Tag: Kauffman Foundation

Is the Hogan business mojo wearing off?

It’s only one survey of 280 small (perhaps micro-scale) businesses in Maryland, but a recent poll conducted by a company which should be familiar to regular readers calls into question the effectiveness of Larry Hogan’s efforts at improvement in Maryland’s business climate in his first few months in office.

In cooperation with the Kauffman Foundation, Thumbtack.com has done annual, quarterly, and now monthly surveys of small business sentiment around the country. (I’ve written about their surveys on business friendliness in the past.) While it comes in a more graphical form than I can readily share here, some items I gleaned from the most recent Maryland and national data follow:

  • In terms of revenue and overall financial outlooks, Maryland businesses are less positive than the rest of the nation in the former and fall right at the national mean for the latter. The good news, though, is that over 70% of these businesses have a positive outlook over the next quarter.
  • Less than half, however, rate their financial situation as “very good” or “somewhat good.” Maryland’s total is 45.9% compared to 48.1% nationwide.
  • Maryland businesses are more pessimistic about profitability than their national peers; still, over 60% think they will do better. On the other hand, their perception on business conditions is actually better than the national average – 53.4% in Maryland think they will be better in three months’ time, while only 51.9% nationally share that outlook.
  • Finally, 24% of Maryland micro-businesses anticipate hiring over the next three months, while just 22.1% do nationwide. But while only 2.1% of businesses nationwide thought they would need to furlough workers, that percentage was 2.5% in Maryland.

As I noted above, this data was compiled at different intervals. Until March, this was done as a quarterly survey; now it is monthly. But one asset of this approach is that I can go back to the beginning of the year, and in their release accompanying the information Thumbtack.com noted:

In June, respondents nationwide indicated reduced optimism about the economy for the third month in a row, though sentiment about current and future conditions continues to be higher than that reported one year ago.

Key findings for Maryland include:

  • Maryland small businesses reported a sharp decline across each of the metrics tracked by Thumbtack, with the strongest declines coming in their expectations about future financial conditions and the economy.
  • Maryland experienced one of the largest overall business sentiment declines in the country in June; the state is now below the regional and national averages for small-business sentiment and ranks 30th overall nationwide.
  • Sentiment is still higher than it was one year ago, reflecting a broad-based increase in perceptions of economic conditions by small businesses across the country.
  • For the second month in a row, small businesses nationally expressed increasing pessimism about future economic conditions, which have been the largest contributors to the decline in overall sentiment.

Thus, it sounds like Maryland is reflective of a national trend.

But it’s also worth noting that the 2015Q1 survey showed broadly higher numbers across the board – revenue outlook has declined 10.9 points, financial outlook 5.2 points, profitability 11 points, and business conditions 8 points.

In addition, those who thought they may be hiring declined from 26% to 24.1%. Only the respondents’ assessment of their financial condition stayed relatively unchanged, declining just 1/10 of a point.

Unfortunately, these were the types of numbers we came to expect in the O’Malley administration. Obviously Hogan apologists would argue that their guy has been in office less than six months and it takes time to turn the ship of state around. And they would be correct, as the Augustine Commission agenda sailed through the General Assembly with its effective date in October.

Yet to me much of that was a simple rearrangement of deck chairs on the Titanic. While we can’t do a whole lot about the national economic climate, one thing Maryland could have done was allow these entrepreneurs to keep a little more of their money by reducing personal income tax rates; meanwhile, they could accommodate the entire elimination of corporate taxes with modest budget cuts of 3% or less. (The corporate tax brings in just over $1 billion of a $40 billion budget.) This would encourage larger businesses to consider Maryland for their growth and create more spinoff work for these micro-businesses.

Think of it this way under my scenario – Justin relocates from New York to work at the new Maryland corporate headquarters of XYZ Company, which was attracted here by the zero corporate tax rate as well as the other benefits Maryland brings. He needs a guy to fix his laptop, someone to watch the kids while Justin and Mrs. Justin are at work, and so on and so forth. Imagine what 250 Justins can do for a community and how many extra jobs they create. (I’m sure someone somewhere has done a study on this but today I’ll work without a net.)

