The Economic Tide is Shifting - Will America Sink or Swim?

The way business is conducted in this century is significantly different than it has been in the past. The question is: How is American business and government adapting to these new economic realities? The fifth annual Pollina Corporate Top 10 Pro-Business States study finds that the federal government and many state governments continue to offer little or no assistance to business to promote job growth. In recent years, we have lost millions of the nation’s manufacturing, technology and high-wage service jobs, and this trend is escalating. 57% of those re-employed receive lower wages, with one-third earning at least 20% less. Americans are already living at a standard that we can no longer afford.

There has been a shift in the balance of power in the world away from the U.S. and Europe to the East, as China and India’s rapidly expanding economies evolve. These two countries are not complimentary economies, growing in unison with the U.S., but rather have grown at the expense of the U.S. economy. For Americans, this will mean a far different future, one in which our standard of living will be diminished and our political and military dominance challenged. There are many forces contributing to this shift in power, fostered by many federal and state political leaders. It is likely that America will not see a single catastrophic economic earthquake, but rather a series of smaller tremors. The underlying causes of these tremors are today eroding the economy by weakening the middle class and small and mid-sized corporations. Historically, the middle class and these corporations together have been the bedrock of the American economy.

The federal budget deficit, trade deficits, low interest rates, family debt and inadequate educational systems are and will continue to have a negative impact on the U.S. economic, political and military strength in the 21st Century. We are deluding ourselves if we believe that we have not been impacted already, both socially and economically, and that our government, along with American ingenuity and tenacity, will correct for any losses.

This report details how many state governments have the resources, but not the will, to keep Americans employed in high paying 21st Century jobs. After 27 year’s experience representing corporate clients in selecting sites internationally and five years of detailed examination of all states’ economic development efforts, Pollina Corporate has observed that current economic development trends are not promising. Today, manufacturing jobs in the U.S. continue a rapid exodus offshore, and professional, scientific, technical service and corporate management jobs are leaving the U.S. at a rate that is much greater than the nation’s ability to replace them. Certainly these trends are not in keeping with a nation that would like to consider itself a technological leader. Federal efforts are very disappointing, as is true for far too many states. There are some bright spots, represented by those states that really understand the national, and especially the international, competition. These states are making the effort to keep their existing jobs and to attract new employers. Our Top 10 Pro-Business States study highlights those states that “get it.”

POLLINA CORPORATE REAL ESTATE, INC. TOP 10 PRO-BUSINESS STATES 2008
1st North Carolina
2nd Florida
3rd Virginia
4th South Carolina
5th Wyoming
6th South Dakota
7th Georgia
8th Alabama
9th Utah
10th Kansas

Picking the Best Corporate Location
The Pollina Corporate Top 10 Pro-Business States study examines 29 factors relative to states’ efforts to be pro-business, and is the most comprehensive examination of states available. It has also been recognized as the most impartial. The study is limited to factors over which state government has control. The Top 10 list (Figure 1) reflects state leadership that truly understands the importance of producing the best job opportunities available for their constituents.

The Top 10 Pro-Business selection process is based on a comprehensive two-stage approach. Stage I, Labor, Taxes and Other Factors is based on 15 factors, including taxes, human resources, right-to-work legislation, energy costs, infrastructure spending, workers’ compensation legislation and jobs lost or gained (Appendix Figures 3 – 17). These 15 factors, all of which are controlled by state government, comprise 67% of the total possible score. States are also subjected to a Stage II Incentives and State Economic Development Agency Factors evaluation, which examined 14 additional state government-controlled factors, including incentive programs and state economic development department evaluations (Figure 18).

State financial incentives are often confusing and difficult for most companies to access. Most industry experts agree that most companies, when relocating, expanding or consolidating facilities in the U.S., receive only 10 to 15% of the incentives that are potentially available to them. This is the case even among the largest corporations. Companies must know what to ask for, whether they will qualify for programs and what the true value of programs are. It is a negotiation process, and those who know the programs, the states and how to extract the assistance receive the most benefits. Based on our extensive experience in negotiating incentives throughout the nation and our research for this study, we can say that there is a considerable difference among states in this area. Incentives can include tax breaks, job training, free land, subsidized rent, free infrastructure, forgivable loans and numerous other creative forms of assistance.

