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McMahon: New York State is a terrible place to start a business

New York Gov. Andrew Cuomo talks to reporters

New York Gov. Andrew Cuomo talks to reporters in Albany, N.Y. (May 8, 2013) Photo Credit: AP

When a government watchdog as knowledgeable as Steven Greenhut, a Bloomberg View contributor, writes that California deserves to knock New York out of last place in rankings of state business climates, it's tempting to agree. If only he had a stronger case.

True, the two states are virtually neck and neck by many anti-market measures. To take just two of the more important inputs for manufacturers, in particular, New York ranks just below California in a nationwide index of workers' compensation premiums, and slightly above California on average energy costs.

Both states authorize at least some local imposition of rent regulation - a litmus test of economic wrongheadedness. New York's minimum wage is currently at the federal level of $7.25, while California's is at $8. However, New York has just legislated a phased-in wage increase to $9 by the end of 2015.

California has high state- and local-government debts - perhaps as high as $1 trillion, as Greenhut notes. But on a per-capita basis, casting the same broad net over all government-related liabilities, New York gives California a run for its money.

When it comes to politics, Greenhut can be excused for writing that New York Democrats "have more competition." Obviously, he has never met a New York Republican. Besides, thanks to term limits, at least the California Legislature has regular turnover.

In New York, lawmakers are almost never dislodged involuntarily by anything short of death or indictment. New York's current assembly speaker, Sheldon Silver, has held that job for almost 20 years and was first elected to the legislature in 1976, when California Gov. Jerry Brown, who is now 75, was the nation's youngest governor.

State taxes per $1,000 of personal income are slightly lower in New York than in California. But through various mandates controlled out of Albany, New York shifts much more of its tax burden to the local level. As a result, New York's property taxes are among the highest in the country - while California's, thanks to Proposition 13, are near the bottom.

Even considering the wide array of assessments and fees in California, local levies in the Golden State are a fraction of those in the Empire State. New York Gov. Andrew Cuomo's newly enacted tax-levy cap of 2 percent (give or take some allowances) will stop the situation from worsening, but it won't get better without far-reaching structural reform that the governor and legislature continue to resist.

California and New York have one important economic advantage in common: vast reserves of oil and gas. Trapped for eons in deep-underground shale deposits, they can now be freed by hydraulic fracturing. It is in this area - energy development and exploration - that New York has proved it really deserves to stand alone on the bottom rung of state economic policy.

Just last week, California's famously liberal, green- friendly, Democrat-dominated assembly overwhelmingly rejected a bill that would have banned oil and gas hydrofracking. New York, by contrast, is now in the fourth year of a state-imposed moratorium that has prevented fracking of the gas-rich Marcellus Shale in its economically stagnant upstate region, even as neighboring rural Pennsylvania enjoys a boom. Cuomo continues to hold up the issuance of gas-drilling regulations, a decision he may now delay until 2014.

Unleashing a cheap plentiful supply of gas wouldn't just create jobs in the drilling business; it could also be a boon to many manufacturers staggering under high costs in both states. California officials, at least, are hesitating to squander this opportunity. New York's fracking ban - both in its immediate impact and the signal it sends to investors and entrepreneurs across the country - is a decisive mark against the state.

Fracking aside, New York looks worse than California even when graded on a curve that plays to the strengths of both states. While some groups have been criticized for basing their economic report cards too heavily on taxes, the Boston-based Beacon Hill Institute produces a State Competitiveness Index that also weighs human resources, technology, business incubation and openness, in addition to taxes and environmental regulations. On the 2013 index, California ranked a close-to- respectable 24th.

New York could manage no better than 34.

In the final analysis, of course, our precise positions on such scales don't matter. Obviously, California and New York both have a lot of work to do before they can compete more effectively with the U.S.'s growth hot spots. In the meantime, we can at least console ourselves that we have a downwardly mobile rival. Memo to Illinois: Keep it up!

E.J. McMahon is a senior fellow at the Manhattan Institute's Empire Center for New York State Policy.


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