This Ain’t Rocket Surgery

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 50^th 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, 48^th.

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.

Joe Knows

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 8^th 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.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

Escape From California

Will Rogers said he never met a man he didn’t like. I wish I could say the same. But it is true that I never met a state that I didn’t like. Every one of them has certain attributes which could fall into favorable play in a site selection project.

Even California.

So I should preface my remarks by stating that California is a very beautiful state with a history of great innovation and substantial business assets. Many Asian companies, first the Japanese and now the Chinese, view California as a logical beachhead into the North American market. And that makes sense for a variety of reasons.

But I have been fast concluding for some years now that California, and this is a broad brush statement, doesn’t particularly cherish the idea of making itself a great home for business. Indeed, it would appear that state and some (not all) local governments have gone off the deep end with a regulatory climate that substantially increases the cost of doing business there.

Those Wonderful Garages

It is somewhat ironic then that California has been the birthplace of some of the most important companies in our nation’s history, many of which began in humble garages.

In 1976, Steve Jobs and Steve Wozniak hand-built 50 computers in 30 days from a garage in Cupertino. Today, Apple is the most valuable technology company in the world.

In Los Angeles, there’s a house where The Walt Disney Company got its start. It belonged to Walt Disney’s uncle, Robert Disney. Walt and his brother Roy moved in with their uncle in 1923 and set up “The First Disney Studio” in the one-car garage out back. Today, Disney is the highest-grossing media conglomerate in the world.

Bill Hewlett and Dave Packard founded HP in Packard’s garage with an initial investment of $538. That was in 1939 and their first product was an audio oscillator and one of their first customers was Walt Disney, who purchased eight oscillators to develop the sound system for the movie Fantasia.

The HP Garage in Palo Alto is known as the birthplace of Silicon Valley and HP is now one of the largest companies in the world. Carrying on that California garage tradition, Google, the most trafficked website company in the world, began in a garage in Menlo Park by Stanford graduate students.

Most Costly, Complex and Uncertain

So it is undeniable that great companies have been birthed in California in humble surroundings. And by that very fact, you would think that there would be a climate by which government would want to encourage businesses to form and grow. But that is not the drumbeat that I am hearing. Consider the following:

“By a large margin, California’s regulatory environment is the most costly, complex and uncertain in the nation. No other state comes close to California on these dimensions. For example in the area of labor law, California enacted 15 statutory changes per year between 1992 and 2002. This rate is four times the average for state legislatures nationwide over that same period and three times the average in New York.” – California Business Roundtable.

Last week, Chief Executive magazine released its annual Best & Worst States for Business survey and as in years past, California was ranked 50^th by the 500 CEOs participating in the poll.

CEOs said California’s bottom ranking is the result of regulatory red tape, high taxes and a generally negative attitude toward business. “We dread doing business in California,” one CEO responded. “State regulations duplicate federal regs, especially in safety. In addition to MSHA and OSHA, we have to comply with CALOSHA. No other state has a similar system.”

Texas Strikes Again

And for the 10th year in a row, the surveyed CEOs ranked Texas as the best state to do business in. Said one CEO, “Texas is the best state for business and I don’t see anything to slow [it] down. The education and quality of eligible employees is excellent right now. Business is booming and growing quicker and more rapidly in 2014 than any other year. It’s an exciting time in Texas.”

Now I live in Texas and I can tell you that it is not nirvana for all business. No such place is. As a site selection consultant, I advise companies on where they should be and that can be from Maine to California, from Canada to Mexico.

But what is indisputable is that many California-based companies have been moving to what they see as greener pastures and one of their favorite landing places has been Texas. You may have heard of one of them recently, a little firm called Toyota.

My Neighborhood

The world’s largest carmaker earlier this month announced that it will be moving its North American corporate headquarters from Torrance, Calif., to my neighborhood here in Plano.

(And when I say my neighborhood, I really mean it. It’s called Legacy in the northwest part of the city, and it’s a headquarters mecca for companies such as Alliance Data, Cinemark Theatres, Dell Services, Dr Pepper Snapple Group, Ericsson, Frito-Lay, HP Enterprise Services, Huawei, J.C. Penny, Pizza Hut, Rent-A-Center, Traxxas and Siemens PLM Software.)

Bestplaces.net said the cost of living for employees is 39 percent higher in Torrance than in Plano, and housing costs are 63 percent lower in Plano. And keep in mind that California has the highest income tax in the country, with a top rate of 13 percent compared with zero in Texas.

