Readers of the late Marketplace of Ideas column and blog know that I kept regular watch over the various state business climate comparisons.
That is something one would expect a regional business magazine to do. My following the state’s business climate, however, dates much farther back than my arrival at Marketplace in 1994. Ten years earlier, I wrote about the state’s business climate and perceptions thereof for a term paper in my introduction to state government course at the University of Wisconsin. (Foreshadowing, perhaps?)
In the nearly two decades since then, state business climate comparisons have become what one might call objective subjective science. Most of the comparisons use objective rankings, but which rankings are important, and to what extent, is of course a subjective decision. Every ranking I have ever seen uses taxes (personal and corporate, plus property and sales taxes, and exemptions to all), but other factors also are included depending on the survey, including per capita gross domestic product or income growth, business startups, unemployment rates, quality of labor force (including education thereof), regulatory and legal burden, percentage of unionized workers, worker compensation insurance costs, and quality of life comparisons.
In the 10 years since I started professionally following business climate comparisons, two things became apparent: (1) Wisconsin, with rare exception, ranked in the bottom fourth of business climate comparisons regardless of who conducted the comparison, and (2) said comparisons were always criticized by either Democratic politicians or their fifth column in the media or blogosphere under the rationale that low rankings were criticisms and therefore invalid.
One example of truism number one was last October’s ranking by Forbes magazine, which placed Wisconsin 43rd. Forbes’ comparison used two other comparisons, the Pollina Corporate Real Estate site selection survey, which ranked Wisconsin 46th, and the Tax Foundation’s State Business Climate Index, which ranked Wisconsin 42nd. Another was Chief Executive magazine’s survey of “More than 500 CEOs” who “considered a wide range of criteria, from taxation and regulation to workforce quality and living environment,” in which Wisconsin came out 41st in 2010.
Earlier this month, Chief Executive released its 2011 comparison, in which Wisconsin jumped from 41st to 24th, the highest positive jump of any state. Wisconsin is mid-pack in the Midwest, below Indiana (sixth, up from 16th), Iowa (22nd, down from 17th) and Missouri (23rd, up from 26th), but above Minnesota (29th, up from 31st), Ohio (41st, up from 43rd), Michigan (46th, up from 48th) and Illinois (48th, down from 45th). Texas ranks best, and California ranks worst.
This is great news that, however, begs this question: How did Wisconsin jump that high?
First, Chief Executive’s methodology:
We asked CEOs to consider three criteria: Taxes & Regulation, Workforce Quality and Living Environment. In most companies, the CEO makes the ultimate decisions about where to locate and/or expand the business, making his or her perceptions of each state critically important.556 CEOs completed our detailed survey, which was conducted between Jan. 14 and Feb. 1, 2011. They were each asked to provide their selections for the 4 best states for doing business and the 4 worst states for doing business. …Chief Executive also asked CEOs to provide ratings for the states that they ranked, as well as other states for which they had opinions, along 3 key criteria: 1) taxes and regulations, 2) workforce quality and 3) living environment. They were asked to rate the states on these criteria using a 1-10 scale, with 10 = outstanding, 5= average and 1= poor.
Wisconsin ranked 33rd in taxation and regulation, 11th in workforce quality, 20th in “living environment,” 33rd in 2005–09 state gross domestic product growth (2.72 percent less than the national average), 21st in unemployment rate (2.2 percent better than the national average), 26th in domestic net migration rate (people moving in vs. people moving out), 19th in state government debt per resident ($3,707), and 10th highest in state and local tax burden.
The Chief Executive story doesn’t talk much about Wisconsin other than to note its 17-place improvement. More generally, the story says:
Business leaders graded the states on a variety of categories grouped under taxation and regulation, workforce quality and living environment. “Do not overtax business,” offered one CEO. “Make sure your tax scheme does not drive business to another state. Have a regulatory environment and regulators that encourage good business—not one that punishes businesses for minor infractions. Good employment laws help too. Let companies decide what benefits and terms will attract and keep the quality of employee they need. Rules that make it hard, if not impossible, to separate from a non-productive employee make companies fearful to hire or locate in a state.”Not surprisingly, states with punitive tax and regulatory regimes are punished with lower rankings, and this can offset even positive scores on quality of living environment. While state incentives are always welcome, what CEOs often seek are areas with consistent policies and regulations that allow them to plan, as well as intangible factors such as a state’s overall attitude toward business and the work ethic of its population.This is one reason Texas has consistently held the No. 1 position since 2005. It gets strong marks in all areas important for business creation, and has the second-lowest taxes in the nation. The state has created more jobs than any other—about 250,000 last year. Not surprisingly, it also enjoys the highest inward net migration rate of any state.
