WashACE Blog

"Yet Another Attempt to Rank "Best States for Business""

Out yesterday, an entry from Development Counsellors International, A View From Corporate America: Winning Strategies in Economic Development Marketing, which surveyed executives with 3,591 large companies and 944 location advisors. They received 281 responses.

DCI asked about how executives got information about a state's business climate, what they considered important, what marketing strategies were most effective, and other factors relevant to economic development strategies. It's interesting and worth a look.

But in the "best states" competition, there's no surprise.

When asked to select the most favorable business climates among the 50 states, respondents gave Texas, North Carolina and Georgia the highest tally (in order of selection).  California, New York and Michigan were selected as the three states with the least favorable business climates.

More detail is available in Appendix B. Texas was ranked most favorable by 41 percent of respondents, North Carolina by 30 percent and Georgia by 20 percent. Florida and Tennessee tied for 4th place with 15 percent of the tally.

Washington was picked as best by 2 percent, coming in 29th in a 4-way tie. On the flip side, the state garnered 7.1 percent of the votes for worst climate, in a tie with Louisiana for 8th place. Coming in first in the worst, California grabbed 72 percent of the vote.

Does it all mean much? I don't think so, other than the strong consensus around the top states. As we've noted before, Texas, N. Carolina, Georgia, Florida and Tennessee tend to cluster near the top.

That the evaluators rank Labor (availability, quality, cost) and Overall Operating Costs as the two top  factors in business location decisions (followed by efficient transportation systems and business-friendly government) might have something to do with it.

The Healthcare Spending Squeeze

In a new WashACE Competitiveness Brief, we take an in-depth look at health care spending in the state budget.

The Healthcare Spending Squeeze , prepared by the Washington Research Council, examines the effect of rapid growth in health care spending on the state budget, noting that from 1997-99 through 2005-2007, health-related spending grew by 85.5 percent, compared with a 30.1 percent growth in non-health-related spending. Health care spending in the 2005-07 biennium amounted to one-third of all Near General Fund Spending, up 7.6 percentage points over the 1997-99 biennium.

Rising health care costs squeeze virtually all other state priorities and drive up the operating cost of state government. The brief also looks at the costs of state employee health care benefits, a growing share of compensation and extraordinarily generous when compared with the private sector.

Controlling health-related spending will play a critical role in overall budget discipline, with clear and direct implications for our state's economic competitiveness. A second brief to be released in December will examine various health care "reform" proposals to be considered by lawmakers next year.

Stalled Sales Tax Revenue - Stalled Economy

Washington CEO confirms the continued slump in retail sales tax revenues (here's the state revenue department report). WA CEO writer Bryan Corliss summarizes the bad news:

As a whole, Washington companies did $26.6 billion worth of activity subject to sales taxes in during the first quarter 2008 - a scant 1.4 percent increase over 2007's first quarter. When you compare that to previous years, the slow-down is striking. Between Q1 '05 and Q1 '06, for example, state sales tax collections jumped 10.3 percent. Between Q1 '06 and Q1 '07, they were up 7.9 percent.

For another look at the situation, consider this chart presented by WRC president Al Ralston at a recent AWB government affairs committee meeting. Hard to see signs of an uptick before the September revenue forecast.

Corliss again:

... for now, two things are clear: Washington's economic growth has largely stalled; and state and local governments will have lots of belt-tightening to do during their next budget cycles.

Agreed. Here's AWB president Don Brunell's take on the story.

More Best Places - Sort Of

Sometimes, these seem a bit silly. But here we go.

Forbes Magazine recently came out with its list of Best Cities for Young Professionals.

For the second year, Forbes.com ranked the country's 40 biggest metros on economic opportunity for up-and-coming young professionals to gauge which cities are attracting the next generation of top business talent.

They looked at where graduates from elite universities landed. Then, they were able to use a couple of other Forbes lists to shape this one.

We then combine those rankings with the locations of Forbes'    400 best big companies and     200  best small companies; these are rated by revenue and high rankings for corporate practices, as well as long- and short-term sales, earnings growth and stock market performance.

And some other stuff, including salaries, cost of living, number of young adults and their marital status.

Seattle came in No. 19.

Then there's the Forbes List of Best And Worst Cities for Unemployment Pay. Seattle did better - or should that be worse? - ranking No. 9.

Finally, for today's list wrap-up (with a h/t to Kate Riley on the Seattle Times Blog), we have Reason Magazine's list of best and worst cities for personal freedom - Riley more accurately pegs it as a nanny list. Seattle ranks as the nation's second most nannyish, behind Chicago. Do the young professionals know this?

MORE Law school deans have their own thoughts about lists and such.

Civil Rights and Union Membership

Richard Davis draws my attention this morning to an op-ed in the San Francisco Chronicle proposing that union membership be added to the federal Civil Rights Act as a protected class in employment.  These "six little words" -- prohibiting discrimination in employment "on the basis of union membership" -- would, the author proposes, allow workers to "defend themselves" against "union-busting thugs."  How?  By filing lawsuits, of course.

But is the proposal -- which if enacted, might go by its short title, the "Labor Lawyers' Full Employment Act" -- entirely without merit?  Query whether the modest addition of just another ten words -- "or the refusal to join or financially support a union" would make it a fair compromise?

(Cross-posted at Olympia Business Watch)

Ailing State Budgets in the News

I'm a day late with this (and the states are many dollars short).

