Mike Sunnucks’s piece, “Apple’s Austin move shows Arizona’s obstacles,” should be the starting point on how Arizona needs to approach its future efforts on job creation.
Texas is our target, not California.
California has lots to offer, like its impressive network of public and private universities and great natural beauty. But the Golden State has unfortunately taken on the reputation of a state that is openly hostile to business.
According to a Milken Institute report, California lost nearly 80,000 manufacturing jobs due to onerous regulations and high taxes during a four-year period.
The hemorrhaging is so pronounced that one relocation consultant has even coined a new term: California Disinvestment Events.
So while we should continue to roll out the red carpet for companies looking to leave California, that state should not earn all of our attention. We need to figure out how to make a compelling case that we are better than Texas. Texas is turning into the Novak Djokovic of states, with the ability to defeat anyone when it comes to battles for capital-intensive jobs.
There are lots of prestigious rankings of the economic desirability of the 50 states. CEO Magazine, Forbes, Tax Foundation, ALEC’s Rich States, Poor States all offer their own looks at how states stack up against one another. They all contain useful information and Arizona should desire a high ranking in each.
But, let’s face it: the perception right now is that Texas is the best state when it comes to being friendly to employers.
Texas will add four congressional seats in 2012 – no other state will add more than two and Arizona will add a single new seat. The second most populous state in the country boasts an economy that is nearly the size of Russia’s. (Arizona by contrast has a GDP of about $256 billion, which is comparable to that of Thailand.)
Since 2009, a whopping 40 percent of new jobs created in the United States were created in Texas.
Texas boasts pretty good weather, excellent geography including access to sea ports and an international border with Mexico and, as Sunnucks points out, a favorable business climate, including no personal income tax and a pretty hip capital in Austin. Texas also has a number of top-notch universities and a diverse, young and capable workforce.
Here’s the good news: we are well on our way to becoming a better state for business than the reigning champs.
For starters, we made more progress than Texas during the past couple of years in advancing the state’s competitiveness.
Last year’s competitiveness package – which I submit was the most important tax reform and economic development piece of legislation passed in the 50 states last year – reset the game for Arizona thanks to the leadership of Gov. Jan Brewer and a determined Legislature.
The tax reform pieces are substantial. In a phased-in approach, the legislation reduces our corporate taxes by 30 percent to a hair under five percent. Business property taxes are reduced substantially as well, as the assessment ratio continues its decline from 25 percent less than 10 years ago to 18 percent by 2016.
For manufacturers who export most of their product, Arizona’s tax treatment is extraordinarily favorable, putting us in the same company as 21 other states that offer or will soon offer a 100 percent sales factor apportionment formula. This means companies are allowed to eliminate their payroll and property presence in the state when calculating their tax liability and instead factor in only their sales presence in the state.
The Quality Jobs Program and its tax credit of up to $9,000 for each qualifying new job and the further reduction of the percentage of scheduled depreciated value that is used to determine tax liability were other positive elements of the package.
The establishment of the Arizona Commerce Authority and its economic development tools might have been the icing on the cake. The tools are working. Consider the 400 new jobs that UnitedHealth Group is bringing to Tucson with the help of the ACA’s deal-closing fund.
This year we have made further progress in providing those in the service industry that are selling most of their services out of state a similar sales factor treatment as manufacturers, thanks to the passage of Senate Bill 1046.
All of this plus an aggressive push to tamp down new regulations has resulted in a powerful job creation cocktail in just a few years.
I am hopeful that we will soon achieve significant improvements in several areas where we are not as competitive as we need to be. Most importantly, we need to improve our capital gains profile. Texas does not even need to worry about this given that it has no income tax and thus no capital gains tax.
We also need to improve our attraction for startups by going to the federal and prevailing rate among the states when it comes to net operating losses. Current state law allows business to carry net operating losses forward up to five years against future profits. Arizona needs to align its carry forward policy with the feds and go to 20 years.
There are some areas where we’ll beat Texas every time. We’ve got an entrepreneurial spirit that can’t be beat, boasting the highest number of innovators starting new businesses according to a recent Ewing Marion Kauffman Foundation report.
And I doubt we would ever have to worry about Texas when it comes to Spring Training. Houston in August gives a sense of why a dry heat beats a wet one. The quality of life here is second to none.
An ongoing self assessment of how we’re doing compared to other states is worthwhile, but Texas is the current number 1. But with the right policy moves, our state is poised to be the future champ.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce and Industry