Governor Mitch Daniels has a bold strategy to make his state the new destination for outbound sunbelt businesses. But making Indiana a tech magnet will take more than low taxes.
Some Californians may have recently noticed an advertisement with a coffee mug and the word "Indiana" written in the milky latte foam. A crumpled napkin sits next to the mug with this scribbled on it: "Admit it, you find me fiscally attractive." On another napkin it reads, "Indiana: low taxes, pro-business, fiscally responsible."
Ads like this are part of the Hoosier state's new push to lure California companies 2,300 miles east, trying to convince them to give up the morass of California regulations and high business taxes, in exchange for the regulation-light, low tax business nirvana of Indiana.
"I always say, Midwest quality at sunbelt cost structure," said Mitch Daniels, the Republican governor of Indiana. When we met in his office at the Indiana state capital, Daniels said the two states in his scopes are neighboring Illinois and California.
"It's a big world, and you have to look for your targets. So we look at American states, which are, as we see it, inordinately expensive, or even hostile to business."
Under Daniels' guidance, Indiana is cutting corporate income taxes from 8.5 percent to 6.5 percent, phased in gradually over the next four years. California's corporate tax rate in California is 8.84 percent.
Governor Daniels likes that comparison. "If I were being sarcastic, I'd say thank you. For reasons best known to them [California], they are so actively hostile to business. And it's reflected, business people tell us, not just in ever-higher taxes, but in punitive and hostile attitudes toward business."
OUT OF CALIFORNIA
"That's quite accurate," said Joseph Vranich, reflecting on the governor's quote after I read it to him. Vranich is a consultant in Irvine, Calif. who helps companies find places to relocate. "The top three reasons why companies leave California are taxes, the costs of regulatory compliance, and a hostile attitude."
According to Vranich's research, with his company Spectrum Location Solutions, at least 254 companies moved all or part of their businesses out of California in 2011. He says they're not being pulled to other locations, they're being pushed out.
"It always starts with a push. I've never had anyone call me and say, hey you know what, we're pretty happy here in California, but is there a place that's even a better Shangri-La for us?' I've never heard that once."
But after that push, are low taxes enough of a draw to South Bend or Bloomington?
According to Indiana's Economic Development Department, eight California companies have relocated to Indiana in the past three years. Those companies employ 1517 people in Indiana.
"In a state like Indiana, which has nearly 3 million jobs, that doesn't really amount to very much," said Morton Marcus, a retired economics professor from Indiana University in Bloomington. He also questions how many Indiana companies are opening offices in California.
Marcus said lower taxes rank toward the bottom of the list for a company considering relocation. "The most important issue they have is how do they get their product to market and whether or not they have the workforce they need. And Indiana's main problem is that it doesn't have the kind of workforce that even our existing firms feel that they need."
Joseph Vanich said it's not uncommon for companies to actually chose locations with higher taxes. He said companies evaluate a set of factors when considering a move. "It includes quality of air services, to, if it's a family-owned company, the climate preferences of the wife. You'd be amazed how many times I hear that."