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Report: MA Cost of Business 22% Above Natl. Average

Thursday, January 31, 2013


A recent report shows that labor and utility costs have driven up the cost of business in Massachusetts to 22 percent above the national average.

The Economic Competitiveness Benchmarking Report from the Business Leaders for Michigan ranked states based on a set of metrics to see what obstacles businesses face in each area. The study also measured what advantages regions have, like higher education, personal income growth, and funding towards research and development.

The Commonwealth scored poorly for its obstacles to businesses, but also received high marks for education, talent, and other positive markers. But a state business expert says Massachusetts has “hit the wall” in terms of the benefits we can expect from a state whose penny pinching is costing its businesses.

The Metrics

Overall, Massachusetts had the highest business costs according to the report, which used figures from Moody’s Analytics. The state’s union representation was also higher than the national average by about 4 percent.

Electricity cost was another measurement used in the report, and the Bay State was at the top, with an average of 13.7 cents per kilowatt hour. MA’s cost of highway diesel was also the highest in the country at $2.59, above all of its peers in the study.

The study looked at each state’s value as well, marking things like talent, technical education, and economic well-being.

Across the board, Massachusetts was rated a highly prosperous state, placing second in per capita income. Private sector employment earnings per capita earned it the top spot, and it received third for average wage.

The state also scored well in terms of education, getting the top spot for its proportion of adults with a four year degree or more.

But these high points aren’t coming without a price.

The Cost to MA Businesses

Bill Vernon, Massachusetts State Director of the National Federation of Independent Business (NFIB), says that while Massachusetts may see some effects from this loop, it’s taking a toll on the state’s businesses.

“There is some cumulative effect. You do have high energy and unemployment insurance which is very costly. We’re trying to get businesses to apply for a workforce training fund, but it’s a surcharge,” he said. “These surtaxes and per-employee costs really add up.”

Vernon acknowledged the state’s strong education, but said that there are bigger problems stopping that from helping the state economy, including housing.

Mass Business Owners Speak Out

Two local business owners, Brad Wyatt and Linnea Sheldon, offered an insider perspective on the hoops that business owners have to jump through in Massachusetts.

Wyatt, owner of Wyatt Development, listed off many fees that he’s dealt with as a business owner, including annual report fees, high unemployment insurance, high energy costs and health insurance.

“My personal favorite is the $2.60 per thousand net worth tax,” Wyatt said. “I call it the ‘Capital Flee the State Tax.’ For comparison, one of my business partners has a warehouse in South Carolina, right over the Georgia border, because the rate is zero. You would think, with the Intermodal Transport, that Massachusetts would encourage warehouses and jobs, and eliminate this pesky tax.”

When asked what the state could do to turn these obstacles around, Wyatt said that this net worth tax would be the first to go.

“I'd also allow insurance purchase over state lines, creating more choice. Along with making all healthcare expenses tax deductible,” he said.

On the contrary, owner of My Trouvaille in Rochdale, Linnea Sheldon said that her small boutique has not had as much difficulty, but that other larger areas have more hoops to jump through.

“I was actually surprised how little it cost me to start my business. I had to have a few inspections and pay a couple hundred for my business license,” she said. “It was a very easy process, and the license is good for three or four years. I'd say it was less than $500 altogether.”

Sheldon also rents a space from Worcester’s local vintage shop, Crompton Collective, which is also an inexpensive way to do business.

Housing the Economy

Vernon said that although there may be tons of smart, new minds getting their start in Massachusetts, the housing problems in the state could send them elsewhere.

“The lack of housing means that a lot of those young professionals could move out of state in time,” he said. “We do have advantages and we have been able to use those, but disadvantages to me spell that we kind of hit the wall in terms of how far we can go in a high cost state and payroll and with electricity costs so high. It makes it more expensive to do business. There’s only so much you can do to overcome.”

Vernon said that the state’s restrictions on starter homes are putting a cap on this process.

“We’ve also had discussions with home builders and banks about the restrictions on starter homes – homes young people can move into. There are a lot of fees and regulations, and local zoning boards don’t look very favorably with houses with three bedrooms,” he said, highlighting the amount of opportunity that comes from housing – buying appliances and employing skilled laborers.

“Construction is such a large part of the economy. It runs through the economy, and we’re very restrictive on new buildings. We seem to be able to build high-end condos and affordable housing, but not for the middle class,” he said.

According to Vernon, the number of housing permits increased by an incredibly low number this year, with permits numbering less than 8,000 for single-family homes.

“These are the lowest numbers since 1960. We’re talking about some years with 50,000 or 60,000 home permits issued statewide. It’s a real problem.” 


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