Interestingly, that first excerpted paragraph would not appear to describe Wisconsin. “… regulators that encourage good business” instead of punishing “businesses for minor infractions”? Three letters: DNR. If “good employment laws” include the ability for a worker to decide whether or not to join a union, well, that doesn’t describe Wisconsin either. Those who claim that Wisconsin’s corporate income taxes aren’t that high usually ignore Wisconsin’s high personal income taxes, and the owners of S corporations and other corporate bodies are assessed the corporate income taxes that are assessed on C corporations.
There is one difference between Chief Executive’s 2010 comparison and its 2011 comparison. That difference took place between the 2010 and 2011 surveys, on Nov. 2:
New Jersey Gov. Chris Christie, who confronts one of the nation’s worst pension underfunding problems, is using the prospect of insolvency to push for significant pension reductions. In his move to end public sector collective bargaining to get control of the state’s budget, Wisconsin’s Scott Walker made Chris Christie appear reasonable. Indiana Governor Mitch Daniels slowed state government payrolls to the point where Indiana has the nation’s fewest state employees per capita. In addition, while at least 35 states raised taxes during the recession, Indiana cut them.These are some of the actions that encourage business leaders. As another CEO respondent remarked, “We need some political backbone to control spending, address out-of-control debts, and use common sense on environmental and other governmental regulations. Quit demonizing businesses. Who do they think provide real jobs?”
In Wisconsin before Nov. 2, the answer to that last question might as well have been: Why, public sector employee unions, of course! While that may indeed be the correct answer in the People’s Republic of Madison, it is not in the rest of Wisconsin. But voters Nov. 2 noticed the state’s poor economy, and may have actually noticed the fact that per capita income growth has trailed the national average since the late 1970s, and voted for change.
Some change has occurred. WISN radio morning host Jay Weber asked his listeners after the Nov. 2 election what they wanted the new governor and Legislature to do, and got a lengthy list. The items on the list that pertain to business climate include (accomplishments in boldface):
5. Repeal combined reporting and pass a package of pro-business legislation.(done)7. Kill off the Regional Transit Authority Board. Don’t create any boards that have taxing authority. (soon)8. Bring back TABOR or some taxpayer bill of rights.9. End the minimum markup law14. Allow school districts to negotiate for health insurance on the free market. (done, as part of collective bargaining changes)15. Create a rainy day fund from excess or unexpected revenues that pour into the state coffers during boom times. (only talk of this so far, so far as I know)16. Eliminate the state income tax on retiree pensions to help keep them in Wisconsin.17. Freeze the property taxes of retirees to keep retirees in Wisconsin.18. Move on reasonable Tort reform. (done, but we could go further in the future)20. Ten percent across the board pay cuts for all state employees. (lets call this done, as part of collective bargaining changes)24. End early retirement for public employees, so they can no longer live off of a state pension longer than they ever worked at the job.25. Change the state law to make MATC and other tech school boards elected positions and accountable to the taxpayers. (Lazich, Darling are on it..vote not pending, though)26. Reinstitute the QEO for teacher pay. (Again, call it done, Walker’s fixes are better)41. Review and repeal the so-called ‘smart growth’ environmental requirements and restrictions, which have hit the point of absurdity.
That is not a bad list for merely four months of work (apparently enough CEOs have noticed what has been done, or at least a change in attitude from Madison, to make 17 places of difference) , but it’s not nearly enough. For that matter, going from the bottom quarter to mid-pack isn’t enough. We do not have lower income taxes, we still have too many employees at all levels of government (fewest government employees per capita — now there’s a goal worth pursuing), we still have too much spending and too much debt in all levels of government, and we have not defanged the regulators. Changing the Department of Commerce to the Wisconsin Economic Development Corp. may help.
Walker tweeted that his goal is for the state to have the nation’s best business climate, which will not happen as long as we have anti-business Democrats in this state. (And as long as the state Democratic Party remains in thrall to the public employee unions, the last pro-business Democrats in Wisconsin will remain Democrat-turned-independent Rep. Bob Ziegelbauer, the Manitowoc County executive, and before him Gov. Patrick Lucey, who signed into law the machinery and equipment property tax exemption.)
The aforementioned part about “consistent policies and regulations that allows them to plan” poses a future problem for Wisconsin. The right people are in charge on the Capitol Square now, but at some point Democrats will recapture state government. The last time that happened, we got $2 billion in tax increases. Merely repealing past tax increases is an incomplete answer; tax increases must be largely prevented from happening in the future, which is why the inclusion of a Taxpayer Bill of Rights-like mechanism in the state Constitution is imperative.
Improving one state business climate ranking is one step. Many, many, many more steps are needed.