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Texas and California spar over jobs and taxes

Texas Governor Rick Perry speaks during the 2011 Republican Leadership Conference in New Orleans, Louisiana in this file photo taken June 18
Texas Governor Rick Perry speaks during the 2011 Republican Leadership Conference in New Orleans, Louisiana in this file photo taken June 18

By Jim Christie

SAN FRANCISCO (Reuters) - Texas Governor Rick Perry's latest sales pitch to California businesses boils down to four words: Texas is no California.

"Building a business is tough. But I hear building a business in California is next to impossible," Perry says in a cheeky radio ad that aired ahead of his tour of the Golden State this week. "See why our low taxes, sensible regulations and fair legal system are just the thing to get your business moving to Texas."

The Republican governor hopes to tap into perennial discontent among some California businesses over the high taxes and welter of regulations that have helped California earn the title of the worst state for business for eight years running in an annual survey conducted by Chief Executive magazine.

Perry is touring California this week to try to lure businesses to Texas to continue feeding the state's economic engine that has propelled it to the lowest unemployment rate among major states and given the government a surplus when most states are running deficits.

"This isn't about bashing California - it's about promoting Texas and the economic climate that we've created to encourage job creation and prosperity," Perry told reporters by phone from Laguna Beach, California, on Wednesday.

He said the ad and the trip have generated buzz, getting people talking about the differences between the two states, and prompting a spike in the "Texas Wide Open for Business" website on the first day the ad ran. During the trip, Perry held a reception for more than 200 California companies that contacted his office indicating an interest to relocate, he said.

Democratic California Governor Jerry Brown brushed off Perry's $24,000 ad effort, saying it was "barely a fart," and many analysts say there is no evidence a meaningful number of businesses are choosing to leave California or expand elsewhere.

Still, the passage of a Brown-backed voter initiative in November to raise income taxes on the wealthy has again stirred up complaints about the state's business climate.

"The disenchantment runs deeper than I'm accustomed to," said Joseph Vranich, a consultant who helps companies move into and out of California.

Vranich said that since the election he has signed five new clients who want out of California, a process that usually takes one to two years, versus the seven he typically lands for an entire year.

RIVALS IN MANY REGARDS

California and Texas, the first and second most populous U.S. states, have become rivals in a number of ways, with their polar-opposite politics standing out.

In Democratic California, unions enjoy tremendous clout and helped rally voters behind the new tax measure. Democrats also won a super-majority in the state legislature in the November elections, making the state a test-bed for Democratic policies.

Texas, by contrast, is dominated by pro-business Republicans. As the "Texas Wide Open for Business" website points out, the state has zero income tax. It's also known for minimal environmental and worker health and safety regulations.

The rivalry is also fueled by a desire for bragging rights over job growth and economic muscle.

Helped by low costs for labor, land, energy and housing, Texas has been the nation's jobs engine in recent years. Its jobless rate of 6.1 percent is the lowest of any big state, and well below the national average of 7.9 percent. Unemployment in California is 9.8 percent, down from over 12 percent in 2010 but still the third-highest rate of any state.

California boasts some assets no other state can match, like its fabled high-tech industry. San Jose, the state's third-largest city and de facto capital of Silicon Valley, last year vaulted 50 spots to the top of the Santa Monica, California-based Milken Institute's 2012 index of best-performing cities.

In many areas around San Francisco and Los Angeles, home prices are again on the rise - reflecting a nascent economic comeback and the state's continuing appeal.

But Texas has a burgeoning tech capital too, in Austin, which now ranks just behind San Jose as a top-performing city. And according to Kevin Klowden of the Milken Institute, Texas now outshines California in exports despite the Golden State's natural position as a gateway to Asia.

Texas has "decisively taken over the lead from California as the largest exporting state" by pressing links with Mexico and encouraging companies exporting to Latin America to locate operations in the state, Klowden said in a blog post on Monday.

TALKING UP TAX POLICY

Brown, who first served as governor from 1975 to 1983 and was elected to a second tour in 2010, spent much of the past two years slashing spending to cope with huge state budget gaps brought on by the housing meltdown and global financial crisis.

But with new taxes and a recovering economy, the budget is now in balance, and Brown promises surpluses in the coming years. He has called on fellow Democrats in the legislature to hold the line on new spending even as he pushes big infrastructure projects such as a high-speed rail system.

Texas, by contrast, benefited from an energy boom even as the national economy was in recession, and currently boasts a $9 billion surplus. Perry wants to change the state constitution to return revenue when the state brings in more than it needs.

California's tax hikes leave it with rates ranging from 10.3 percent to 12.3 percent on income between $250,000 and $1 million through the 2018 tax year. An extra pre-existing tax for mental health spending puts the overall tax rate on millionaires' income at 13.3 percent, the highest of any state. The temporary increases also included a boost to the sales tax.

During his swing through California this week, Perry has also likely been talking up Texas' light regulation - one reason CKE Restaurants Inc is looking to that state for growth.

Andrew Puzder, chief executive of CKE, said Perry personally lobbied to try to get the Carpinteria, California-based operator of Carl's Jr restaurants to plant its headquarters in Texas.

All governors are boosters for their states but Perry is much more, Puzder said: "He runs his state as an entrepreneur ... He views it as a competing business."

CKE aims to open 300 restaurants in Texas by the end of the decade, helped by its fast permitting. CKE will open restaurants in California but only "opportunistically," Puzder said.

Waste Connections Inc Chairman and CEO Ron Mittelstaedt moved the waste hauler's headquarters just over a year ago to The Woodlands, Texas, near Houston, from the Sacramento, California area. The company operates nationwide so it needs to be centrally located but Mittelstaedt said regulation also drove the move - as did Texas' pro-business culture.

"I'd take free-market capitalism over socialism any day, and that was the decision that we made," Mittelstaedt said.

He added that it took Waste Connections 16 months to design and build a new, 11-story building in Texas, including eight weeks for permits. He estimated it would have taken three years just to get the permits in California.

The California Environmental Quality Act is often cited by critics as a major cause of pointless delays on construction projects in particular. Brown said at a conference on Tuesday he supports "reasonable" reform of the four-decades-old law, which he noted had originally applied only to state projects but that courts later expanded to cover virtually any development.

But he also indicated that changing the state's environmental laws was not at the top of his priority list. Many of his union allies, including the powerful California Labor Federation, oppose any changes, and environmental regulations are broadly popular in the state.

"Efforts by big corporations to roll back this important law put California families, workers and our natural resources at risk," the labor group's top officer said on Monday.

(Reporting by Jim Christie; additional reporting by Corrie MacLaggan in Austin and Jonathan Weber in San Francisco; Editing by Jonathan Weber, Lisa Shumaker and Phil Berlowitz)

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