The point is that addressing regulation and red tape is great, but the financial incentive has to be there as well. Among states with flat corporate tax rates, Maryland ranks among the highest. On a personal income level, Maryland’s rates appear to be a little better but that doesn’t add in the local county tax. (Granted, other states may also have the same practice.)

Let’s just say this: with an agenda that includes financial incentives as well as some cooperation from thoughtful Democrats in the Maryland General Assembly, by this time next year we can have a far more optimistic business community and in a few months after that they can better enjoy the results of hard work because the state takes a smaller cut.

More evidence of business unfriendliness

For three years, the folks at Thumbtack.com, a service for entrepreneurs looking to trumpet their wares, has partnered with the Kauffman Foundation to produce a Small Business Friendliness Survey for much of the country. I’ve referred to this survey before on several occasions.

Out of 38 states which had enough data to analyze, Maryland falls in a range between 25th and 27th with a “C-” rating, placing it in a group with Michigan and Wisconsin. While it rated top grades (an A+) for training and networking programs, it had only one other good grade – a B+ in ease of hiring – and several D+ grades in regulations, tax code, licensing, environmental, and zoning.

There are a couple caveats to bear in mind for Maryland’s grade. There aren’t a whole lot of businesses surveyed, and the written responses came from a small area of the state representing Montgomery, Prince George’s, Howard, Frederick, and Baltimore counties as well as Baltimore City. Those are the areas which generally represent the Democratic strongholds of the state, which leads me to wonder whether the grades are inflated because the responses tend to skew toward a liberal population or whether their frustration level is such because they are conservatives in a liberal state. Regardless, you have a number of survey answers like this one from Severn:

Maryland is all about taxing entrepreneurs and driving them to other states.

To be fair, there were a lot of positive responses, too, like this one from Hyattsville:

I have no complaints. The state of Maryland does a very good job in providing incentives for small business owners like myself to continue to conduct business.

If you hold your cursor over a dot on the page, you can read the good and bad reviews – by my count there are 32.

But to me this is a good primer for politicians to read – real responses from real business people who are hustling daily. And you can easily compare notes with a state like Texas, where responses were plentiful (at least from the urban Dallas, Houston, Austin, and San Antonio areas) and the grades were outstanding across the board – Texas was the lone state to not have any B grades whatsoever, just straight A’s. (Virginia was also in a fairly elite category as well, along with Idaho and Utah.) That’s a very useful facet of this survey in my eyes.

Having three years of data to work with can be telling as well. Out of ten sub-categories the survey measured, Maryland slipped in eight of them between 2013 and 2014. (Only the “training and networking” improved, while “employment, labor, and hiring” stayed put. These were the two best categories for Maryland.)

It is a legitimate question to ask, though, whether the frequent talk over the last couple years about how bad Maryland businesses have it has become a self-fulfilling prophecy insofar as these survey responses are concerned. While there’s obviously been changes in law and regulation, they didn’t seem as bad as some of the grade drops may seem to indicate. But then these are the people in the trenches.

With the timing of the survey, I suspect it will be taken next year in the opening weeks of either the Hogan or Brown administration, and the responses may hold a key to what we can expect over the next few years as far as businesses see Maryland.

Small business: it’s not just taxes, but regulations and training too

As a prominent member of the media (or more likely someone on a particular e-mail list) I received an advance notice of a study being released tomorrow; one which pinpoints some of the root complaints of small business owners around the country and, more importantly, grades states on how willing they are to help small businesses start up and prosper.

The study, which was a joint effort between the Kauffman Foundation and Thumbtack.com, a company which bills itself as “a place where you can hire help locally,” surveyed over 6,000 small business owners with some of the main goals being to find out:

  • In general, how would you rate your state’s support of small business owners?
  • Would you discourage or encourage someone from starting a new business in your state?
  • How would you rate your company’s financial situation today?

