From Site Selection magazine, November 2001 U.S. BUSINESS CLIMATE

by MARK AREND and GINNY DEAL  N ot too long ago, state legislatures around the U.S. spent their lawmaking sessions deciding which programs to create or increase appropriations to in order to lure businesses, among other agendas. Lofty economic times filled state budget coffers from Hartford to Honolulu, giving lawmakers lots of leeway in reducing corporate tax rates and aiding new industry clusters. Not so in 2001, thanks to what most now are referring to as a recession. Budget shortfalls plagued legislatures in 17 states and 20 states took extraordinary actions to enact balanced budgets for fiscal year 2002, according to the National Conference of State Legislatures' annual survey of state budget and tax actions, which was released August 1st. Of the states with shortfalls, nine implemented budget cuts, six tapped reserve funds, four canceled or delayed capital projects, three increased debt obligations and two dipped into tobacco settlement funds. But the news wasn't all bad. Twenty-two states took advantage of surpluses to stock up rainy day funds, reduce taxes and fund programs. "The yellow light is on now, and state legislatures will be more cautious in making budget decisions," noted California State Senator Jim Costa, president of the conference (www.ncsl.org). Aggregate state balances (general fund ending balances and rainy day funds) fell 22 percent from FY2000 to FY 2001, declining from $43.7 billion to $34.1 billion for the 46 reporting states. Among other findings in the survey: Despite slower revenue growth, states will enact tax cuts for the seventh consecutive year. Eighteen states reported revenue growth above 5 percent with five above 10 percent; three states -- Alaska, New Mexico and Oklahoma -- attribute robust energy prices to the increased revenues. Five states -- Georgia, Maine, Michigan, Wisconsin and Wyoming -- saw revenues shrink relative to the previous fiscal year. Medicaid funding was behind many states' increase in spending. That cost grew by 14 over the previous fiscal year's appropriation. On the following pages are summaries of legislative activity in the 50 states and Puerto Rico that can affect business expansion activity. Following those summaries are charts showing states' current incentives programs and notes explaining their subtleties. Continue to next page

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