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May 15

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California’s Self-Inflicted Last-Place Position Continues for an Eighth Straight Year

CEO magazine released its eighth annual survey of the best and worst states in which to do business. California managed to be rated dead last in the entire country for the eighth year in a row. There is only one reason for this. California’s taxation and regulation score is by far the worse in the country. California rankings in workforce quality and quality of living would (by themselves) support a much higher ranking.

The rankings are highly correlated with in-migration and out-migration of population. California lost the second largest number of people. New York, ranked 49th in the country overall, lost the greatest number of people.

Even though it has remained in last place, the distance from those that might take away the dubious honor of being last has grown. Consequently, the trend indication for California is negative, as if one could get worse than last place. The article describes California as follows:

California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years. Its unemployment rate, at 10.9 percent, is higher than every other state except Nevada and Rhode Island. With 12 percent of America’s population, California has one-third of the nation’s welfare recipients. Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows. According to Spectrum Locations Consultants, 254 California companies moved some or all of their work and jobs out of state in 2011, an increase of 26 percent over the previous year and five times as many as in 2009.”

The study concludes that the right-to-work issue is important, as follows:

Most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location. Several economists, most notably Ohio State’s Richard Vedder and Harvard’s Robert Barro, have found that the economies in R-to-W areas grow faster than other states, have higher employment and attract more inward migration.”

The rankings show that it is possible to alter one’s position. Louisiana is the poster child for improvement. The study reports:

Louisiana is the Cinderella of business improvement. In 2006, it ranked 47th—where Massachusetts is today. And Katrina didn’t help matters. But since then it has climbed steadily up the ranks so that it is now 13th—up from 27th last year—the biggest leap in a single year of any state. “In Louisiana there is an active government push to reduce taxes and regulation and to encourage new industry to relocate to the state,” commented one chairman. “This was valuable for one of our companies, which decided to make the state our headquarters.” Other chiefs point to the big strides the state has made in workforce training and economic incentives. Its economic development office is also aggressive in luring disaffected businesses from the Northeast and California.”

The CEO survey provided CEO comments. Most states had some positive comments, but not California. We summarize the CEO comments and other information from the study in this article.

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/05/californias-self-inflicted-last-place-position-continues-for-an-eighth-straight-year/

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