the Golden State, like state Senate Speaker pro Tem Darrell Steinberg, D-Sacramento, argue a different set of metrics, like job creation.  In a column published in the Orange County Register, Steinberg argued, “[I]n the past 12 months, California has created 234,000 new private sector jobs. That’s not only more than Texas, it’s more than Texas, Oregon and West Virginia combined. This continues a trend in California job growth back to October 2011.”

Even still, the governors of other states are betting their approaches are a better recipe for economic growth.

Utah has a flat 5 percent tax rate for both individual and corporate income, while Virginia’s top-level personal income tax rate is 5.75 and the state’s corporate income tax is a flat 6 percent. California’s top tax rate for personal income is 13.3 percent and the state’s corporate income tax rate is 8.84 percent. The sales tax in Virginia is 5 percent, whereas Utah’s sales tax 5.95 percent. California’s sale tax is 7.5 percent, plus what may be added by local governments.

The goal of his trip, Herbert said, was simply to get California businesses to consider Utah. “We are not necessarily saying relocate — we are saying we have the right economic environment,” he told me. “We have sensible regulations that are not burdensome. We have a young, skilled labor force. Our culture and work ethic is second to none.”

Utah also is also becoming a hub for technology companies, Herbert said. California is well known for its Silicon Valley but, as Herbert told me, Utah’s technology sector, which he termed Utah’s “Silicon Slopes,” is growing exponentially.  For example, he said, “Adobe invested $120 million to expand in Utah. They’re building a new campus there, with the number of jobs increasing from 1,500 to 3,000.”

Close to D.C.

As for Virginia, McDonnell said that, unlike California, Virginia has the advantage of being close to the nation’s capital, which is becoming increasingly desirable for some companies. His state is also making a concerted effort to encourage movie production there.

Virginia has created economic incentives to grow its entertainment industry. The state developed “a motion picture opportunity fund” to help finance films and “a motion picture tax credit” as an enticement for the entertainment industry to film in Virginia. Recent films like both “Lincoln” and even parts of “Argo” were shot in Virginia.

California Assembly Speaker John A. Pérez, D-Los Angeles, rejected the idea that the business climate of these other states is better than California’s. In a column for the Register, he wrote, “When it comes to business, California is still the place to be. California is a national leader in job creation. According to the Public Policy Institute of California, in February the state’s annual employment growth rate of 2.1 percent surpassed the U.S rate of 1.5 percent, with California adding 293,800 jobs over the year.”

‘Competition is good’

Herbert and McDonell said their trip had nothing to do with teaching California lawmakers how to govern.  “I’m not going to tell any state how to do their business, except for my own,” Herbert told me. “Competition is good. The states are laboratories for success.” His goal as governor, he said, was to help businesses succeed, so he looked to other states as examples and that led him to lower Utah’s corporate tax rate. “Imitation is the greatest form of flattery,” he told me. “Most of the action and ingenuity comes for the freedom of the states to innovate, grow and try new things.”

“It should not be lost on anyone that we do try to learn from each other,” Herbert continued. “We learn from our successes and copy others. We are learning to go out of our borders.”

McDonnell argued that “governors competing with one another is a good thing and brings growth and expansion.”

It’s good for another reason too: It creates a philosophical battleground at the state level that will eventually become the backdrop for debate over national tax policy. For Herbert, as he told me, “It’s better to increase tax revenues by expanding the economy” as opposed to raising tax rates.