Winners
North Carolina received the greatest number of points of all states and is our number one ranked state. All 10 top-ranked states should be held up as models for the other 40 states and the federal government.

The clear winners for both Stage I and II are North Carolina and South Carolina, which ranked consistently high in both sets of factors (Figure 24). These states in particular should be commended for creating an extremely balanced environment in which their businesses can thrive. While these two states do not need extensive incentive programs to compete for business, they still have managed to develop some of the best programs in the country. These states are prime examples of how economic development should be done.

Eight states, Wyoming, Utah, South Dakota, Florida, Nevada, Oregon, Idaho and Maryland, ranked among the top 10 states for Stage I, Labor, Taxes, and Other Cost Factors, but did not make the Top 10 relative to Stage II, Incentives and Economic Development Agency Factors (Figure 24). With improvements in Stage II factors, these states could substantially improve their ability to attract and retain high-quality and high paying jobs. Wyoming, Utah, South Dakota and Florida had overall scores high enough to place them among the Top 10 Pro-Business States for 2008. Only Kansas, Virginia, Alabama, and Georgia ranked so high in terms of Stage II that they overcame a non-top 10 ranking in terms of Stage I, and therefore made the Top 10.

Contenders
Figure 25 shows the Top 10 Pro-Business States and the top 15 contenders. Michigan, Oklahoma, Washington and Nebraska ranked among the nation’s best relative to Stage II, Incentives and State Economic Development Agency Factors, but did not rank high enough in terms of Stage I, Labor, Taxes, and Other Factors, to make the Top 10 Pro-Business list. Some of the states that had overall scores high enough to make the 11-15 ranking are strong contenders to make the Top 10 Pro-Business list for 2009 (Figure 19).

The Bottom 25
Those states that did not make it into the Top 25 (Figure 19 and 26) should evaluate their economic development capabilities. These bottom-ranked states need to have their state political leaders give serious consideration to rethinking their efforts to attract and maintain jobs. Keeping America employed in good, high-paying jobs will become increasingly more difficult in the future. Increased competition is certain to occur as other nations continue to make rapid strides in developing their economies, often at the expense of U.S. jobs. Among these bottom-ranked states are some that have such weak or non-existent programs, or are so inept in their procedures, that they are pushing their best jobs out of their states. Fortunately for the bottom 25 states, there are many strong regional and community economic development organizations. Often these organizations are forced to carry the burden of attracting and maintaining jobs with little or no assistance from state government.

The South
The southeast, from Alabama to Virginia (Figure 26), was the leader in terms of number of pro-business states, with six of the Top 10. All of these have been on the list (Figure 20) for the last five years, except Florida, which did not make the Top 10 in 2004. It would appear that most of the southeastern states understand the importance of creating a pro-business/pro-jobs environment. Grouped tightly geographically, it would also appear that, in order to compete with each other, these states have developed the systems necessary to provide a pro-business environment

The North
Not one northeastern state made the Top 10 Pro-Business States list this year. In general, the northern states, with the exception of Maryland (17th), Delaware (#21) and Connecticut (#24), showed relatively poorly (less than top 20). This poor showing for New England is especially troublesome considering the region’s major loss of jobs experienced during the latter half of the 20th Century. These states’ legislators clearly need to make a major effort if they are to provide a stronger economy and more and better employment opportunities for their constituents.

The West
In the West, Wyoming (5th), South Dakota (6th), Utah (9th) and Kansas (10th) best represent their region. Wyoming, Utah, Nevada, Oregon, Idaho and South Dakota, while ranking very high in Stage I, Labor, Taxes & Other Factors (Figure 21), did not do very well in terms of Stage II, Incentives and Economic Agency Factors (Figure 22). Utah has managed to remain on the Top 10 list for a second year in a row, but has slid slightly from last year’s 5th place to 9th in 2008. Both South Dakota (6th) and Wyoming (5th) have been regulars on the Top-10 list since 2004 (Figure 20). Kansas, who fell off the Top-10 in 2007, is back on in 10th place in 2008