But in one important respect, the two are peas from the same pod or, if you prefer, cards cut from the same deck. South Dakota and Nevada love small businesses.
So it is that for the past several years these states have been swapping the top two spots in the Small Business Survival Committee's (SBSC) ranking of the best places in America to do business. South Dakota takes top honors for 2003, the eighth year the Washington, D.C.-based advocacy group has done its survey.
Called the Small Business Survival Index, and available as a PDF file on the SBSC's Web site (www.sbsc.org), the latest ranking identifies 21 different ways in which government imposes costs on business and then measures the performance of the 50 states and the District of Columbia in each area.
Nine areas of analysis
The factors being analyzed include:
1. | Health-care costs. Ask small-business operators to name their most pressing concern, and providing health-care coverage to employees consistently is at the head of the list. Health-care costs vary significantly from state to state, and the SBSC index accounts for those differences. |
2. | Taxes. Fully 13 of the 21 criteria involve taxes of one sort or another. In addition to taxes on personal income, capital gains, sales, property and estates, the index also weighs taxes on Internet access and gasoline, unemployment and health-insurance tax rates and whether states require super-majority votes in order to impose or increase taxes. Individual and corporate alternative minimum taxes also are considered. |
3. | Electricity costs. Every business uses electricity, and how it is regulated or taxed by a state can have a significant impact on a business' bottom line. |
4. | Workers' compensation costs. The higher a state's workers' comp rates, the less friendly it is to labor-intensive business. Premiums have reached crisis levels in California, and lowering them is a top priority of Gov. Arnold Schwarzenegger. |
5. | Total crime rate. Businesses have a powerful disincentive to establish themselves or expand in states that cannot adequately protect life and property. |
6. | Right to work. Right-to-work laws generally mean freedom from interference by labor unions. |
7. | Number of bureaucrats. Most people agree that more bureaucrats mean more burdensome regulations. |
8. | State minimum wage. The minimum wage set by some states actually is higher than the federal minimum. |
9. | Legal and liability costs. The costs of litigation, whether frivolous or not, has become an increasing burden on U.S businesses of all sizes. |
The best and the worst
Each state is assigned a numerical score in each category, and then an aggregate score.
The lower a state's total score, the friendlier it is to small business.
| The 10 friendliest in 2003 | |
1. | South Dakota |
2. | Nevada |
3. | Wyoming |
4. | New Hampshire |
5. | Florida |
6. | Texas |
7. | Tennessee |
8. | Washington |
9. | Michigan |
10. | Mississippi |
And, at the opposite end of the scale, the 10 least friendly:
| The 10 least friendly in 2003 | |
51. | District of Columbia |
50. | Hawaii |
49. | Minnesota |
48. | Maine |
47. | Rhode Island |
46. | California |
45. | New York |
44. | Vermont |
43. | New Mexico |
42. | Oregon |
Gains and losses by individual states
While there generally are not dramatic shifts in the rankings from year to year, the adoption of policies that are more or less friendly to business definitely have an impact.
In 2003, for example, New York, Connecticut and Oregon all lost ground in terms of their desirability to small business — six spots in the rankings in Oregon's case — because they raised a variety of taxes. On the other hand, though Nevada raised imposed a payroll tax, it performed so strongly in the other categories that its overall ranking essentially was unaffected.
Happily, improvement by states is not unheard of.
The single most pro-growth policy change for 2003 occurred in New Mexico, where newly elected Gov. Bill Richardson pushed for and won a multi-year cut in the state's top personal income and top capital gains tax rates.
By 2007, New Mexico's top personal income tax rate will have fallen from 8.2% to 4.9%, and the comparable capital gains rate from 8.2% to 2.45%. Unless the other states make comparable reductions, New Mexico will go from one of the worst states to one of the best in both categories.
The initial tax cuts New Mexico made were sufficient to improve its overall ranking from 47 in 2002 to 43 in 2003.
Other factors to consider
So if you're stuck in a state with a bad regulatory environment, should you pull up stakes and relocate to a friendlier locale? If that's your sole criterion, probably not.
But if you're about to start a business and haven't yet decided where you want to base it, the SBSC rankings are definitely something you should consider. Ditto if you're already in business but considering expansion outside your home state.
Of course, there are a host of other factors to consider. Schools, cultural amenities, recreational opportunities and climate are more or less important depending on the individual.
No factor is more important than the cost of housing. If you can't afford to live in a state, it doesn't matter how pro-business its business climate is.
Anyone considering a relocation can get a quick read of housing markets across the country by using the National Association of Home Builders' Home Opportunity Index (www.nahb.org), which ranks metro areas according to the percentage of homes that are affordable for families at the median income.
At 50%, housing costs and income are in balance. If more than 50% are affordable for median income people, then housing in the market can be had at a relative discount. Below 50% and a premium must be paid.
The best moves reflect business, family and personal concerns.
Article Resource: http://www.microsoft.com/smallbusiness/
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