Yesterday's Wall Street Journal ran a front-page story with a tells-it-all headline, States Slammed by Tax Shortfalls. It may be the first time that the National Conference of State Legislatures annual June budget update received play like that from the WSJ. Announcing a $40 billion shortfall will get you that kind of attention.

The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.

That gap -- identified Wednesday in a survey by the National Conference of State Legislatures -- is more than triple the size of the previous year's. It is the result of broad economic weakness at the state and local levels that could cause pain throughout this year and into 2010.

Washingtonians who saw the story and the US map highlighting state budget conditions may have been comforted to see that our state was not identified among the states experiencing a shortfall. We shouldn't get too comfortable. As most of us acknowledge, our state faces a $2.7 billion shortfall in the next biennium.

As Chris Mulick writes on his Tri-Cities Herald blog, other states are (gasp!) cutting spending. He links to a Stateline.org story that also drew from the NCSL update.

I'd like to hear more about what officials here plan to do. January is not that far off.

An Odd Time To Bring Up Income Taxes

Although, for our friends at the Economic Opportunity Institute, there may be no bad times to talk about taxing the rich. Marilyn Watkins, acting EOI executive director, argues the case in this Everett Herald column that did double-duty as a PI op-ed today. After acknowledging the state's coming budget shortfall, she offers a modest solution to the problem.

Here are small steps next year's Legislature could take that would make a big difference. It could institute a new "high incomes tax" that exempts the first $200,000 of family income, starts at 3 percent and jumps to 5 percent on incomes over $1 million. Couple that with a reduction in the property tax, and most families would see their tax bills decline. Only four percent would pay the new tax, and it would be those whose incomes grew fastest and for whom federal taxes fell the most in the past decade.

Revenue from the new tax could be dedicated to our highest priorities: education and health care.

Well, our highest priorities - education and health care - also happen to be where most of the state budget currently is spent. So she wants a new dedicated tax to go to traditional general fund programs. Not much targeting there.

The larger problem, which never seems to bother EOI, is that the "high incomes" tax introduces considerable volatililty to our tax system, particularly when you cut the remarkably stable, if unpopular property tax. Even the Tax Structure Study Committee chaired by Bill Gates, Sr., not a group hostile to income taxes, concluded that the

Graduated personal income tax is more volatile than sales tax
or property tax.  It is also more volatile than a flat rate personal income tax. 

There's  history of such shenanigans with EOI, a group that earlier championed the latte tax in Seattle (rejected by the voters), paid family leave (adopted and unfunded by the Legislature), the family and business punishing estate tax, and touted a cigarette tax hike to fund health care (declining revenue base mismatched with rising health care costs).

The common element unifying these schemes: promises of a pain-free way to substantially increase public spending. The proposed revenue hikes never cover the costs of expanded entitlements.

Paul Guppy, with the Washington Policy Center, writes about the income tax scheme here, pointing out that the federal income tax originally appled to only the richest 2 percent of the population. We know how that worked out.

And you just want to be careful with tax hikes proposed by folks who treat lattes as luxury items indulged in by the rich.

A Regional Look at Economic Trends from BC

Yesterday Don Brunell sent me a copy of a data-rich presentation by Jock Finlayson, executive vice president, policy, of the Business Council of British Columbia (like a state chamber of commerce). Finlayson made his presentation during a panel discussion that Don moderated at this year's Pacific NorthWest Economic Region (PNWER)  conference in Vancouver, BC.

A couple of points stand out. Overall, the region  - the US Pacific Northwest (Alaska, Idaho, Montana, Oregon and Washington) and Western Canada (Alberta, British Columbia and Yukon) - has shown stronger population and GDP growth than the rest of Canada and the US. PNWER states and provinces remain heavily trade dependent, with markedly increasing exports, with China as the dominant trading partner.

Although there are clear differences among the states and provinces that make regional identity sometimes difficult to grasp, common themes emerge. In particular, Finlayson's list of "medium term economic development issues" in BC could have been the focus of any conference on Washington state competitiveness in the last five years:

• Labor scarcity, skill shortages
  
• Investing in infrastructure (esp. transportation, energy, communications)
  
• Understanding both urban and regional development opportunities
• Climate change

Good stuff. Click through the slides and see for yourself.

Olympian on Kreidler's Full Coverage Health Plan

"Commissioner's catastrophic insurance proposal merits debate"  You'll have to read the editorial to discover what the Olympian thinks is the catastrophe -- the insurance, or the proposal.

Bellevue Makes Money Magazine Best Places List

Another "best places" list: Money Magazine ranks the "best places to live." Surprisingly, Bellevue is the only Washington city to crack the top 100, coming in at 42nd.

Texas took top honors with 13 cities making the list. New Jersey came in second with 9. Money is candid about the criteria, and  the website allows you to slice-and-dice among cities, states, and data with abandon.

As I've said before, these things are always a bit gimmicky. But the real benefit that comes from them can be seen in this report from No. 10 Fishers, Indiana. 

Town Council President Scott Faultless, in a news conference Monday that included business owners, community leaders and local government officials, was obviously pleased.

"We finally cracked the top 10 list," he said. "This is great recognition to everyone in the community. For the schools, volunteers, service organizations, parks and recreation, Chamber of Commerce and the rest of the community, this is widespread recognition."

(And how cool is it to have a "Faultless" town council president?)

It's better to be on the list than off it. Congratulations, Bellevue!