“As we looked closer, though, the advantages Plano offered our company and the quality of life it offered our employees became clear — including the cost of living, access to top-tier schools and cultural offerings, low tax rates and a wide range of affordable urban and suburban living options within a short commute of our headquarters site,” said Jim Lentz, chief executive officer for Toyota North America.

“Another reason we chose Plano is simple geography. Locating there will bring us closer to our manufacturing footprint, in a time zone that allows us to communicate more easily with our North American operations, with direct flights to all of our operations — including Japan.”

The Smart People Know

What Toyota didn’t say, didn’t need to say, was that California was a more expensive place to do business. But my friend, Joe Vranich, a site selection consultant with Spectrum Location Solutions based in Irvine, Calif., is none too shy about it.

“I’ll say what Toyota didn’t – any business leaving California can benefit from cost reductions between 20 and 35 percent, depending upon their destination, helped significantly by lower taxes and lower compliance costs as compared to California’s jumble of mind-boggling regulations.

“I’ve been to Sacramento and have encouraged policy changes to benefit commercial enterprises. For all the difference it’s made, I may as well have spoken to a box full of doorknobs.”

And the Exodus Continues

Toyota is just the latest news of some big companies ditching the Golden State.  Fluor Corp., an engineering and construction company, left Orange County in 2006 for Dallas. That same year Nissan moved its North American headquarters from Carson to Nashville, Tenn.

Last year, Raytheon Space and Airborne Systems moved its headquarters staff from El Segundo, Calif., to McKinney, Texas, about 20 minutes from where I live in Plano. And in February, Occidental Petroleum said it would relocate its headquarters in Westwood, Calif., to Houston. I am sure I could cite more big name companies who have sought to escape from California with a little more digging.

Vranich has been documenting and blogging about the exodus for several years now and said there were 254 companies that left the state in 2011 alone.

When the latest news broke on Toyota, California Gov. Jerry Brown said, “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it.” 

The Wall Street Journal’s comeback: “California’s problem is that smart people have figured out they can make it better elsewhere.”

Where to Fish

Texas Gov. Rick Perry has not been reticent about traveling to California, New York and Illinois (places consistently ranked worst states by Chief Executive magazine) to beckon companies to the Lone Star State.

“Texas is number one for doing business. Why? Our taxes are lower, our legal system is fair and our energy is affordable,” Perry says in a television message posted to YouTube in March.

When asked why he frequently targets California, Perry quipped, “You fish where the fish are.”

That’s not a bad answer, as the proof is in the catch.

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.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

 

 

 

To Spec or Not to Spec

Many years ago as a young newspaper reporter, I covered murder trials that would result in the prosecution and the defense trotting out their expert witnesses who would then proceed to contradict each other.

The testimony of the experts would typically center on their scientific interpretation of some forensic evidence. Sometimes they would speak about the mental state of the defendant, usually accused of doing something crazy.

Whether the accused was in fact crazy – that is he or she knew the difference between right and wrong — depended on which expert witness you believed. I could only take notes and report on what they said.

So years later, I have found myself being accorded a certain degree of expert business status as a site selection/economic development consultant, to which I will admit that I am not completely comfortable with.

But I have been around the block and have seen my fair share. So when I am frequently asked to speak at various functions, I think to myself, “Well, if they are asking, I might as well give it to them straight and not sugar coat it.” And that’s what I try to do.

Occasionally I will find myself at events in the company of other dubbed experts who say things that leave me wondering. Sometimes they speak in a consultantese jargon, which boggles the mind, and at other times, I get what they are saying, but just can’t subscribe to it.

In last week’s blog – Much Ado About Not Much – I told how conventional wisdom concerning right-to-work state status no longer holds much weight for me, although it apparently did for one panelist.

Hold on Thar

During that same “Meet the Consultants” event, a question came from the audience, actually from a very capable and experienced economic developer working with a statewide utility company, as to whether communities should build “spec” buildings.

If I interpreted the comments correctly from one panelist, and I might not have, his answer sounded like an unequivocal yes – build it and they will come.

I thought about that for a moment and wanted to quote Quick Draw McGraw by saying, “Hold on thar, Baba Looey.” But I didn’t. But I did speak up with a qualified “it depends” counter answer.

