State business climate has a break in clouds

Washington ranks eighth among all states for its pro-business policies, and best among all Western states except for Wyoming, according to a new study by a Chicago-based company that specializes in site selection.

Okay, you’re already thinking that somebody in that toddlin’ town has fallen over entirely. But study author Ron Pollina and his firm, Pollina Corporate Real Estate Inc., have worked for Xerox, Caterpillar and other Fortune 500 companies as a real estate broker and consultant. He has negotiated plant relocation agreements for many major clients.

Pollina says Washington has joined the mostly southeastern states aggressively pursuing new jobs, or hustling to protect those it already has.

“When you look at the West Coast, Washington exceeds the other states by far,” says Pollina, whose study was noted by Gov. Gary Locke last week. That analysis and three other independent assessments confirm Washington has improved its business climate, he says.

The Tax Foundation ranks Washington ninth best for business tax burden, the Small Business Entrepreneurial Council fourth for business environment, and the U.S. Census Bureau 31st for business tax burden, with 50th being best.

Pollina’s assessment, which applies 27 factors in two stages, might be the broadest reading. Factors related to labor and taxes winnowed the number of states down to 35, which were then evaluated for the incentives they offer businesses and the professionalism of their economic development agencies.

South Carolina garnered 310 points out of a possible 440 to place first, followed by Virginia, South Dakota and North Carolina. Washington was awarded 268 points. Six southeastern states ranked in the Top 10. Idaho did not make the Top 25.

Some might question a couple of Pollina’s numbers. He depends on the Tax Foundation for his assessment of Washington business levies, and so imports the foundation’s nasty habit of allowing the lack of a state personal or corporate income taxes to overshadow the damage done by the regressive business and occupation tax.

Also, he relies on a Corporation for Enterprise Development evaluation of Washington’s infrastructure, which takes a far rosier view than would most state residents and businesses, particularly those trying to move goods into and out of the Puget Sound area.

And since he had no numbers for workers’ compensation rates in Washington and four other states, Pollina says they received a neutral rating. If 10 points was the maximum, for example, Washington got five. Depending on who you talk to, labor or management, that may not be the assessment they would make.

Pollina, by the way, did not take into account the tax breaks this year’s Legislature gave Boeing Co. Such “special projects” are not as valuable for job creation as incentives available for all business, he says, echoing the thoughts of many a small business owner.

Incentives, the study says, are Washington’s weakness, although the study credits an “effective job-training program,” and the availability of low-interest loans and tax abatements and deferrals.

More aggressive states are willing to abate property taxes, award a variety of tax credits, even offer cash grants.

But Pollina gives Washington credit for getting into the game. His study includes anecdotes about unnamed states with perverse regulations that all but force companies who might stay to leave, taking jobs with them.

Some communities in those states, he says, overcome clumsy regulators and regulations with local incentive packages.

“The name of the game today in small-town revitalization is regional economic development,” Pollina says.

The backdrop for Pollina’s study is the competitive challenge posed by China and India, where an increasing number of jobs have been outsourced. If the federal and state governments do not wake up, that trend will continue, perhaps undermining U.S. claims to world economic supremacy.

“The threat for the potential loss of a worker’s job to a foreign worker is increasing at a more rapid rate than the potential of loss to a worker in another state,” the study says in its conclusion.

Unless the U.S. improves science and engineering education, it adds, “Within 10 years, China could be the world leader in manufacturing, and India the world technological leader.”

Pollina’s ratings can be volatile. Michigan ranked No. 7 last year. But the state slipped to No. 13 because it did not rate well enough on the basic tax and labor issues this year to get to the incentive phase, where Michigan shines. Improvement on the fundamentals by that state and one or two others could bump Washington from among the leaders.

Locke attributes Washington’s new status to the willingness of legislative and executive leaders to implement the recommendations of his Competitiveness Council, as well as the effort to secure the Boeing 7E7 project for the state.

Although Pollina discounts that particular initiative, he says states that want to maintain a strong economy must remain innovative. One-time leaders like Michigan have fallen back because they did not keep up, he says.

Words to the wise for an incoming legislature and governor, whomever that may be.