Gov. Perry - A Fiscal Conservative

Out of the 50 states and the District of Columbia, Texas ranks No. 3 as one of the top friendliest states for small businesses and entrepreneurship in the country.

The Small Business and Entrepreneurship Council cited the state’s low business tax rates, workers compensation benefits, and state and local government spending issues as positive factors key to Texas’ third place ranking in the council’s 2009 Small Business Survival Index study.

Factors keeping the state from one of the top two spots, however, were gas and diesel taxes, Texas’ crime rate, utility costs, property taxes, and state and local sales, gross receipts and excise taxes, the council said in the study, released in late 2009.

“The Small Business Survival Index gets at the public policy costs and trends that affect – directly or indirectly – entrepreneurship and small businesses,” study author and Small Business and Entrepreneurship Council Chief Economist Raymond J. Keating said in a statement. “These measures should matter to everyone because small businesses, of course, drive innovation, economic growth and job creation. If we want to get our economy back on a solid, robust growth track, then we need pro-entrepreneur policies at the federal, state and local levels.”

David Berzina, executive vice president of economic development for the Fort Worth Chamber of Commerce, said Texas’ high ranking isn’t surprising considering the opportunities available to entrepreneurs across the state and in North Texas.

“Employees from some of these larger firms, Texas Instruments, Bell Helicopter, Lockheed Martin, they get the spirit and start a business of their own after they get their training from some of these bigger companies. They come up with an idea, and pursue the American dream,” he said.

Berzina added that Texas’ universities and community colleges work together to provide opportunities for business education and development.

Brad Hancock, director of Texas Christian University’s Neeley School of Business Entrepreneurship Center, said the center has seen an increasing number of students joining the center and showing interest in opening their own small businesses.

The growing interest could be a rebound effect from the troubles corporate America has experienced over the last several years, Hancock said, adding that while students show interest in a number of different industries, technology is becoming one of the more popular choices.

“We are seeing more students, I think because they’re more technology proficient, looking at technology-based business,” he said. “I think more students are asking ‘How can we use the iPhone? How can we use the Internet and this technology that’s emerging?’”

Alvaro Guillem, president and CEO of ZS Pharma Inc. in Fort Worth, said he could have picked any state in the U.S. to open his pharmaceutical development company, but chose Texas because of the state’s tax rates and business infrastructure.

“Over the last few years what I’ve been doing is developing pharmaceuticals and bringing products to the market,” he said. “We could have headquartered anywhere, but over the last several years, Texas as a state has developed quite an infrastructure when it comes to supporting product development, and supporting everything being contained in Texas. That makes it much more easily managed when you deal with a project where you don’t have to go all over the place to look for resources to support what you’re doing.”

Guillem added that Texas also has been a business-friendly state because of its tax rates.

“Nobody likes to get taxed, but if you have to get taxed at least be reasonable, and Texas seems to do that,” he said. “The business climate has been very conducive for settling in and doing business.”

In ranking the 50 states and District of Columbia, the Small Business and Entrepreneurship Council considered some of the major government-imposed or government-related costs – 36 total – affecting investment, entrepreneurship and business, according to the study.

One of Texas’ highest rankings is a result of the state’s lack of a state personal income tax, which can affect individual economic decision making in important ways, the study said. And while Texas also benefited from not having a corporate income tax, it did receive a low ranking – coming in at 39 out of 51 – for higher state and local sales, gross receipts and excise taxes, in the study. Texas also ranked at 39 for property tax rates, at 45 for the number of health insurance mandates, and at 42 for the state’s crime rate.

“When companies look at Texas, they’re discovering that we’ve fostered an environment that encourages people to pursue their dreams, build businesses and create jobs,” Gov. Rick Perry said in a statement. “This index is further proof that our conservative fiscal principles, low taxes, predictable regulatory environment and educated workforce have made Texas the best state in the nation to build a business and create jobs.”

What's the worst state to do business in? According to readers of Chief Executive magazine, it's California. In the same poll, Texas won first place as the best state in which to put your headquarters.

As reported in The Economist, the two largest states in the nation have very different philosophies and very different success rates.

In the 1950s and '60s, California was the embodiment of the American Dream, offering great schools, roads, jobs, and communities with all the latest amenities, not to mention good weather, beaches, and quick access to the mountains and wilderness for recreation. As home to Disneyland and the movie industry, the state represented all that was glamorous and new.

