Policy: Economy

Studies ranking states' business climates are all over the map

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Opinion,Maryland,Op-Eds,Jobs,Florida,Oregon,Texas,Economy,Chambers of Commerce

When governors describe their business climate, it is similar to asking them about the weather. The answer varies depending on what day it is.

That is because business media outlets, think tanks, site selection consultants and financial services firms produce myriad annual reports that rank each state on the strengths and weaknesses of their business climates. The forecast varies from freezing rain to sunny and clear.

Maryland Gov. Martin O'Malley, for example, basks in reports produced by the Milken Institute, the Kauffman Foundation and the U.S. Chamber of Commerce, where the state ranks relatively high.

O’Malley is particularly fond of the chamber’s ranking Maryland as the number-one state for innovation and entrepreneurship, citing it in his last three state-of-the-state addresses.

Less pleasing and thus going unmentioned by O’Malley are reports from Chief Executive Magazine and the Tax Foundation, where Maryland drops to the bottom 10 slice of the 50 states.

So how can the same state rank first, according to the U.S. Chamber of Commerce and 41st according to the Tax Foundation?

First, the chamber’s 2013 “Enterprising States” study uses five criteria to rank the states, with innovation and entrepreneurship comprising just one category.

Maryland’s high ranking, according to the chamber, is due to government investment in various private sector initiatives, small business mentoring programs and university research commercialization.

Another component of the same chamber study analyzes taxes and regulations, where Maryland falls to 43rd. In other words, O'Malley is citing just one part of a five-part study.

On the other hand, the Tax Foundation’s 2014 “State Business Climate Tax Index” is a relatively straightforward comparison of corporate, individual income, sales and property taxes and unemployment insurance obligations.

This is where Maryland earns a 41st ranking, as states without either individual, corporate and sales taxes outrank others.

A number of other governors place great importance in these reports and they are often used to hammer political opponents. Florida Gov. Rick Scott, for example, targeted Maryland companies last year in appeals for them to relocate to the Sunshine State.

Scott cited the American Legislative Exchange Council’s “Rich States, Poor States” analysis, which boosted Florida’s ranking compared to Maryland, based on favorable tax rates and the presence of a right-to-work law.

Texas Gov. Rick Perry recently slammed New York Gov. Andrew Cuomo and challenged him to a debate on jobs and economic issues, saying:

“Moody's rated New York 47th in job creation outlook in 2014; CNBC ranked New York 35th in its best states for business survey. CEO magazine ranked New York 49th in its annual ranking of best states to do business and Texas was number three in that job creation outlook.”

For Gov. John Kitzhaber, these reports showed Oregon “is open for business,” as he took office in 2011.

According to Ernst & Young’s Cost Study in 2010, the state had the lowest effective business tax rate in the U.S. And four years ago it was ranked as the sixth best state in the nation to do business, according to Forbes.

Then there are the business climate reports favored by Louisiana Gov. Bobby Jindal. Jindal's office issued a press release recently saying his state now places among the top 10 states in reports published by Area Development, Business Facilities, Chief Executive, and Site Selection.

Jindal’s office goes on to say that Louisiana now ranks higher in every major national business climate ranking than it ever did prior to 2008.

This raises an important question. Just what are the major national business climate rankings? The answer is that it depends on whom you ask.

Jim Pettit is a public policy consultant who analyzes state economic activity and trends.
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