The Tax Foundation in its 2013 State Business Tax Climate Index tells us something most of already know: California has high taxes. Really high.
In its state-by-state rankings, California checks in at 48, duking it out with New Jersey and New York at the bottom of the barrel. Breaking out the ranking in its component parts, California comes in at 45 for corporate taxes and 49 for individual tax rate.
The hits keep on coming. The California Taxpayers Association reports that California has the highest statewide sales tax in the nation and the country’s second-highest gasoline tax.
So it doesn’t take an economic development wizard to figure out that California’s pain could be Arizona’s gain. After all, while our governor and Legislature have been reforming Arizona’s tax code to make it friendlier to business, California has been going in the opposite direction.
As the Arizona Commerce Authority made clear last week in a presentation by ACA CEO Sandra Watson before the House Committee on Commerce, our state’s job creation authority is well aware that our proximity to California and our fertile jobs environment can drive job growth here at home.
But as Watson said in her testimony, “the opportunity in California goes way beyond a tax discussion.” The state’s California strategy is about opening doors to the world’s ninth largest economy and taking advantage of the opportunities our nearness to that market allows.
The ACA has set up offices in Santa Clara and Santa Monica where it has two executives working full-time as market representatives, spreading the word about what Arizona has to offer for firms exploring expansion, while also helping Arizona take advantage of the benefits our proximity to California has to offer, such as improved supply chain access.
As Chamber board member Pete Bolton of Newmark Grubb Knight Frank said at the same hearing, the tremendous growth in warehousing seen in the West Valley can be attributed to logistics. The area, according to Bolton is “zoned properly and that’s where the trucks come from. You get on I-8 and mostly I-10, it is a very serious line of trucks coming from the ports. The ports in Los Angeles distribute a huge amount of the products that we all consume.”
Sharing a border with California is advantageous to our other neighbors as well. Currently, Texas and Mexico are tied for the 14th largest economies in the world and they, too, enjoy the access to California that Arizona provides. Arizona is well positioned to easily ship goods to market, while companies looking to hire California talent can set up shop in Arizona and have easy access to that talent pool.
As Watson pointed out, “Businesses generally don’t pay attention to a state border when they’re looking at access to markets. They’re going to ship their goods in and out, [and] they’re going to access the talent in those markets.”
Arizona is making tremendous strides in emerging technology and aerospace and defense. Having a flag planted in California, home to venture capital firms looking to invest in the next big thing, means opening doors for Arizona firms looking to be that next big thing. Beyond just access to capital, locating in Arizona means Arizona companies can enjoy the benefits of California without the high cost of doing business next door.
But the ACA’s strategy in California is more than just one state versus another or one region’s economic dynamism versus another’s. This is about global competition. By hanging a shingle in California, the ACA has access to the many multinational firms that call California home and is more easily able to interface with them to help Arizona companies reach customers around the world, especially since the world’s fastest-growing economies all have consulate offices in California.
Currently, the ACA has been in touch with over 200 potential leads and partners through their offices in California. Of those leads, more than 40 are truly qualified and are currently being pursued. The ACA is hopeful that more of those leads will become solid partnerships and that Arizona will continue to grow our presence within California. Greater Phoenix Economic Council President and CEO Barry Broome nailed it when he said, “California’s economy and Arizona’s economy are intertwined.”
But I close with a note of caution. For all that Arizona is doing right and California is doing wrong, let’s remember that the Golden State is our next door neighbor. While we’ve got the manicured lawn, our neighbor’s yard is overgrown with weeds and there’s a car up on blocks. It’s an eyesore and bringing down the value of the whole block.
The U.S. Chamber of Commerce is so concerned about the direction California’s taken that it’s launched the California Comeback, a policy initiative designed to help advance California’s recovery. A state with as much to offer as California is too important not only to Arizona but to the entire country to allow it to fail.
Admittedly, Arizona has much to gain by California’s struggles; we’re an escape hatch from their high taxes and stiff regulations. But we have so much more to gain when California makes a full recovery.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce and Industry