Dan Morain: State should get smart about its tax breaks

Sacramento has no shortage of lobbyists. So Jeff Miller's decision to move his family to Austin, Texas, shouldn't be a big deal, except for what it says about our state and opportunities elsewhere.

Miller had no shortage of clients, having worked at Capitol Advocates, the fifth largest billing lobby firm in town last year. He also was the California Republican Party's chief fundraiser, until the state party unraveled.

Sure, there are greener opportunities for a Republican in Texas than here. Miller is friends with Gov. Rick Perry, having raised money for his presidential campaign last year. His move suggests Perry will run for re-election, and believes he has a future nationally, despite his embarrassing 2012 run.

In Austin, Miller will have a new side line: easing the way for California companies whose bosses are thinking of moseying to the Lone Star State.

"California companies that don't have their assets nailed to the ground are looking for relief from the state's escalating costs and regulatory mandates," said Miller, having changed his Facebook photo to one of him in a 10-gallon hat. Texas is "at the top of the list because of the incredible difference in the cost of running a business."

We've heard this before. The Wall Street Journal ran one of its periodic articles the other day about the dreadful business climate here and how other states have set up California offices to lure employers.

On a sunny day in the Golden State, it's easy to dismiss such stories. The Public Policy Institute of California did hard research, showing that from 1992 through 2006, 16,000 jobs annually moved into California and 25,000 jobs moved out. The net annual employment change due to relocation was a blip, 0.05 percent of California's 18 million jobs.

But with the California economy and unemployment lagging other states, political leaders also should pay attention to guys like Miller.

Yes, California claims to make an effort to attract jobs. The state has doled out billions of dollars since the mid-1980s to businesses that locate in so-called enterprise zones, specially designated areas where companies get tax credits for hiring workers. In the coming year, the state will give more than $700 million to companies in enterprise zones.

But the way the state spends that money is wasteful and downright dumb. As the Public Policy Institute of California found, "enterprise zones have no overall effect on job growth."

California makes no public disclosure about the companies that get the money. It's not clear whether the employers are Wal-Mart or high-end manufacturers.

But clearly, the business of enterprise zones is lucrative, judging from the army of lobbyists, lawyers and accountants who work the bureaucracy to collect tax credits retroactively for people hired as many as five years earlier. The army also fights to protect the zones, as Gov. Jerry Brown found when he tried to kill the program two years ago and found little legislative backing.

Unable to win support to end the program, Brown is preparing to release regulations to shave $50 million a year in costs by ending the practice of retroactively giving incentives to companies for past hires.

That's a start but hardly sufficient. Tax experts say there are far smarter ways to encourage job growth, like exempting manufacturers from paying sales taxes when they buy new equipment. Or lawmakers could cut tax rates and broaden the tax base, helping all businesses without playing favorites.

Miller will maintain California ties though his partnership with Sacramento consultant Tony Russo. As he develops the Austin end of the business, he no doubt will let businesses know about the Texas Enterprise Fund, similar to California's enterprise zones.

Unlike California, however, Texas names companies that get the awards, and lists the jobs they promise to add--$480 million to companies that have added 64,000 jobs since 2004. That $480 million since 2004 is less than California doles out in a single year.

Several recipients are, alas, recognizable: Apple, Facebook, eBay, Hewlett-Packard and Hilmar Cheese, all of them headquartered in California.

"A growing number of our California clients and companies we have relationships with have asked us to help them explore opportunities for them to expand operations or move their headquarters to Texas," Miller said. The November election, in which voters raised taxes on high earners and Democrats gained a supermajority in the Legislation, may have been "the tipping point for many business owners and CEOs in California," he added.

Miller is doing absolutely nothing wrong. He has identified a niche and is seizing upon it. That's what smart business people do. I wish him prosperity, although I hope he doesn't lure California businesses. Mostly, I wish this state's leaders would confront the reality that good weather and foolish tax breaks will not turn around California's economy.

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