When it comes to comparing various locations in order to determine where your company will place its next manufacturing facility or distribution center, it is absolutely critical that the data you collect is accurate, so that you are able to reasonably forecast your costs during the next several years.
That's the basis for all cost-analysis scenarios you will run in order to determine where to site your next facility. Your major costs have to be reasonably predictable. Otherwise, all you're doing is taking a stab in the dark.
I've often heard business executives say that they can live with higher taxes, or certain environmental regulations, as long as they know about them ahead of time. Granted, they would probably prefer that those high taxes and costly regulations not be there in the first place but, assuming they are, businesses can try to absorb the extra costs as long as executives know about them in advance.
What really makes businesses nervous is uncertainty, especially as it pertains to costs.
That's why it's well worth spending a little bit of time looking at a state's finances before you commit your company to spending tens of millions of dollars on a facility that you plan to occupy for at least the next 20 to 30 years.
Why? The answer is pretty obvious. A unexpected tax increase can throw your cost projections - the basis for your decision to locate your facility in that particular site - right out the window.
The only way a government raises revenue is through taxing economic activity within its jurisdiction. Whether it's through taxes or fees, you (as an individual, as a business or as a consumer) will pick up the tab.
The anti-tax sentiment generally found throughout the United States serves to keep most legislatures from raising taxes these days. However, sooner or later, that's bound to change. With most, if not all, states in the midst of fiscal crisis, largely because of lower than forecasted revenues, the pressure is on.
States that have kept their financial houses in order will be better able to hold off the tax-raisers without cutting deeply into essential services.
While it's pretty simple to evaluate tax rates and types of taxes, you should also check for indicators that the state might soon be forced to raise taxes. A good place to begin is by looking at the state's debt load - in relative as well as absolute terms - just as you would for any company you were considering investing in.
The greater the debt, particularly the debt-service ratio, the more likely it is the state will have to raise taxes, or reduce spending in critical areas like education and road infrastructure. For some states, it's a good bet they'll have to do both.
In either case, you'll be paying the price.
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