Toyota escapes to Texas

May 2, 2014

texansOn Monday we tweeted a brief story about this but today’s Wall Street Journal does a more complete job of “counting the ways” that is a must-share.  (This might count as a check-raise in social media?  Tweet then blog?)

Toyota’s chief executive for North America Jim Lentz stressed that its move isn’t motivated by [targeted] incentives. He listed the friendly Texas business climate, proximity to other Toyota operations and two major airports, as well as such lifestyle benefits as affordable housing and zero income tax.

The bigger picture is that Texas has become more economically competitive while California has become less so, particularly for energy- and labor-intensive industries. Let us count the ways.

Start with right-to-work laws in southern states that have limited unionization and thus labor costs. Just 4.8% of workers in Texas and 6.1% in Tennessee belong to a union compared to 16.4% in California. Real estate is also cheaper in the South due to less restrictive zoning and environmental regulations, and taxes are lower. According to the Tax Foundation, the state-local tax burden is more than 50% higher in California than in Tennessee and Texas, which don’t levy a personal income tax. California’s top 13.3% marginal rate is the highest in the country.

Electricity prices are also about 50% higher in California than in the South due to the Golden State’s renewable-energy mandate, and its gas is 70 to 80 cents per gallon more expensive because of taxes and blending requirements.

The hostility to fossil fuels has cut California’s oil production in half from its 1985 peak while output in Texas has doubled in three years and lifted incomes. The Bureau of Economic Analysis has ranked Midland the country’s fastest growing metropolitan area in personal income for the past three years. Nearby Odessa was second for the last two. Between 2008 and 2012, personal income grew 8.05% in Midland and 6.98% in Odessa compared to 4.48% in San Jose and 1.81% in Los Angeles. In March, the unemployment rate was 3.2% in Odessa versus 6.8% in San Jose and 9.7% in L.A.

No city epitomizes California’s malaise better than Los Angeles, which hasn’t recovered its mojo since the post-Cold War aerospace wind-down. Since 1990 its employment base has declined by 3.1%, which is more than even Detroit (-2.8%). Job growth in Dallas, Houston and San Antonio exceeded 50% over the same period.

The article later cites a compelling datum about the Rise of the High-Tech South and what Joel Kotkin has called the end of the California era

According to TechAmerica Foundation, Texas in 2012 surpassed California in high-tech exports. The completion of the Panama Canal’s expansion next year will further erode what’s left of California’s commercial edge.

…and provides a money quote from California’s governor Jerry Brown about the flight of high-quality jobs from his state:

We’ve got a few problems, we have lots of little burdens and regulations and taxes,” the Governor said on Monday, “but smart people figure out how to make it.” California’s problem is that smart people have figured out they can make it better elsewhere.

The growth corridors of the high-tech South enjoy several advantages familiar to NVSE readers: growth-oriented tax policieslower public sector debt burdens, stronger job creation, the best climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

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