When it comes to job creation and an economic boom in the middle of a recession, other states may not want to mess with Texas β they may want to emulate it.
According to bizjournals.com, Texas has added 732,800 private-sector jobs in the past 10 years, far eclipsing the growth of every other state in the U.S. Arizona came in a distant second in job creation, with a growth of 90,200 jobs since April 2001. Utah was third with a growth of 90,000.
In the state-by-state breakdown of jobs data from the U.S. Bureau of Labor Statistics, California showed the biggest loss of private-sector jobs, with a decline of 623,700 since 2001. Michigan and Ohio rounded up the last three, losing 619,200 jobs and 460,900 jobs, respectively.
For the seventh straight year, Chief Executive also rated Texas as the No. 1 best state for business, while California claimed the dubious honor of being the worst state for business β also for the seventh year in a row. Utah was ranked at a business-friendly No. 9.
The Wall Street Journal reports that Fujitsu Frontech, which recently announced it would leave California, became the 70th business to leave the state since January. According to Joe Vranich, a California business relocation expert, an average of 4.7 business are moving out each week.
Californias Orange County Register reports that more than one in five California small-business owners do not expect to be in business in the state in three years.
Whats driving the business exodus from California and the job growth in Texas? Business owners and analysts boil the problem β or the solution β down to one word: government.
In April, a group of California lawmakers traveled to Texas to speak with businesses that had moved there in an effort to diagnose why California is hemorrhaging jobs. Andy Puzder, the CEO of Hardees Restaurants, and Mark Tolley, the managing partner of B. Knightly Homes, said California's red tape and regulation are killing business.
You cant build in California, you cant manage in California and you have to pay a big tax, Puzder said. In Texas, its the opposite β which is why were building 300 new stores there this year.
The red tape is ridiculous, Tolley agreed. Regulators see developers as wearing a black hat, and the environmental laws have run amok.
Government policies and regulation have an impact on business, either for good or for bad. California's government work, from the Delta Smelt controversy to its cap-and-trade plan, which was put on hold last week, is often pushed to the center of debate, particularly as states try to recover from the recession.
In an opinion piece for the Sacramento Bee, writer Ben Boychuk argues Californias cap-and-trade plan hurts businesses through over-regulation. Boychuk cites Skip Brown, the president of Delta Construction in Sacramento, who said that even with the cap-and-trade plan on hold, other air board rules will force him to retrofit or replace his diesel-emitting equipment. Doing so will cost him $5 million.
The only climate that new cap-and-trade rules are likely to change is the states economic climate β from cool to frigid, Boychuk writes.
Critics of the plan say that false science is being used to drive business from California. In the case of Californias diesel-emitting standards, James Enstrom, a University of California, Los Angeles, professor and scientist, was fired after he reported that the study used to create the standards was based on work by a scientist who bought his Ph.D. from a diploma mill. The Foundation for Individual Rights in Education is fighting Enstroms firing.
In terms of utilizing government to help job growth, the Pasadena Star-News reports that after returning from his trip to Texas, California Lt. Governor Gavin Newsom said he plans to push for a plan to align economic development with work force development, and to organize the 36 state agencies that currently dabble in job retention or growth under the Office of the Governor.
Litigation may also be a causing businesses to flee California, David Houston and Jot Condle suggest in the Mercury News. The article states that more than 1 million lawsuits are filed every year in California, making it one of the most litigious states in the country and a magnet for abusive lawsuits.
If you own a restaurant and your bartender chooses to forgo a break to collect extra tips, you can be sued for wage-and-hour violations, the article says. If your trash can is moved by someone else in your store, you can be sued under the Americans with Disabilities Act. If you try to bring renewable energy to the desert, you can be sued by environmentalists and unions. Is it any wonder that many owners are deciding doing business in California is not worth it?
The size of government is also becoming an issue in California. Chief Executive reports that California has the fourth largest government of all U.S. states, with spending equal to 18.3 percent of the states GDP. Texas, on the other hand, has spending equal to 12.1 percent.
In Texas, the state Legislature meets for only 90 days every two years. California, on the other hand, has a year-round Legislature. The Pacific Research Institute, a California-based think tank, warns that in 2010 Californias state and local government sector is twice as large as what has maximized economic growth in the past.
Chief Executive states that while California is not unique in pursuing policies that prompt wealth and job creators to expand elsewhere, the state seems uniquely oblivious to the effect its labor and other regulations are having on Silicon Valley.
Job growth in the Valley has flatlined, the magazine states. Firms keep their headquarters there, but pursue growth in friendlier states. Google, Intel, Cisco and other companies locate new plants in states such as Arizona, Utah, Texas, Virginia or North Dakota.
Other factors, such as taxation and unions, have also been cited as reasons Texas is outstripping the competition in job growth and creation. While Texas has no state corporate income tax rate or personal income tax rate, in California, the highest state corporate income tax rate is 8.84 percent, and its highest personal income tax rate is 10.55 percent.
The result, the San Francisco Examiner states, is that California is inordinately dependent on taxing the wealthy, which has proven to be a poor economic strategy. When states tax wealthy earners too much, they often move to where the tax burden is lower, such as in Texas.
The San Francisco Examiner also reports that Californias capital gains tax and its energy taxes are the highest in the country.
A new report recently released by Sen. Jim DeMint, R-S.C., shows that right-to-work states, or states that prohibit forced unionization and dues payments, have stronger economies than other states. This, in turn, is causing people to migrate to right-to-work states.
Currently 22 states have right-to-work laws, including Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Iowa, Kansas, Louisiana, Mississippi, Nebraska, Nevada, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia and Wyoming.
According to rankings from bizjournal.com, four of the five states with the best job growth in the last decade are right-to-work states. Only two right-to-work states reside in the bottom 10 β Tennessee and Georgia.
On Chief Executives list of best and worst states for business, nine of the top 10 are right-to-work states. The lone union state β Indiana β is led by Republican Mitch Daniels, who until last week was being named as a possible GOP presidential contender. None of Chief Executives bottom 10 states are right-to-work states. Out of the bottom 25 states, only four have right-to-work laws.
In an opinion piece with Capitol Weekly, California State Treasurer Bill Lockyer argued that California is a winner while Texas is a state of lost luster, with the highest percentage of uninsured children, the lowest percentage of residents with high school diplomas and the most polluted air and water.
"Still, some folks here in the Golden State look longingly at the Lone Star. They say Texas is doing all the right things to create jobs, while California has screwed up everything, Lockyer writes. As we work together to build Californias future, Be more like Texas should not be our goal. Be a better California. Thats the recipe for success.
California Assemblyman Dan Logue, who led the trip to Texas, responded to Lockyers editorial, saying his definition of winning in California is as credible as Charlie Sheens definition.
I do not consider it winning when we have 2.5 million Californians out of work, Logue writes. I do not consider it winning when California is ranked dead last in the country by Chief Executive magazine β holding the title of the worst state to do business in for seven years running. I do not consider it winning having the second highest unemployment rate in the country. I do not consider it winning by losing over 600,00 manufacturing jobs in the last ten years β many to China. If that is considered winning then maybe we should declare the Carolina Panthers Super Bowl Champions.
Whatever Texas' recipe for success β low taxes, small government, deregulation, spending caps β 10 years of data suggest other states ought to pay attention.