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California's Business Climate:
California Ranks 41st in Study of State Business Climates

California ranks 41st out of the 50 states when it comes to business climate, according to the 2012 Best States for Business report published by Forbes magazine. The Golden State is "littered with problems," including a heavy tax burden and high energy costs, Forbes said.

The publication wrote:

"California's $2 trillion economy is bigger than all but eight countries around the globe. The state represents 13 percent of the U.S. economy. Yet, some companies have given up on the Golden State. Comcast shut down its Northern California call centers this year, which cost 1,000 people their jobs. The company cited, 'the high cost of doing business in California.' Campbell Soup is shutting down its Sacramento factory – eliminating 700 jobs – and moving production to Texas, Ohio and North Carolina. Forbes' top ranked state Utah, has nabbed recent expansions by California companies, including Adobe Systems, Ebay and Electronic Arts.

"California is littered with problems. It ranks last in Pollina Corporate Real Estate's study of the states with the best financial incentive programs and state economic development efforts. Its A1 bond rating from Moody's on general obligation debt is the second lowest of any state – only Illinois is worse. The regulatory environment is fourth worst per the Mercatus report. The recent unemployment rate of 10.1 percent is the third highest in the nation. In addition to a heavy tax burden, energy costs are 33 percent above the national average."

On the bright side, Forbes said California's economy is projected to expand 3.6 percent annually over the next five years, and that forecasted job growth of 2 percent ranks in the top third of all states. The publication also cited a highly educated workforce; the fact that California is home to 10 percent of the 1,000 largest U.S. public and private companies; the $36 billion in venture capital money invested in California companies the past three years, which is four times the total of any other state; and the weather.

The ranking is based on 35 points of data in six areas: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Business costs, which include labor, energy and taxes, are weighted most heavily.

Utah ranked first, for the third straight year. Utah's economy has expanded 2.3 percent annually since 2006, compared to 0.5 percent for the nation as a whole. Forbes noted that Utah's 5 percent flat corporate tax rate is one of the lowest in the country, and said the state also has a young, vibrant workforce; a workforce in which one-third of the workers are bilingual; and a regulatory climate that a co-author of the report said is "less likely to reward frivolous lawsuits or hand out excessive judgments." The co-author, Jason Sorens, added, "Utah's health insurance regulations are generally light, resulting in less costly policies and more choice for people in the small group and individual markets."

Maine landed in the 50th spot, for the third consecutive year. Forbes cited a high corporate tax burden, and a "lousy job and economic growth forecast."

December 21, 2012
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