Businesses Exit California and Illinois

Businesses have had it with poor business conditions in two of the most dysfunctional states in the union, California and Illinois.

In an editorial, the Orange County Register reports Even profitable firms fleeing California

Democratic reaction to the news that Waste Connections, a $3.6-billion company and major Sacramento-area employer, is headed to Houston to seek a friendlier business climate tells other businesses all they need to know about the attitudes of those who run California’s government.

State Senate President Pro Tem Darrell Steinberg, D-Sacramento, gave these clueless and snarky remarks in response to the news: “In this instance you have a company that is, in fact, profitable, making significant revenue gains in 2011 and 2010. That doesn’t speak to a bad business climate here in California when a good company is able to thrive in that way. So whatever Mr. Mittlestaedt’s (company CEO) reasons are to leave the great state of California, I know I’m pushing back.”

Is it really the Senate president’s role to determine the proper profit margin for a privately owned company? Talk about arrogance.

“The decision by Waste Connections to relocate, despite the 17 percent revenue increase and the $18 million cost to move to Texas, illustrates that businesses will endure short-term costs to ensure long-term prosperity,” wrote state Sen. Mimi Walters, R-Laguna Niguel, in response to Steinberg’s message. Walters quotes business-relocation expert Joe Vranich of Irvine, who notes that businesses typically save 40 percent in costs by leaving California because of lower taxes and more manageable regulations found elsewhere.

If California wants to improve its business climate and reduce its double-digit unemployment rate, its officials need to understand what companies such as Waste Connections are saying, rather than simply dismiss their concerns.

Businesses Bargain for Better Deals in Illinois

The Chicago Tribune lists 10 companies with an eye in exiting the state in Illinois companies eyeing an exit

Chicago’s huge futures exchange owner CME Group has joined a growing list of companies threatening to leave Illinois as a result of the state’s corporate tax increase earlier this year. Illinois pushed through the 45 percent corporate tax increase in January, trying to address one of the biggest budget shortfalls of any state in the U.S. But the move proved to be a risky step — since then, both small and large companies have complained about the increase, and some have received incentives to stay put.

Also on the list: Sears, Motorola Mobility, Caterpillar, Navistar, Mitsubishi, US Cellular, Jimmy John’s, and continental Tire.

Small Businesses, Taxpayers Screwed

On December 12, Illinois House approved CME-CBOE, Sears tax deal. Indeed, most of the above companies negotiated huge tax breaks and will stay in Illinois at least for a while.

Small companies with no clout and no leverage as well as taxpayers in general are the ones paying the price for the seriously misguided policies of Democratic Governors Pat Quinn, and Jerry Brown.

Tax-and-Destroy Policies

The tax-and-destroy policies of Illinois and California, coupled with the the massive public union pandering in both states got me wondering about respective unemployment rates, state by state.

Unemployment Rates for States
Monthly Rankings
Seasonally Adjusted
Nov. 2011p
Rank State Rate
1 NORTH DAKOTA 3.4
2 NEBRASKA 4.1
3 SOUTH DAKOTA 4.3
4 NEW HAMPSHIRE 5.2
5 VERMONT 5.3
6 IOWA 5.7
7 WYOMING 5.8
8 MINNESOTA 5.9
9 OKLAHOMA 6.1
10 VIRGINIA 6.2
11 UTAH 6.4
12 HAWAII 6.5
12 KANSAS 6.5
12 NEW MEXICO 6.5
15 LOUISIANA 6.9
15 MARYLAND 6.9
17 MAINE 7.0
17 MASSACHUSETTS 7.0
19 MONTANA 7.1
20 ALASKA 7.3
20 WISCONSIN 7.3
22 DELAWARE 7.6
23 PENNSYLVANIA 7.9
23 WEST VIRGINIA 7.9
25 ARKANSAS 8.0
25 COLORADO 8.0
25 NEW YORK 8.0
28 TEXAS 8.1
29 MISSOURI 8.2
30 CONNECTICUT 8.4
31 IDAHO 8.5
31 OHIO 8.5
33 ALABAMA 8.7
33 ARIZONA 8.7
33 WASHINGTON 8.7
36 INDIANA 9.0
37 NEW JERSEY 9.1
37 OREGON 9.1
37 TENNESSEE 9.1
40 KENTUCKY 9.4
41 MICHIGAN 9.8
42 GEORGIA 9.9
42 SOUTH CAROLINA 9.9
44 FLORIDA 10.0
44 ILLINOIS 10.0
44 NORTH CAROLINA 10.0
47 MISSISSIPPI 10.5
47 RHODE ISLAND 10.5
49 DISTRICT OF COLUMBIA 10.6
50 CALIFORNIA 11.3
51 NEVADA 13.0

Not a Red vs. Blue or Rustbelt Issues

High unemployment is not a red-state vs. blue-state issue. Nor is there a clear rust-belt trend. Moreover, Nevada, is among the more business friendly states but like Florida the hardest hit by the housing bust. Illinois was not so hard-hit but parts of California were.

However, California and Illinois have many things in common:

  • Harsh business environments
  • High tax rates
  • Both states are among the most pro-union states
  • Both states lack right-to-work laws

That California and Illinois suffer from business flight and high unemployment should not be surprising.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

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