Governors luring away CA jobs

Gov. McDonnellApril 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.

13 comments

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  1. Barb
    Barb 30 April, 2013, 09:46

    There is never a week that goes by that you hear of some company that leaves the once golden state. Just this week the Sacramento Kings have been sold and are now moving to Seattle, Washington. Why? Because they built a new stadium for them, taxes will be less, and the audience is probably larger! Sounds like a win, win to me! Even FB is building a new site in Iowa of all places! The list of companies leaving keeps getting longer and what do the liberals do in Sacramento, worry about eliminating plastic bags! It’s comical now and the other Governors are laughing all the way to more tax revenue!

    Reply this comment
  2. Naresh Krishnamoorti
    Naresh Krishnamoorti 30 April, 2013, 10:17

    The ratio of takers to makers in California is already 1.39. Only two states are worse, and they have populations that are a small fraction of ours. As more makers leave, that ratio will go higher and higher, meaning our tax burden will become higher and higher. At some point, the State will be in imminent danger of collapse if even one more maker leaves. At that point, Califonia will impose heavy “exit taxes” for anyone who wants to leave.

    My advice: leave now before it’s too late. The longer you wait, the higher your tax burden will get. Within a couple years, especially if a comprehensive immigration bill passes, you will no longer be able to leave the State of California without being reduced to penury.

    I REPEAT: You will no longer be able to leave California without having to give up all the assets you own in California. LEAVE NOW.

    Reply this comment
  3. stolson
    stolson 30 April, 2013, 10:55

    RE—My advice: leave now before it’s too late. The longer you wait, the higher your tax burden will get. Within a couple years, especially if a comprehensive immigration bill passes, you will no longer be able to leave the State of California without being reduced to penury.

    I REPEAT: You will no longer be able to leave California without having to give up all the assets you own in California. LEAVE NOW.

    HOW does this pass any state/federal law(s)? Eminent domain??

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  4. Naresh Krishnamoorti
    Naresh Krishnamoorti 30 April, 2013, 11:17

    There was a bill introduced in the California legislature proposing an exit tax. Eminent domain is not a tax, because the State compensates you for taking land.

    Reply this comment
  5. Richard Allmon
    Richard Allmon 30 April, 2013, 13:32

    The growth industry in California is the Moving Companies.

    Reply this comment
  6. us citizen
    us citizen 30 April, 2013, 15:55

    Fat chance they would get a “get the hell out of CA” tax from me. Besides, how would they know?

    Reply this comment
  7. Sean Morham
    Sean Morham 30 April, 2013, 17:04

    It sounds like the Utah and Virginia governors are taking the high road, truly representing the best interests of their state’s citizens. Too often, what we we see is representation of special interests, and in an interesting spin….non-citizens.

    Reply this comment
  8. Steve Mehlman
    Steve Mehlman 30 April, 2013, 20:00

    Someone needs to wake Barb up. She’s a little out of touch with respect to the now and future SACRAMENTO Kings. But it’s interesting that she cites the city of Seattle building a new arena as a good thing, while many of her conservative buddies are against doing the same thing in Sacramento.

    Also interesting that us citizen brags about evading taxes, which is a crime.
    Although having you California haters “get the hell out of our state” has a certain appeal to it.

    Lastly, of course, the recent tragedy in West, Texas should give pause to all these companies that are flocking to anti-regulation states. Be careful what you wish for.

    Reply this comment
  9. WackoCaliBird
    WackoCaliBird 30 April, 2013, 21:33

    Baghdad John Perez & chief propagandist Steinberg can spin all they want. Not even a Democrat majority can repeal the laws of economics.

    Reply this comment
  10. Barb
    Barb 1 May, 2013, 08:18

    Conservatives in Seattle? That’s laughable! Last time I heard a local longshoreman’s union sued private investors, the city of Seattle, etc. etc….because of some environmental impact! They lost! But it appears the City of Seattle have worked out a deal that would avoid tax increases to pay for a court. The arena is self-financed. This deal is still pending based on approval from the NBA. The team, I believe, originated from Oklahoma. The point was is this is just another example of a business fleeing the state of California because they see the handwriting on the wall and see a better opportunity to make the team more profitable! For some people, I know this is hard to contemplate!

    Reply this comment
  11. Hondo
    Hondo 1 May, 2013, 09:26

    The ‘Grapes of Wrath’ in reverse. I pointed that out a couple years ago. Kalifornia has more economic assets than anyplace on earth. Then how come they have the highest unemployment rate and same for poverty and welfare. That’s progress?
    Hondo…..

    Reply this comment
  12. Excalifornian
    Excalifornian 2 May, 2013, 13:14

    California will be the leader in all things…. until it is not.

    Reply this comment
  13. notmehlman
    notmehlman 2 May, 2013, 16:21

    Mehlman

    Of course we have seen all the regulated refineries in California be issue free, LOL. And if we have no fertilizer plants, at the rate we are going it is likely, there will be no accidents, there will also be no jobs and tax revenues, but thats no big deal.

    Reply this comment

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