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wept up by the urge to bring capital investment back to their own shores, many U.S. state legislatures in 2004 have pursued laws to either discourage or ban use of offshore facilities and workers by companies engaged in state contracts. Many of those measures languish in committee. But while that raft of measures looks good politically, other issues lurk under the surface that may have an even more pronounced effect on economic development and investment.
An analysis of state revenues performed for the Wall Street Journal by Federal Reserve economist Robert Tannenwald found that the share of property taxes in overall state and local revenue for the first quarter of 2004 was 28.8 percent, up from 25.5 percent in the first quarter of 2001. That increase is riding primarily on the backs of homeowners, as tax breaks to new or expanding businesses increase.
However, two burdens nobody seems to escape are increased costs for higher education and worker’s comp. States like Massachusetts, Colorado, South Carolina, Tennessee and California are making major cuts to their education budgets. As for worker’s comp, Chuck Foltz with Abbott Laboratories speaks for businesses in California and elsewhere when he says, “One of the challenges for us continues to be workers compensation activities and some of the costs associated with that.”
John Castellani, president of The Business Roundtable, told the National Conference of State Legislatures’ annual meeting in July 2004 that the inherent partnering between states and business is at its most evident in the learning process.
“If we apply to our existing education systems the same guiding principles governing our episodic activities — those that have led to new plants, and more and better infrastructure — then we will see improvement in our education and training systems,” he said.
New sales taxes were under consideration in a large number of states, especially with regard to the growing service sector. But most have raised fees and cut budgets. Meanwhile, according to an NCSL survey, the recovering economy has actually caused the following states to report higher-than-expected revenues in every area: Alabama, Delaware, Florida, Iowa, Maryland, New Jersey, Oklahoma and Tennessee.
At the same time, the NCSL reported that the ability of the states to close their FY 2004 budget gaps was brought about in a big way by the $20-billion federal Jobs and Growth Tax Relief Reconciliation Act of 2003.
Another pattern? Five states considered legislation limiting eminent domain powers to protect property owners. Such efforts were aided by the Michigan Supreme Court decision in August 2004 limiting the authority of states and municipalities to overtake property in the name of economic development. The case overturned related to the infamous takeover of property in Poletown by the City of Detroit in 1981 to pave the way for a General Motors project.
The sum total of legislative activity could be said to mirror the corporate rush, well captured in a statement from David Wyss, chief economist at Standard and Poor’s, at that NCSL annual meeting: “You have to run faster and faster to stay in the same place.”
Continue to: State-by-state Legislative Review