CHARLESTON — Secretary of Commerce Keith Burdette told the Joint Committee on Tax Reform Monday that it isn’t the state’s tax structure keeping businesses away.
Instead, Burdette told the committee, companies that investigate the Mountain State for expansion or start-up find that lack of flat land is the biggest disincentive. Less than 3 percent of land is the state is considered level, he said.
“Location is our No. 1 problem,” Burdette said. “We don’t lose prospects over taxes; I’m not sure we lose them over regulations any more. We lose them over site.”
Legal and regulatory issues rank Nos. 2 and 3, respectively, he said.
Burdette said lack of an educated workforce also hurts West Virginia when businesses want to locate here. He said it should be “no surprise” that states with the lowest number of residents who have college degrees also have the lowest median income.
According to the U.S. Census Bureau, 18.3 percent of state residents have college degrees, 10 points lower than the national average. The median income in West Virginia is $39,170, 48th in the nation, according to the bureau.
Burdette said CNBC ranks the state No. 7 for cost of doing business because of its competitive tax climate, utility costs, cost of wages and cost of rent for office or industrial space.
However, the state ranks much lower in workforce issues (36th) for education level, number of available employees, productivity and worker training programs, as well as infrastructure (42nd), because of access to transportation, quality of roads and bridges, commute time and safe drinking water, according to the CNBC rankings.
In economy, CNBC ranked West Virginia 36th because of strength and diversity, job growth and creation, the state’s fiscal health and the number of major corporations headquartered in the state.
While the state’s leaders often tout the quality of life in the Mountain State, CNBC ranked it 40th because of crime rates, inclusiveness, the quality of health care and health insurance coverage, the overall health of state residents, local attractions and environmental quality.
And the state is last in technology and innovation because of lack of support, the number of patents issued to residents, its record of high-tech business formation and the number of federal health, science and agricultural grants to the state.
Other ratings played into the overall state ranking — education (34th), business friendliness (48th), cost of living (24th) and access to capital (43rd).
Burdette said lawmakers should not pay that much attention to rankings — because businesses don’t.
“Companies aren’t making decisions simply based on CNBC or any other state ranking. The cost of doing business is absolutely a key element,” he said. “But you have to acknowledge that it is also clear it isn’t the only consideration. If it was, 80 percent of the businesses in the country would be clamoring to come to West Virginia.
“Simply making us the lowest cost state without acknowledging and focusing attention and resources on other factors which make an attractive business climate would be a mistake.”
Committee members also heard about the Earned Income Tax Credit from WVU’s Director of the Bureau of Business and Economic Research, Dr. John Deskins.
Deskins said the federal credit — which pays extra money to working people who file an income tax return — is also called a negative income tax.
The EITC is an incentive to enter the workforce, Deskins said, especially among single mothers, and has other benefits, such as improved health.
That may be important in a state with the worst workforce participation rate in the nation, he said.
However, Deskins was lukewarm about the EITC being a fix for the state’s problems.
“I’m not sure we’ll be able to overcome the challenges we face (with an EITC),” he said.
Sen. Mike Hall, R-Putnam, co-chair of the committee, said the concept of the credit — much like a business tax credit — was meant to drive activity.
“There’s some empirical evidence that it does actually incent people to work,” he said. “Whether the state can afford to add this credit when we’re going to be down $170 million ...”
Hall said the cost of the EITC would be about $37 million.
“That’s pretty big for us right now,” he said.
Delegate Eric Nelson, R-Kanawha, the committee’s other co-chair, said 160,000 West Virginians are already eligible for the state credit.
“Maybe that’s not the driver,” he said.
Hall said residents who receive benefits like Medicaid worry about losing those benefits when they go to work, and suggested that a phased-in program that would allow them to keep benefits for a time.
“I don’t think anybody is going to jump up and go to work because we’re going to give them a small Earned Income Tax Credit at the state level,” Hall said. “They’re not jumping to go to work because they get it at the federal level.”
Both Hall and Nelson said raising the “zero level,” the highest income that pays no income tax could have a bigger impact on state residents.
Ted Boettner, executive director of the West Virginia Center on Budget and Policy, said the EITC is critical to any tax reform in the state.
“It encourages work, moves families from welfare to work, increases labor force participation — especially among single mothers — and it lowers poverty rates,” Boettner said. An EITC is conservative policy. It is anti-welfare.
Boettner pointed out that it improves physical and mental health without adding to the health budget and is easy to administer.
“It also creates jobs because almost all of it goes back into the local economy, spurring private businesses to create more jobs,” he said.
The committee meets again Aug. 31. The topics will be sales and use tax and streamlining.