Why the Silver State Mines the Golden State for Business

Why the Silver State Mines the Golden State for Business

Nevada is running a rather edgy advertising campaign to lure businesses from the Golden State to the Silver State. This could serve as a wakeup call for California, but the response so far is not encouraging.

The $1 million campaign from the Nevada Development Authority puts a porcine spin on California’s budget and urges California business to “get the monkey off your back,” and move to Nevada. The “KTAX” channel in one ad wonders when California will be more pro-business. In this state, an ad says, business can “kiss their assets goodbye.”

Ten California newspapers will run the ads, also to appear on NBC, ESPN and MSNBC. The ABC affiliate in Los Angeles is refusing to run the ads, on the grounds that they might encourage businesses to leave California. According to recent evidence, many have already departed.

From 2003 to 2007, California lost nearly 80,000 manufacturing jobs, most to other states, according to a recent Milken Institute report, which faulted California’s heavy regulation. Lloyd Greif, an investment banker and chairman of the Los Angeles County Economic Development Corporation, conceded to reporters that Los Angeles County has fewer Fortune 500 companies than most other metropolitan areas. The reason? “We have become distinctly business unfriendly,” Mr. Greif said.

California Prosperity: Assessing the State of the Golden State, a new publication from PRI, notes a net out-migration of more than one million Californians over the last five years, which ranks California 44th out of 50 states. California ranks 42nd in private-sector job creation and 44th out of 50 states in private-sector employment. None of these statistics makes the case for a healthy business environment. Neither does California’s record on economic freedom.

The Golden State ranks a dismal 47th out of 50 states in that regard, up from 49th in 2004, according to PRI’s latest U.S. Economic Freedom Index, which tracks taxes, regulations and other indicators of economic liberty. South Dakota ranks number one and Nevada a strong sixth. And Nevada’s advertising campaign does more than lampoon California.

The ads duly point out that Nevada features low workers compensation costs, no corporate tax, no personal income tax, and no inventory tax. California, on the other hand, deploys a punitive tax system and workers’ compensation costs remain high. California’s regulatory burden is also heavier than 48 other states and may be getting worse. A proposed law would increase the power of the California Coastal Commission to regulate development.

The Nevada campaign, meanwhile, has drawn retaliation from California Assemblyman Jose Solorio, who denounced the “attack ads.” The Santa Ana Democrat told reporters he was “outraged by the nastiness of their tone,” and objected to the humor “which dehumanizes Californians.”

Solorio has responded with a video, paid for out of campaign committee funds, that shows California landmarks, arid Nevada scenes, and lists prominent California businesses. The assemblyman has also launched a website for Californians to express pride in their state. He does not attempt to make the case that California has a better business climate than Nevada. Indeed, he told reporters that states should not be “so competitive,” and that the California’s budget and tax problems and strict regulations should not be deal breakers for businesses.

This is simply a defense of the high-tax, high-regulation status quo. A better response to the Nevada ad campaign would be to seek ways to improve California’s business climate and boost its economy. On that front there is some reason for hope.
The Commission on the Twenty-First Century Economy, launched by the governor, is debating the merits of a flat income tax for California, and other reform measures. Assembly Speaker Karen Bass says she will put the Commission’s recommendations, due by September 20, to a vote in the legislature. A flat income tax, depending on the rate, would stabilize revenue and make life easier for workers. More gimmicks, on the other hand, would worsen an already dismal economic climate that prompts the flight of workers and businesses.

The Nevada ad campaign plays to that reality, and it would be a mistake for legislators to write it off as a prank. They should respond with tax and regulatory reforms that not only keep businesses and workers in California but attract entrepreneurs from other states.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.