Maggie's Farm

The June issue of Chief Executive magazine confirms that while my residence in California has wonderful climate and well-educated people, otherwise I live in a state ranked by 651 chief executives across the country as the worst state to do business.

How is it that the nation’s most populous state at 37 million, one that is the world’s eighth-largest economy and the country’s richest and most diverse agricultural producer, a state that had the fastest growth rate in the 1950s and 1960s during the tenures of Democratic Governor Pat Brown and Republican Governors Earl Warren and Ronald Reagan, should become the Venezuela of North America?

Californians pay among the highest income and sales taxes in the nation, the former exceeding 10 percent in the top brackets. Unemployment statewide is over 12.2 percent, higher than the national average. State politics seems consumed with how to divide a shrinking pie rather than how to expand it. Against national trend, union density is climbing from 16.1 percent of workers in 1998 to 17.8 percent in 2002. Organized labor has more political influence in California than in most other states. In addition, unfunded pension and health care liabilities for state workers top $500 billion and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade. When state employees reach critical mass, they tend to become a permanent lobby for continual growth in government.

No surprise, the other states at the bottom of the barrel for governments deemed unfriendly to business: New York, Michigan, New Jersey, Massachusetts.  The states whose business friendliness has declined most in the past five years: Illinois, Ohio, Minnesota, Wisconsin, New Jersey. The states most friendly toward business: Texas, North Carolina, Tennessee, Virginia, Nevada.

With 2010 census reassignment of Congressional seats coming up, there are consequences:

Little wonder then that while Texas gained over 848,000 net new residents in the last 10 years, according to the Census  Bureau, California lost 1.5 million. New York State’s net loss exceeded 1.6 million - the highest of any state. High-tax, big- government New Jersey ranked fourth, with a net loss of almost 460,000, enough to drop it from 10th to 11th place in population.

Good.

But not so good for taxpayers in the states unfriendly to business.

The political elites in the states that dismiss out-migration trends overlook the radical demographic adjustment underway. As higher-income earners leave, they are more often replaced by those with lower incomes and lower skills, many needing public assistance. Gone too are the entrepreneurs and risk-takers, off seeking regions where their job creating abilities are rewarded.

Another more daunting reality is in store. The so-called de-leveraging of America hasn’t reached government. U.S. cities and states have issued over $2 trillion in new debt since 2008, with another $1 trillion scheduled this year. The problem is that state revenues in real terms may not reach 2008 levels until late in 2012, according to John Thomasian of the National Governors Association Center for Best Practices. As he emphasizes in his paper, “The Big Reset: State Government  after the Great Recession,” states will have to rethink and redesign government in terms of what is essential and what can be made more efficient if their citizens are to have much of a future.

Investors Business Daily adds: