The eighth annual survey of 650 business leaders by ChiefExecutive.net found California ranked as the worst state for business. The ranking is due to a mix of high taxes and overly stringent regulations.
The unemployment rate proves this out as the state has an official rate of unemployment at 11.0% behind only Nevada and Rhode Island. The more accurate U-6 unemployment rate for California is 20.8% behind only Nevada at 22.3% vs. 14.5% for the nation as a whole. Los Angeles County is at 22.7% while the Coachella Valley hovers around 25%.
Spectrum Locations Consultants stated that 254 California companies moved some if not all of their business operations out of the state in 2011, a 26% increase from the previous year. Since the Great Recession started, more than 1,000 businesses have left the state. J.P. Donlan, editor-in-chief of chiefexecutive.net said that “California seems to be doing everything possible to drive business from the state.”
The other worst states in order are New York, Illinois, Massachusetts and Michigan. The best places for business? Texas, Florida, North Carolina, Tennessee and Indiana. Why? Tax incentives, a more relaxed regulatory environment and less expensive but adequately trained workers.
Most Silicon Valley CEOs state that they will not expand in the state because of its high taxes and burdensome regulation. As examples, Intel moved much of their operations to Nevada while Google have expanded in Utah, Arizona and Oregon. One CEO in the survey on California stated “…its regulation is crazy…if you aren’t an elitist, [there is] no room for middle or working classes. If it were not for the climate, they would have lost half their population.”
A producer of high-end buttons to the top designers in the world was forced to close down operations just south of Los Angeles when the state used his expansion plans as the justification for not renewing his business license. The State’s problem with his business was that he uses sulfuric acid in the creation of the buttons, a standard practice. While he disposed of the acid in conformity with the State’s stringent regulations, the only way to stay in California would have been to adopt a production technology that did not use sulfuric acid while increasing his business costs ten-fold. As a result, he moved operations to China, cut his costs by 60%, grew his business as originally intended and added 4,000 jobs to the Chinese economy.
In a down labor market, it is typical to see an increase in entrepreneurship as highly skilled unemployed workers strike out on their own rather than taking lower paying jobs. Kauffman Foundation has found that business creation nationally is down 6% from last year and atypically down over the last five years. This is critical to an economic recovery because young and growing firms represent 40% of new hiring.
Which place in the country have been the best for new businesses of late? Metropolitan Los Angeles. Why? My guess is that it is related to a U-6 unemployment rate of 22.7%. Other top spots for entrepreneurship are Silicon Valley, Austin and Boston.
From a tax standpoint, Nebraska is the best place for a start-up business followed closely by Louisiana, Ohio, Wisconsin and Oklahoma.
The solution? Without help from Sacramento, it takes the hard work of many to try and overcome such odds. The Coachella Valley Economic Partnership, Coachella Valley Enterprise Zone, many city governments, other business development entities and locals unwilling or unable to move to better business climates are all working particularly hard to counteract the actions of Sacramento and the state.
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