I remember my brother, who was then a resident of Los Angeles County, telling me something that was hard for me to fathom at the time but has stuck with me.
Jim has since passed away, but I distinctly recall him saying that he had to get permission from local government to cut down a dead oak tree in his back yard.
I was living in Alabama at the time and said something to the effect, “Jim, if you lived here in Alabama, that would be your tree on your property. You wouldn’t have to get permission from anybody to cut it up for firewood.”
Another friend, also a resident of California, told me about all the rigmarole it took for him to get a contractor to remove a buildup of bird crap off a roof section at his home. The environmental regulations did not permit what should have been a relatively simple task to be so simple, involving hazmat suits and a litany of red tape.
So last week I wrote about California’s not-so-friendly business climate soon after Chief Executive magazine had released its annual Best & Worst States for Business survey. As in years past, California was ranked 50th by the 500 CEOs participating in the poll.
Now I will grant you that a magazine survey is not all encompassing as to the realities on the ground. But if the widespread perception by CEOs is that you have problem, trust me, you have a problem.
One Mayor Fumes
A first step in taking corrective action to a problem is to admit that you have a problem. Apparently, Frank Scotto, the mayor of Torrance, Calif., was at least initially in denial upon learning that Toyota will be moving its North American corporate headquarters from Torrance to Plano, Texas.
“Toyota gets 30 years there, tax-free. It’s pretty amazing that Texas is that desperate,” said Scotto as reported by Automotive News.
Maybe it’s human nature upon learning bad news to lash out. But rather than to admit that his city in Los Angeles County could or should work toward reducing the regulatory burdens on business, Mayor Scotto blamed others for his city’s misfortune.
And while I am certain that there are unemployed and underemployed people in Plano, a place where I actually live, I can tell hizzoner from personal experience that this suburb community of 300,000 people to the north of Dallas is hardly a desperate place.
All around me are corporate headquarters and within a couple blocks of my home, two large office buildings are currently under construction. Economic developers from around the nation who come to call on me are amazed by the new construction and the general economic vibrancy exhibited by the Dallas-Fort Worth metro area. (It’s hard for me to keep abreast of all the new developments and I live here.)
While Another Mayor Smiles
Last week, the city council in Plano, approved an economic incentive package for Toyota that links $6.75 million in grants to construction of the headquarters that will provide 3,650 full-time jobs.
“It’s a very good day in Plano,” a beaming Mayor Harry LaRosiliere said after the unanimous vote.
The council also approved a 50 percent property tax abatement for 2018-2027 and a 50 percent tax rebate for the 10 years after that. Based on the $350 million value of the property, the tax abatement would “cost” (It’s hard to cost something you didn’t have coming in) Plano $8.5 million over the decade.
But even with the abatement, the Toyota project is expected to generate more than $70 million in property tax revenue and an equal amount in sales tax revenue over the 10-year period for Plano.
Now that is not a bad deal for Toyota or Plano. But such win-win business friendly scenarios are possible only if you only make it so. In Texas, they make it so.
A $40 million incentive from Gov. Rick Perry’s Texas Enterprise Fund helped convince the world’s largest auto dealer to move to Plano. More important than the deal incentives, which I think were actually rather modest, is the fact that there is a political will in Texas to keep taxes and regulatory measures in check.
Texas has no state personal income, capital-gains or estate tax, and is ranked as having the fourth-lowest tax burden in the nation by the Tax Foundation. The Tax Foundation ranks California, which has a personal income tax system consisting of 10 brackets and a top rate of 13.3 percent, 48th.
According to Dun & Bradstreet, 2,565 California businesses with three or more employees have relocated to other states between January 2007 and 2011. David Tran’s company may join the list of companies either leaving the state or expanding elsewhere.
We’ll Take Your Rooster
For months, Tran has been battling the Irwindale City Council over complaints that fumes from his plant that makes Sriracha, the hot sauce with trademark rooster logo, are causing neighbors to get sick.
It is not surprising then that a delegation of Texas legislators toured Tran’s plant last week. “We’re not here to offer any specific incentives, but just to let it be known there are incentives,” said state Sen. Carlos Uresti after their visit, according to the Associated Press.
A second delegation from Denton, Texas, leaves today for California with the aim of visiting the Sriracha plant and telling Tran how much he would be welcomed in that North Texas city. There is something to be said for being wanted.
My friend and fellow site selection consultant, Joe Vranich, a California resident for nearly 18 years, has tried to alert state legislators as to the dangers posed by overregulation and the need for reform. He likened it to talking to doorknobs.
“A lot of people don’t realize that if you go back 30 years ago, California was the No. 1 place to move your business to or to start a business. How far we have fallen in relative terms is really remarkable,” said Vranich, principal of Spectrum Location Solutions and a frequent blogger on California’s business climate.
Joe alerted me to a scathing piece written by Arthur B. Laffer, chairman of Laffer Associates, an advisor to President Regan and co-author of “An Inquiry into the Nature and Causes of the Wealth of States.”
“While the state’s economy may wax and wane, California is in a death spiral,” Laffer wrote in the May 8th article in Investor’s Business Daily entitled, “California’s High-Tax, Big-Government Comedown.”
Not surprisingly, people and businesses are voting with their feet, flocking to Texas while exiting California en masse. As my fishing buddy Flavis Long explained it, people, like geese, will migrate to greener pastures. “Hey Dean, this ain’t rocket surgery.”
The truth is that the cost of living and doing business in California is simply too much for too many.
“Texas has produced hundreds of thousands of well-paying jobs across most industries since 2000, making Texas the top destination for domestic migrants since 2006,” wrote Melissa LoPalo and Pia M. Orrenius, two researchers with the Federal Reserve Bank of Dallas in March.
More Good Than Bad
I do not hold that there is a one and only best place for business, because different businesses have different requirements. (Which is the reason why I am engaged in corporate site selection and economic development consulting nationwide.) But selling Texas short is not a good idea.
“Texas has also created more ‘good’ than ‘bad’ jobs,” wrote Fed researchers LoPalo and Orrenius. “Jobs in the top half of the wage distribution experienced disproportionate growth. The two upper wage quartiles were responsible for 55 percent of net new jobs.
“A similar pie chart cannot be made for the rest of the U.S., which lost jobs in the lower-middle quartile over the period.Between 2000 and 2013, Texas household survey employment overall grew 24.9 percent, while employment in the rest of the U.S. expanded just 4.7 percent.”
Texas cities dominated Wallet Hub’s recent ranking of the best U.S. cities for jobs, with five Texas cities listed in the top 10. Fort Worth was recognized as the top city for job seekers. Arlington ranked fourth, Dallas fifth, Austin sixth, Houston 10th. Corpus Christi nearly cracked the top ten, ranking 12th on the list.
It’s no surprise that Texans are a proud and boastful lot, and I understand that can be off putting to some folks in other states. But as the old saying goes, “It ain’t brag if it’s fact.” So Texas won another bragging right when it surpassed California in global technology exports in 2012.
Texas exported $45.1 billion in technology goods, growing 7.3 percent from $42.1 billion in 2011. California’s $44.8 billion in tech goods exports marked a decline by 2.8 percent in 2012, dropping from $46.1 billion in 2011.
There is one thing California takes the top spot in – highest poverty rate in the nation, 45 percent higher than in Texas.
Texas desperate? I reckon not. But California, well, maybe it ought to be.
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.
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