Dire Warnings for States: 2011 Will be Painful
Four State Strategies: Delaware, Montana, Tennessee, and Maine
Faced with record public layoffs, states across the nation are ramping up their efforts to attract new businesses, in order to create additional private sector jobs.
In Delaware, Democratic Governor Jack Markell has decided that budget cuts alone are not enough, saying that, “We’re not going to cut our way to a prosperous future.”
Delaware is a small state, but a powerful one, with a long history with incorporating out of state—and out of country—companies within its borders. More than 60 percent of all Fortune 500 companies, and 50 percent of all American corporations, are incorporated in Delaware, including JP Morgan Chase , Google and the state’s native son, DuPont .
In April, Taiwanese silicon giant Motech joined the ranks of corporations based in Delaware with its merger with General Electric’s silicon business based there. The deal saved about 70 jobs in the area, and Motech officials have announced plans to hire an additional 75 people by yearend.
In addition, Delaware passed a balanced budget for 2010, and as of May is not operating in a deficit.
“We have a fantastic work force and we’re a very responsive state,” said Markell of securing the Motech incorporation. Delaware’s unemployment rate currently stands at 8.5 percent, more than a full point lower than the national average.
Delaware is growing rapidly, with revenues expected to grow by almost $65 million dollars during the fiscal year 2011. Nearly 30 percent of the state’s total revenue is generated by the Delaware Division of Corporations.
The state stands to receive $76 million from the federal government as part of HR1586, signed into law by President Obama this summer. Governor Markell said that Delaware still needs the federal money despite its growing revenue, since the demand for services has grown as well.
“But obviously we’ve got to wean our way off of that, we’re doing that right now,” he said in relation to dependency on federal funding. “We have to continue to grow our way out of this.”
Tennessee Governor's Dire Warning
Dependence on federal funding was never an option for Tennessee governor Phil Bredesen, who viewed any help from the government as a one-time deal from the beginning.
Bredesen recently criticized some of his gubernatorial colleagues for treating federal funding as an extension of their own budget, which he said will come back to haunt them in the coming fiscal year when federal assistance runs out.
“They’ve got some tough choices to make,” he said. “The money is not going to be coming in and states, for the most part, have to balance the budget constitutionally.” He predicted that when federal assistance ceases in January, “there’s going to be some states that will be scrambling.”
Bredesen runs his government like a business, expecting the same level of accounting from state officials as the companies within its borders. Bredesen, a former mayor of Nashville, is the first Tennessee governor in modern times to complete two terms without raising the state sales tax. Instead, he has faced the recession with deep budget cuts and state worker layoffs.
“We’ve legislatively done everything we need to go ahead and make the cuts that are necessary,” said Bredesen.
However, a new shortfall of $170 million already has opened in the current $29 billion budget—even after legislators cut $230 million in last year’s session.
Bredesen and his economic development team have increased their efforts to recruit new businesses to Tennessee in order to expand the job market. In the last seven years, Nissan , Hemlock Semiconductor and Volkswagen have all joined Tennessee, and brought close to 200,000 new jobs with them. As of August 2010, the state’s unemployment rate was 9.6 percent—down from 10.9 percent in August 2009.
Running Montana Like a Ranch
Growth is the key word for Governor Brian Schweitzer of Montana, as well. Montana was ranked 36th in CNBC’s Top States for Business. However, Forbes magazine rates Montana as the fastest climber for business friendliness, going from 42nd to 34th to 13th in just a few years.