Date: September 15, 2016
Tennessee and Kentucky – Podcast
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- A Case Study: Tennessee versus Kentucky
Hello. This is Scott McDonald and Welcome to the Perfect Place to Put a Practice Podcast. It is common for us to provide a compare and contrast analysis between two locations. We can look at the numbers and tell you why one location will be a better bet for you than another based upon some pretty sophisticated algorithms and investigation. And to be honest, if we don’t think either location shows sufficient promise, we will tell you.
If you are the type of person who may look back with regret at a particular decision because you didn’t really look objectively at the data, this might be the perfect tool for you. In many cases, professionals want to know if a proposed site is better than the site they are occupying now. This works too.
Because of this consideration that there might be some locations that are naturally better than others based upon market perspectives, we have come to evaluate states, particularly contiguous states that might hold more promise. One obvious example is the comparison between Washington State and Oregon. There are excellent reasons why Portland is so different from Vancouver. This is especially true if you are going to build a building or get a long-term lease. Another is Texas versus Oklahoma or Illinois and Indiana. In this latter case, the differences between these large states is becoming increasingly significant as the population centers are so close together and the practice/business/healthcare differences are becoming greater and greater. On the other hand, it is harder and harder to differentiate states like New Jersey and New York as their legislators tend to have very similar attitudes. The same is true for most New England States. Vermont, New Hampshire, and Connecticut are not so different as the once were. But if we look at Tennessee and Kentucky, big contrasts are growing in importance. Let’s consider these two states as an example of what we mean.
Yes, yes. I know about the Battle for the Barrel contest between the Kentucky Wildcats and the Tennessee Volunteers has been around for a very long time. As those who follow sports know, this rivalry has extended to all of their sports teams and can turn pretty nasty. But if we are talking about business, the contest is growing even more heated as each state takes a decidedly different path toward growth and innovation. This has nothing to do with why Tennessee continues to clean the clock of Kentucky in so many recent match-ups in football. Well, maybe a little. Anyway, the differences in how each state is taxing its citizens and businesses, how much the cost of living or costs of employment are making two states is a glowing example of a difference in philosophy that is making Tennessee a more desirable site for practice than Kentucky. Keep in mind that in terms of demographic character, industry, weather, and natural resources, they have started our very much the same.
Let’s discuss a couple of facts to provide an orientation.
Tennessee is a “right-to-work” state. Kentucky is not. That means that the cost for employers is much lower in those states that are not dominated by union rules. Large employers are far more apt to set up places of work where they don’t have to pay as much. Granted, some people see this as a bad thing because people are often not paid as much. But it also means that employment is easier to find. This helps account for higher growth rate of 4.57% versus 2.38% in Kentucky.
Is it possible that tax rates might have something to do with this? In Kentucky, they have several rates for personal income tax ranging from 2% to 6%. In Tennessee, the personal income tax rates are pretty simple. The Tennessee income tax does not apply to salaries and wages, but most income from stock, bonds and notes receivable is taxable. Some claim that Tennessee’s rates are therefore regressive because the poor pay the same rates as the wealthy. Others say that this is just fair. I won’t make a comment here except to say that a place that allows someone to keep more of their own money will tend to attract more people with money. That just makes sense to me. It is interesting to note that the other factors like Median Household Income are close to the same. The same is true of the Median Age. But these other factors are likely to have a positive impact upon the relative size of each state. Kentucky has 4.4 million people while Tennessee has 6.6 million.
But when we consider that there are four interstate freeways that connect these two states and that share a very long border, it is going to have a favorable impact upon one state and a negative impact upon the other. That is why I am paying special attention to the way that the various states diverge in terms of their potential. For many western states, their greatest advantage is that they are NOT California. But the same thing will apply to parts of the various states such as Counties. San Joaquin County is struggling due to a very large unfunded mandate to its public sector unions while Laguna and Elk Grove in nearby Sacramento County are doing much better by comparison. Placer and El Dorado Counties are doing even better than Sacramento County for the same reason.
Please understand that Kentucky and Tennessee have the same minimum wage of $7.25. But in several places throughout the U.S., one state, county, or city will raise its minimum wage very high while a neighboring place will not. This is likely to create a significant contrast that will exacerbate this difference dramatically. I have spoken about this issue in other podcasts but it is worth repeating. These changes are not market-driven and they are often not gradual. This will make the “leakage” effect far greater. The same thing has been known to happen when sales taxes are raised significantly in one municipality while those in another are not. This happened in New York and New Jersey, setting up a contrast that has not quite been resolved even today. Does it make a difference when Kentucky has a 6% sales tax and Tennessee has a 7% sales tax? On larger items, it might.
There are several take-aways from this approach to analysis. The first is that not all locations are the same and often have very different potential even if they are geographically close. The second is that the very proximity to locations with a different demographic character may represent a significant advantage to one location and a disadvantage to the other.
This is Scott McDonald of Doctor Demographics.com. You have been listening to the Perfect Place to Put a Practice podcast. And thanks so much for spending a little time with us. If we can get you the information and analysis on where to go and how viable a site might be, please visit our site or call us at (800) 424-6222.