In all, the study counted up 21 different metrics, ranking each state and 40 cities across the country in their business-friendly attitudes. Locally Maryland graded out as a C- overall, which translated into a ranking would put them between 31st and 33rd. There were two other states with a C- and 12 states which had a D or F grade; meanwhile, six states did not receive a grade – Alaska, Hawaii, North Dakota, South Dakota, West Virginia, and Wyoming. Presumably they didn’t get a large enough survey sample from these smaller states. (The same holds true in our little corner of the state, as there were no responses south of Talbot County and only four on the entire Eastern Shore.)

Our state, surprisingly, did best on training programs with a B+ grade. I wasn’t shocked to see a low D+ grade on licensing, though. (The complete methodology and analysis is here.)

What did surprise me, however, was the fact Delaware only ranked as a C. But their tax code was given an A+ grade. Other adjacent states received overall grades of C (Pennsylvania) and A (Virginia.)

So why is this important?

Every so often, particularly when a new administrator takes over, we hear the government promise to make life easier for businesses by streamlining the process. But it seems that these words are just so much lip service in most cases – sure, you may see a “one-stop shop” but there are still reams of paperwork to fill out, license fees (read: government revenue) to collect, and other non-productive busy work for a prospective business owner to do. Obviously, a city or state which makes it easier to go through these hoops will eventually accrue an advantage over adjacent areas – it’s most painfully obvious in Maryland, which seems to lag behind neighboring Delaware and (particularly) Virginia in job creation.

The Founding Fathers had a vision of each state being its own laboratory of government, competing in how best to serve the public good. With respect to business climate, it’s obvious some are better than others and that’s one reason why some states are more prosperous.

However, with that being said, one also has to examine the goals of each state as well. If a state is interested in promoting job creation under the belief that a rising tide lifts all boats and their prosperity comes from the people doing well and contributing a small share of that wealth to the public coffers through reasonable taxation, that’s one philosophy I tend to agree with. On the other hand, if states figure that those who embark on business are cash cows to be milked until old Elsie crumples over from exhaustion, they do reasonably well until word gets out and people become fed up. The corollary effect of this philosophy is one where the public finds only large-scale businesses such as chain stores can be successful, because they have the overhead necessary to deal with these government-created issues whereas a mom and pop operation does not. Eventually that stifles competition,  leading to collusion and a system of corporate cronyism.

Maryland seems to fall into the latter category, and there’s only one key reason they can get away with it. If it weren’t for having the seat of federal government power close by Maryland would be an economic basket case much like most of the Eastern Shore, with little industry or development to speak of. That’s because business policies are set to take advantage of the economically captive audience of the I-95 corridor. Martin O’Malley and other Democrats speak of ‘One Maryland’ but in reality there are at least three, and perhaps four: the western section, which could prosper if allowed to exploit its natural resources, the center of the state which relies on government to succeed economically, and the Eastern Shore, where agriculture and tourism reign supreme. Southern Maryland is sort of a blend between the latter two because of Washington, D.C. and its sprawling growth down the Potomac River.

Granted, there are local economic factors in play as well: while Virginia is a relatively prosperous state as a whole, I wouldn’t characterize their Eastern Shore as thriving. Localities are the same way – as businesses open up around the outskirts of Salisbury, the downtown area dries up. Needless to say, government policies are far from the only reason people decide to locate a business where they do. But they can make a difference in whether an enterprise succeeds or not. If taking eggs from the golden goose is all government seems interested in, don’t be surprised when the goose starves to death.

Small startup businesses already have a difficult time getting established in this economy, and the question becomes whether their efforts are helped or hindered by government. Over time, localities have tried a number of different approaches to attracting business like setting up infrastructure for industry on a speculative basis, establishing tax abatement policies, becoming a lender of last resort, and so on. All these can be helpful, although they aren’t exactly making the playing field more level.

Taking the step into entrepreneurship is already stressful enough, so the goal of government should be one of making the process as simple and painless as possible. Fortunes have been built in America based on good ideas, and government should take its place in line for its rightful share instead of taking advantage of those who have a dream.