For the eighth consecutive year, Texas has been voted the best state for business by Chief Executive magazine.
The Top 10 looks familiar to us, as it constitutes most of the geography in which we have focused our investment efforts for over twenty years now, and adds to the growing list of evidence that some states understand job creation better than others. The 2012 edition of their annual survey of CEOs includes a feature on What Keeps Texas on Top:
The state is growing its own companies but also is displaying remarkable success in luring investments from other states, particularly California, which once again ranks last in our survey. A raft of small, technology companies have either relocated to Texas or moved key operations there. Bigger California companies, such as Facebook, eBay and PetCo also have recently opened operations in Texas, and major manufacturers from different states, such as General Electric’s transportation unit and Caterpillar have located big new plants in Fort Worth and Victoria, respectively. “Employers from around the nation and all over the world continue to look to Texas as the premier location for business expansion, relocation and job growth thanks to our low taxes, reasonable and predictable regulations, fair legal system and skilled workforce,” Gov. Rick Perry told Chief Executive.
Texas has powerful momentum and it’s difficult to see what could halt it… The sheer diversification in its economy—all the way from wheat farming to semiconductors—suggests that the state could absorb many punches and keep on rolling.
When confronted with the argument that higher taxes = unhappiness, we wonder, even while remaining sympathetic to the point of view, whether or not it runs vice-versa, or at least cuts both ways: unhappy people like to raise taxes.
Another factor in the Southeast’s attractive growth potential – and one clearly related to taxes – is lower state debt burdens. Some state governments, when faced with crushing budget deficits, respond with growth-stalling tax increases on the businesses that operate in their states. (The problem worsens dramatically when one considers many states’ unfunded pension liabilities.)
Two states whose budget woes have garnered recent headlines include Illinois, which pushed through a 45% increase in corporate taxes – apparently triggering an exodus; and California, which is on the verge of running out of money – again.
Some states, like the aforementioned California, respond in other “desperate ways” which further undermine investor confidence and entrepreneurial spirits: accounting gimmicks, delayed payments, issuing IOUs, or even more borrowing. As we’ve written before, only one non-Southeastern state – Nebraska – has a lower debt-to-GDP ratio than FL (5th), GA (4th), TN (2nd), NC (3rd), TX and VA (tied for 6th).
Our region took 9 out of the 10 top spots in Forbes’ list of The Next Big Boom Towns in the U.S. The rankings were done in conjunction with Mark Schill at the Praxis Strategy Group, and are based on job growth, attractive lifestyle, ease of starting a business, and a broad range of demographic factors.
We do love Phoenix, but these are several of the cities we and our entrepreneurs call home.
The Top 10 looks familiar to us, as it constitutes most of the geography in which we have focused our investment efforts for over twenty years now, and adds to the growing list of evidence that some states understand job creation better than others.
Wells Fargo has released a study entitled “Employment Dynamics and State Competitiveness” which predicts 25 industries will drive employment growth in the next few years, and ranks states according to their likely ability to capitalize on those trends. As with previous related studies – see here, here, here, here, here, here, here, and here – our region performs very well:
The team of economists in their Securities Economics Group credit (among other things) the availability of skilled workers in our region – both homegrown and those drawn to the quality of life.
States with a large number of high-growth industries that also have a large skilled workforce will be at a greater competitive advantage. This would tend to favor states, such as Georgia, North Carolina, Arizona, Virginia and Texas, which not only have a large supply of skilled workers but have also been successful at attracting such workers from other parts of the nation. Florida, which has more high-growth industries than any other state, would be in a stronger position if not for the weakened housing market, which has cut into worker mobility. The Sunshine State is making important enhancements to its university system to bring in more cutting-edge research, and this should pay off with an even better mix of high-growth industries in future years.
