Waukesha, Wis. – Former Kimberly-Clark CEO Darwin Smith may or may not have brought down a governor, but he certainly sparked a debate.
It was 1983, and Wisconsin had just elected liberal Democrat Tony Earl as governor. Earl attempted to address a budget deficit with an income tax increase, and Smith issued a dire warning about the impact of high taxes on the state’s business climate.
Two years later, Smith moved Kimberly-Clark’s corporate headquarters to Dallas, although the company maintained and still maintains a significant operation in Neenah. A year after the move, Earl was upset by a relative unknown assembly minority leader from Elroy – Tommy Thompson.
Jim Haney, president of Wisconsin Manufacturers and Commerce, remembers those days well. Haney, who served in the Dreyfus Administration, recalled how Smith funded an outside firm to conduct a study on taxes in Wisconsin, which led to the establishment of the Wisconsin Expenditure Review Commission.
To nobody’s surprise, the commission recommended that Wisconsin slow the rate of state and local spending so that the state could grow out of its budget mess. Even Earl appointed a commission that recommended lowering income taxes and phasing out inheritance taxes.
“They also wanted a rainy day fund,” Haney said of the Expenditure Review Commission. “Twenty years later, we haven’t done either one!”
Fast forward by those 20-plus years to RedPrairie leader John Jazwiec, who said in a recent interview with the Milwaukee Journal Sentinel that Wisconsin’s taxes are still too high, and that it’s difficult to find executive talent here. The company, which makes software for supply chains, is reportedly conducting an internal review to determine whether it should remain in Wisconsin.
State Secretary of Commerce Mary Burke has placed a call to Jazwiec to discuss his concerns, but he was traveling this week and no formal meeting has been set. “We’ll contact him to see what he says, and see if there’s a way that we can be helpful,” said Tony Hozeny, communications officer for the Department of Commerce. “Anytime someone says what he said, of course we’re concerned.”
The state’s deficiencies haven’t prevented RedPrairie from becoming one of the world’s fastest-growing supply chain software companies, and after its recent acquisition of Atlanta-based BlueCube Software, the combined companies expect to generate more than $200 million in annual revenue and employ 950 people.
Beg them to stay?
Should the State of Wisconsin intervene to prevent RedPrairie from packing its bags? “That depends on what you mean by intervene,” said Jim Rice, president and CEO of the Information Technology Association of Wisconsin,
Rice, who heads an organization established to strengthen Wisconsin’s IT sector, said the state should make an effort to understand Jazwiec’s concerns and perhaps extend a hand. “What are the facts, and what are the things we would actually do?” Rice asked. “There is certainly a desire on everyone’s part to help companies like RedPrairie stay in [metro] Milwaukee and in Wisconsin.”
The art of persuasion may take a sales pitch, especially when it comes to explaining how executives should view Wisconsin. “I think Wisconsin, if you want to attract executives with families, particularly families with young children, there’s not a better place to live,” Rice said.
Where’s the beef?
Many would argue that Jazwiec has less to complain about than Kimberly-Clark’s Smith. Tommy Thompson, a pro-business governor, enacted several of the initiatives recommended by his predecessor’s commission and served as governor during 14 years of economic expansion. The current governor, Jim Doyle, pledged to be a different kind of Democrat on economic matters, and even his harshest critics would have to concede that he largely has kept his word, signing a series of business and investment friendly bills passed by a Republican-controlled legislature. One of those new laws repealed shareholder liability.
But even though Doyle also has kept his word and has not raised income taxes, and even though he pumped nearly $1 billion more into K-12 education to control property taxes, Republicans are not about to cut him some slack on the tax issue.
Neither are the state’s chief executives, according to the Wisconsin Manufacturers and Commerce. In the WMC’s 2006 survey of top executives, 52.9 percent of state CEOs cited taxes as the top policy issue facing Wisconsin, and reducing taxes was the recommendation of 38.5 percent when they were asked to identify the one thing the state could do to improve the business climate. They were upbeat about job growth over the next 12 months, but when asked about their top business issue, the most frequent response was addressing the labor shortage (29.4 percent).
Wisconsin now has the seventh highest state and local tax burden in the nation, after ranking as high as second in 1995, according to the Tax Foundation, a Washington, D.C.-based organization that advocates tax simplicity and growth promotion.
“The lack of executives here and the inability to attract executives is, in some ways, a function of our high tax burden,” said Jim Pugh, director of public relations for WMC. “Wisconsin’s tax burden has not improved. When executives are recruited here, they get sticker shock when they see the tax bill.”
David Ward, president of NorthStar Economics, said the new laws will help, but only on the margins. As for executive talent, he would point out the quality of the state’s university system and workforce, and reinforce that as much as possible. “If the talent is here, they [RedPrairie] will stay,” he said. “It’s going to come down to people.”
RedPrairie may have another motivation, Rice conceded, and that is a desire to move closer to its parent company. RedPrairie was acquired in 2005 by the investment firm Francisco Partners of Menlo Park, Calif., and Jazwiec’s comments might well mask the company’s real reason for leaving. California ranks 15th in state and local tax burden, according to the Tax Foundation.
“It could be that they want to be closer to their parent in California,” Rice acknowledged. “That wouldn’t be all that unusual.”