Now if you have an industrial park at an interstate interchange with good visibility and presumably good access, and you, the economic developer, have a patient, understanding board (I’ve heard about one a long time ago), well, then maybe a spec building might make sense.

If you do go that route, do make sure that it is designed with flexibility and expansion in mind and with the knowledge that ceiling heights continue to go up for much of manufacturing.

How Big is Your Elephant?

But even then, and even in the best of locations, you might have to be prepared to look at that building unoccupied for an extended period of time. And to that end, you have to know (I can’t tell you this) your own comfort level as to risk. Are you (and your board) prepared for the snide comments that you built a “white elephant” if it does stay empty?

Last year, I saw a spec building that never should have been built. It was in an isolated community 26 miles from the nearest interstate and it was obsolete the day it was built with low ceiling heights. And it has remained empty, not having its first tenant, for 17 years. Now I think that probably does qualify for white elephant status.

Generally speaking, I would advise a rural community, especially one that is miles away from an interstate highway and/or a metropolitan area, to steer clear of a  spec building unless you have the patience of Job.

Having said that, it is absolutely true that a community needs real estate “product” to be a contender in industrial recruitment. Preferably that product consists of both existing buildings and sites, but for many communities that is simply not the case.

There is an Alternative

Instead of a spec building, you might want to go the certified site route, which is a step forward but invokes less risk in terms of capital investment. It’s not a building, but you would be offering a site, after going through an exercise of due diligence, preparation and investment, that would essentially be ready for immediate development.

Too many economic developers, and this holds true in both rural and metropolitan areas, equate land with a site. It took me years to figure out the difference. But today if I am  representing a corporate client, particularly a manufacturer, I want to look at sites where the company can hit the ground running.

Raw land – where so many things have not been done that need to be done – does not offer the needed assurances for immediate construction. For that reason, I would much rather pay $50,000 an acre and know that I’m getting in a ready-to-go site – some would call it a certified site – than $5,000 an acre for a cotton field and not knowing what I’m getting into.

Time, Risk and Money

Like the spec building, it’s a matter of knowing the level of risk you are willing to tolerate. Typically, transforming raw land into a viable building site takes time which a company doesn’t have to give.

These dual elements of time and risk are the basis for site certification work that I do for economic development organizations. It essentially entails the building of an electronic file through the use of a Dropbox, that would provide documentary answers to any and all questions about a given site.

In short, site certification is a marketing tool and process that demonstrates that the due diligence has been performed so as to allow for fast-track construction to take place. And that can give a community a decided advantage.

Still, it is not uncommon for me having to explain the benefits and logic of site certification to often skeptical economic development organizations. (Call me if you would like to learn more.) And I also have to had to do the same with companies.

Now it is a given that companies have expertise in their core business or they would likely not be expanding. But they do not have in-depth knowledge (nor should they) about how the site selection process should work, which is where I come in. Listen to me, I tell them, and I will save you time and money.

And while there is no site selection school – different consultants do it different ways – there is the school of hard knocks and experience, which should mean something at the end of the day. At least I hope so.

Giga This

I read an article this past week in which a New Jersey-based site selection consultant was praising Elon Musk, the head of Tesla, for being particularly astute at the site selection process for what is being touted as a $5 billion gigafactory that will employ 6,000.

Well, I’m not so sure about that. In past blogs I have questioned the size and scope of this project, and continue to do so simply based on the realities of what this company is today and what the market is for electric cars.

Four states — Arizona, Nevada, New Mexico and Texas – would appear to be in the running, and Musk said this past week that his company will go in a multi-track direction. Here’s what he told Bloomberg:

“What we’re going to do is move forward with more than one state, at least two, all the way to breaking ground, just in case there’s last-minute issues. The No. 1 thing is we want to minimize the risk timing for the gigafactory to get up and running.” Musk said.

“We will end up spending more money than would otherwise be the case to minimize the timing risk.”

Time, risk, money – are all key components to virtually every site selection project. And, I would argue, it’s the reason why site certification makes sense for communities and why companies should not try to go it alone but hire an expert who can help them.

Plano Wins a Big One

Literally my backyard here at Legacy in Plano, a suburb city north of Dallas, will be getting what is effectively Toyota’s North American headquarters and eventually 4,000 jobs. A big congratulations to the good folks at Plano Economic Development. This is a big one worth savoring. I reckon I should brush up on my Japanese.

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.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

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