The Chicago Tribune urges Illinois not to become a “New Michigan” or “New California” but instead mimic states such as FL, GA, VA, TN, TX, and NC. In an April 11 op-ed entitled The Illinois Spiral they reference the third edition of Rich States, Poor States (from the American Legislative Exchange Council) in which our region scores very well:
ALEC ranked states’ economic outlook vs. their 10 year (1998-2008) economic performance based on 15 policy variables which influence the overall business climate. The results look vaguely familiar to us, and are another vote of confidence in the Southeast as a preferred region in which to work, live, and invest:
As the Tribune puts it:
Employers tend to be harder-headed in deciding where to invest their money than our lawmakers are in spending other people’s money. The employers see Illinois pols dithering through a crisis, inviting an even more bleak future with their refusal to reform government spending and reduce what it costs to have a payroll in Illinois:
• Nor have you heard Illinois leaders, in their to and fro over an income tax hike, confront a 2009 report by the American Legislative Exchange Council: A decade’s worth of hard data suggests that states with no individual income tax created 89 percent more jobs, and had 32 percent faster personal income growth, than did states with the highest income tax rates. The report also analyzed 15 policy factors that influence a state’s growth prospects — tax burdens, debt service, tort climate, mandated minimum wage, spending limits if any — and ranked Illinois’ economic outlook as an alarming 44th in the U.S.
• Nor have you heard Illinois leaders confront this state’s devastating rank in job creation, 48th, and ask how they can be friendlier to present and potential employers. Illinois — with its overspending, its borrowing and its worst-in-America pension crisis — faces massive obligations that give potential employers pause. Add to this toxic mix Illinois’ high cost of workers compensation and its 49th-in-the-U.S. bond ratings. How surprised, then, are we that since 1990 Illinois has underperformed the U.S. in job growth?
The New York Times confirms another reason for the Southeast’s attractive growth potential and why increasing numbers of entrepreneurs are deciding to build their businesses in the region: lower state debt burdens. As the attached graph shows, the problem worsens dramatically when one considers many states’ unfunded pension liabilities. (Click thumbnail for “top” 25 states for debt-to-GDP, “Overloaded with Debts Unseen”.)
Not only will such debt levels likely lead to growth-stalling tax increases on the businesses that operate in those states, but some of the states are also responding in “desperate ways” which could undermine investor confidence and result in a credit squeeze similar to that currently experienced by Greece (and perhaps someday by other PIGS.)
State Debt Woes Grow Too Big to Camouflage
By MARY WILLIAMS WALSH
California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.
Complete NYTimes article here
Original American Enterprise Institute white paper here
UPDATE (3/31/10, 3:08PM):
Having had a chance to digest the original white paper, we are even more pleased than before to report that only one state – NE – has a lower debt-to-GDP % than FL (5th), GA (4th), TN (2nd), NC (3rd), TX and VA (tied for 6th).
A recent study in Science magazine indicates that states with the highest taxes also have the least happy residents. The Wall Street Journal, reporting on the study, argues that the causation is high taxes = unhappiness. While we are certainly sympathetic to that point of view, we also have to wonder if it runs vice-versa, or at least cuts both ways: unhappy people like to raise taxes.
We are… happy. And happy to report that’s true for our region as well. Here is a *totally random* sample of states’ rankings on the happiness of their residents. See below the jump for the entire story.
12. North Carolina
51. New York
Forbes reports that the nation’s professional classes continue to move to the Southeast and Texas:
Net migration, both before and after the Great Recession, according to analysis by the Praxis Strategy Group, has continued to be strongest to the predominately red states of the South and Intermountain West.
This seems true even for those seeking high-end jobs. Between 2006 and 2008, the metropolitan areas that enjoyed the fastest percentage shift toward educated and professional workers and industries included nominally “unhip” places like Indianapolis, Charlotte, N.C., Memphis, Tenn., Salt Lake City, Jacksonville, Fla., Tampa, Fla., and Kansas City, Mo.
The overall migration numbers are even more revealing. As was the case for much of the past decade, the biggest gainers continue to include cities such as San Antonio, Dallas and Houston. Rather than being oases for migrants, some oft-cited magnets such as New York, Boston, Los Angeles and Chicago have all suffered considerable loss of population to other regions over the past year.
The venture capital industry started in the Northeast and is still largely based there and on the West Coast. But given the relative attractiveness of the Southeastern and Texan economies for entrepreneurs, the future of the venture industry may be right here.