February 15, 2013 1:55 pm

Texas wrangles with California for business

Texas governor Rick Perry©AP

Texas governor Rick Perry hopes to extend a helping hand to Californian businesses

Rick Perry likes coming to Beverly Hills. “I always have a good time here,” says the governor of Texas, wearing black tennis shoes with his suit instead of his usual cowboy boots.

How much of a good time will depend on the number of companies he can lure away to Texas. Mr Perry is in town to pitch his state’s low tax, low regulation business climate to companies fed up with their tax burden in California. He has met business leaders and launched a radio campaign extolling the virtues of Texas: if Jerry Brown, California’s governor, had a lawn big enough Mr Perry’s tanks would be parked all over them.

The two governors have already clashed, with Mr Brown dismissing the radio campaign as “barely a fart”.

“He’s a colourful fellow,” retorts Mr Perry, after meeting the Financial Times in a Beverly Hills hotel – the disappointment of last year’s failed bid for the Republican presidential nomination behind him. “That’s his call. With all the focus it helped create he probably would want to take [the comment] back.”

Behind the barbs, Mr Perry’s visit highlights the differences between two states that are the biggest drivers of the US economy. Texas is regularly held up by conservatives as an economic model for the rest of the US thanks to its low-taxation economy and an energy sector that has created thousands of  jobs. It fared better than other states during the financial crisis and its unemployment rate is consistently lower than the national average: this month it stands at 6.1 per cent, compared with 7.8 per cent nationally.

California, meanwhile, has been in an economic slump for several years, unable to plug perennial multi-billion dollar budget deficits, which have nonetheless failed to thwart the progress of Silicon Valley companies, such as Apple, Google and Facebook.

However, California’s unemployment is two points above the national average at 9.8 per cent. “The last time California had an unemployment rate lower than the national average was 1990,” says Mr Perry.

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The state’s fiscal health took a turn for the better recently, thanks to aggressive spending cuts and a tax increase on wealthy residents that was backed by Californians in November’s election. Not everyone is happy: Phil Mickelson, the top golfer, recently raised the prospect of leaving the state because of the new taxes, saying he was preparing to make “drastic changes”.

But the public mandate for the tax increase has made the state a flag-bearer for liberals in other states that are grappling with deficits. Jobs are being added in California faster than other parts of the country and the cuts and new taxes have balanced Mr Brown’s budget: the state is on course to generate a $1bn budget surplus by the 2014-15 fiscal year.

For Mr Perry, the recent California tax increase is an opportunity for Texas. “I met a lot of businessmen and women [in California] when I ran for the presidency. Almost to a man and woman they talked about the relative difficulty of doing business here.”

“The California business community is overtaxed. Businesses said, ‘You know what? We have the flexibility to be somewhere else.’ ”

Unlike California, Texas has no corporate income tax, personal capital gains tax or personal income tax. But Mr Perry says Texas has more to offer Californians than a more benign tax environment.

“Culturally, Texas has truly changed in a progressive way in the last decade. If a Texas governor had come [to California] 15 years ago and said, “How about moving your business to Texas?’ you would have been met with a blank stare.”

He hopes to lure a range of companies to Texas. “If you’re in telecoms, north Dallas would look very pleasing. If you’re an energy company, Houston is the energy capital of the world. If you’re a start-up that needs smart, young hip engineers, you’d look at Austin.”

The California business community is overtaxed. Businesses said: ‘You know what? We have the flexibility to be somewhere else’

- Rick Perry

He is also keen to lure more film production from California. In recent years states such as New Mexico and Louisiana have wooed movie studios with tax incentives. Texas has had a film tax credit for the past six years but Mr Perry wants more films produced in his state.

Like California, Texas has a fast-growing Latino population – and a large number of undocumented immigrants. Mr Perry falls short of backing plans to create an amnesty for the 11m people in the US illegally and says securing the US-Mexico border should be a priority. “I think there’s certainly a path to citizenship now – you get in line,” he says. “The bigger question is how to deal with the folks that are here illegally. Are you going to round them all up and send them all back? No. How are you going to deal with them? That’s a conversation that’s worth having.”

Despite Mr Brown’s dismissal of his efforts, Mr Perry has no intention of stopping his trips to the west coast. “The last five years I can’t tell you how many times we’ve come out to California.” The rivalry will endure and pitching to business will continue, he says. “Competition is a good thing.”

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