Cut to the present day. California is $26 billion in the hole and has recently been paying its bills with IOUs. Its once-proud schools are suffering and the prison system is releasing criminals early because the state can't afford to keep them. Social services are being cut right and left. Infrastructure is aging and falling apart. Unemployment is nearing 12 percent. State employees are forced to take unpaid furlough days and many California cities are worse off than Detroit. Its state income tax is the second highest in the U.S., and government regulations seem perversely aligned to discourage people from doing business there.

In fact, people are fleeing the so-called Golden State at a rate of more than 100,000 a year. From the Great Depression on, California was a dream destination for Americans. Now it looks more like a nightmare, taking on new debt at a rate of $25 million a day.

Texas, on the other hand, was considered something of a backwater in the 1950s and '60s, and certainly not a glamorous destination for the upwardly mobile masses. How things change. Unemployment in that state is two percentage points below the national average. It has one of the lowest rates of repossession for housing. There is no state income tax, nor is there a tax on capital gains in Texas.

Also, the Lone Star State has more Fortune 500 headquarters than any other place in the union: California has 51, New York has 56, and Texas has 64. AT&T, Dell, Texas Instruments, ExxonMobil, ConocoPhillips, American Airlines, Continental Airlines, Southwest Airlines, J.C. Penny, and Halliburton are all located in Texas.

Texas also has a geographic advantage over California. California has mountains that limit growth. Texas is largely flat. California is big. Texas is bigger. If you drive from Houston to El Paso, you're halfway to Los Angeles – without leaving Texas.

Texas created 70 percent of all the new jobs in the United States in 2008, and it has a budget surplus. No wonder it's the fastest-growing state in America, with 150,000 new residents arriving each year. Houston promises to become the nation's third-largest city in the near future, edging out Chicago for that spot. And 3 of the 10 largest cities in the United States are already in Texas – Houston, Dallas, and San Antonio.

Both the Brookings Institution and Forbes Magazine studied America’s cities and rated them for how well they create new jobs. All of America’s top five job-creating cities were in Texas. It's more than purely economics and regulation can explain, though. Texas – and Houston in particular – has a broad mix of Hispanics, whites, Asians, and blacks with virtually no racial problems. Texas welcomes new people and exemplifies genuine tolerance. When Hurricane Katrina hit, Houston took in 100,000 people. Not surprisingly, Houston has more foreign consulates than any American city other than New York and Los Angeles.

And while Texas is creating jobs and new business, the Financial Times recently observed that the failure of a state as large and important as California is serving as a drag on the entire U.S. economy. Much of what we perceive as a national housing crisis, for example, is really concentrated in a few of the hardest-hit regions – California and Florida chief among them. Meanwhile, areas such as Texas have experienced a much milder downturn. In short, the catastrophes in Florida, Nevada, and especially California make the national market look really bad.

Governor Rick Perry today highlighted several new laws that take effect Jan. 1, 2010, which institute important reforms to the appraisal process to help property taxpayers.

“In addition to cutting taxes for 40,000 small business and leaving billions of dollars in our Rainy Day Fund this last session, we also implemented measures that will provide greater protection for property owners by adding transparency and fairness to the appraisal process,” Gov. Perry said.

HB 8 and 3612 by Rep. John Otto and SB 771 by Sen. Tommy Williams are among several bills that will improve the appraisal process, and include provisions that impose limits on what is considered a comparable sale for appraisal purposes; create an expedited arbitration process; and require substantial evidence to increase an appraisal after a successful appeal.

These changes will improve the fairness and accuracy of the appraisal process and increase the oversight of appraisal districts to ensure they are following uniform appraisal practices and procedures.

HB 1038 by Rep. Ken Paxton ensures appraisers continue to consider all comparable properties when appraising a home, including those recently sold at foreclosure or that have decreased in value.

Additional measures to strengthen the appraisal process include the passage of Propositions 2 and 3 by Texas voters in November.

Proposition 2 will ensure that residential property is appraised only based on its use as a homestead (instead of being appraised based on a hypothetical alternate use).

Proposition 3 will allow the Legislature to adopt uniform statewide appraisal standards in the future. Both of these measures will increase transparency and accountability in the appraisal process.

For a list of all Texas laws effective on Jan. 1, 2010, please visit http://www.legis.state.tx.us.