April 14, 2008
[updated April 27, 2008]

Is Kansas really the #10 "pro-business" state in the U.S.?

An annual report by the Pollina Corporate Real Estate group again lists Kansas as the #10 pro-business state.  Dr. Ronald R Pollina says "Kansas lead creating a low-tax, low red-tape, and pro-job growth business climate."  And Kansas gets this #10 ranking at the same time bureaucratic red-tape is killing a new power plant that would provide energy and jobs in Western Kansas?  Does this ranking make any sense?

Recently Governor Kathleen Sebelius issued a press release, Kansas named a "Top 10 Pro-Business State," highlighting the #10 ranking given to Kansas (see table below) in a recent report by Pollina Corporate Real Estate group in Chicago. These rankings were based on 29 factors that affect the ability of states to attract new business, or encourage existing businesses to expand. Gov. Sebelius' office claimed this list is considered the "gold standard" by American business leaders.

Several Kansas news sources reported this story, including the Kansas City infoZine, the Wichita Eagle, the Lawrence Journal-World, and the Pittsburg Morning Sun, but none did any critical analysis of the report, such as the variability by year, or the contradictions in the #10 ranking given recent actions in Kansas, or similar rankings by others groups.

Pollina's pro-business ranking for Kansas varies a bit by year: [Lawrence Journal-World]

Pollina said that other states would be well-served in following Kansas' lead by creating a low-tax, low-red tape, and pro-job growth business climate. [KC infoZine]

Gov. Kathleen Sebelius attributes the high ranking to the investments Kansas has made in its schools and workers as well as strategic tax cuts that create jobs, she said in a news release today. [Wichita Eagle]

The day after Gov. Sebelius issued this press release, the Kansas Senate voted to override her veto of a coal power plant. How did the Pollina group think Sebelius' attempt to kill a $3.6 billion project to build a new power plant in Western Kansas would not have a chilling effect on other businesses that might want to expand in Kansas? With Western Kansas already hurting for new economic development, what viable alternatives did Gov. Sebelius offer when she killed the power plant and jobs in Western Kansas? How did the Pollina group miss the high-tax environment in Kansas, the arbitrary government regulatory red-tape that can kill new business and expansion, and then consider Kansas a pro-business state?

Comparison of Pollina Rankings to Other Studies

State rankings from four studies on various business and economic factors do not show Kansas anywhere near the #10 ranking from the Pollina study.

(1) A study, Rich States, Poor States, by the American Legislative Exchange Council, paint a much different picture of Kansas and gives Kansas a #29 ranking for economic outlook. Here's how the top 10 Pollina states ranked in overall economic outlook in this study (as well as rankings on some of the factors looked at in this study):

State Rankings from Rich States, Poor States
with rankings for selected factors
(1=Best, 50=Worst)

While 5 of the top 10 Pollina pro-business states scored in the top 10 in this study, other states, including Kansas, were not top 10 states. Kansas scored poorly in all tax categories. Kansas didn't score particularly well in any category.

(2) In Nov 2007 the Small Business & Entrepreneurship Council published state rankings for small business survival:

Small Business Survival Index Rankings, Nov 2007
with rankings for selected factors
(1=Best, 51=Worst -- study included D.C.)

Oddly, Kansas scored its highest rank, #17, on electric utility cost. Electricity is relatively less expensive in Kansas compared to other states, yet Gov. Sebelius wants to arbitrarily introduce new red-tape, regulatory hurdles for new power plants?

(3) The Beacon Hill Institute at Suffolk University published a State Competitiveness Report in 2007 and showed slightly better rankings for Kansas:

Beacon Hill Institute's State Competitiveness 2007 Rankings
with rankings for selected factors
(1=Best, 50=Worst)

Sebelius' government and fiscal policy rank of 30 is actually a drag on Kansas' overall ranking of #17 in state competitiveness.

North Carolina and Florida rank low when insurance environments are considered. See Property and Casualty Insurance, a state-by-state analysis of regulatory burden, by Eli Lehrer from the Competitive Enterprise Institute and The Heartland Institute.

(4) The Tax Foundation publishes a State Business Tax Climate ranking:

Tax Foundation's State Business Tax Climate 2008 Rankings
(1=Best, 50=Worst)

There is a summary page for each state, such as this page for Kansas.

How does Kansas compare with its neighbors in these studies?

(1) In Rich States, Poor States, Colorado, Oklahoma and Missouri all rank better than Kansas. Only Nebraska ranks worse.

State Rankings from Rich States, Poor States
with rankings for selected factors
(1=Best, 50=Worst)

(2) In the Small Business Survival Index, Colorado, Missouri and Oklahoma all rank better than Kansas. Only Nebraska ranks worse.

Small Business Survival Index Rankings, Nov 2007
with rankings for selected factors
(1=Best, 51=Worst -- study included D.C.)

(3) In the State Competitiveness 2007 Rankings Colorado does rank higher than Kansas, but so does Nebraska. Kansas does beat Missouri and Oklahoma in this study.

Beacon Hill Institute's State Competitiveness 2007 Rankings
with rankings for selected factors
(1=Best, 50=Worst)

(4) Kansas only beats Nebraska in the Tax Foundation's rankings:

Tax Foundation's State Business Tax Climate 2008 Rankings
(1=Best, 50=Worst)

Criticisms of the Pollina study

(1) Americans for Prosperity objected to the Pollina study and ranking for Kansas:

Wrong model. While we commend Pollina for pointing out that high taxes do indeed hinder economic growth in the states, we cannot agree with the majority of the study which calls for more government spending as a way to improve the business climate. The study continually makes statements about the need for further government spending that is required to spur economic growth within the states. We believe history has shown that in the long run, more government spending, despite being targeting “eco-devo” projects, will inevitably lead to larger government and more taxes.

(2) Patrick R. Gibbons, Goldwater Institute:

“The first problem I see with the Pollina study is that it uses circular reasoning. They believe that proof of bad business policies includes job loss, but use job loss as a measurement to determine bad business policies; that creates a self fulfilling prophecy.”

“The study appears to be designed to prove that corporate welfare is good state policy. As we know shuffling existing wealth around, whether it is for the poor or the rich, creates no new wealth.”

(3) Ken Daniel's article from KSSmallBiz.com about Kansas' #10 Pollina ranking in 2006: "Best Place to Live" and Other Follies

"All of these rankings have the same fatal flaw – they are based on subjective, meaningless weightings of lists. The lists are not of similar units. One may be dollars, the next golf courses, the next percentages, and so on. Adding dollars to kilowatts to acres is a ridiculous exercise."

Conclusions

The #10 pro-business ranking for Kansas in the Pollina study does not appear to be justified based on studies made by other business and economic groups, which rank Kansas much lower, around #30.

Gov. Sebelius should explain how she can tout the #10 ranking from the Pollina study at the same time she is using regulatory red-tape to kill a $3.6 billion project, which would bring economic development and jobs to Western Kansas, when she has not offered viable alternatives.

Acknowledgments: Thanks to Leslie Graves and members of the State Policy Network who provided useful links, comments and helpful insight in this analysis.

Related:

• Oil refiner wary of coming to Kansas, Topeka Capital-Journal, April 27, 2008.
• Kansas Continues to Suffer from Job Growth Deficit, Americans for Prosperity, Sept 20, 2006.