One clue that there might be something funky with this survey is the fact that all the Northeastern states were clustered at the bottom: New York 40, New Jersey 43, Pennsylvania 44, Maine 45, Connecticut 46, and Rhode Island dead last.
The only Northeastern states to get out of the doldrums were New Hampshire, tied with Arkansas for 30th, and that business-hating socialist hotbed of Massachusetts at 25.
Right off the bat, I’ve got to believe there’s some sort of built-in regional bias. And with Massachusetts the star performer of the region, it’s hard to see how much of an impact Vermont’s liberal tax-spend-and-regulate environment would have; we can’t be that much worse than Massachusetts. Indeed, the rankings are such a mixed bag that it’s hard to identify useful trends: some factors favor robust social investment (infrastructure, education), some have a clear geographic bias (availability of transportation), some favor large states, some small.
Of course, that didn’t stop VTGOP Chair “Super Dave” Sunderland from glomming onto the survey like Paula Deen on a stick of butter.
— VTGOP Chair (@dasunderland) October 21, 2014
Well, there’s the VTGOP analysis, in its full 140-character glory. What say we take a closer look at this survey?
Vermont’s rankings tended toward the extremes. There were ten categories in all. We were near the top in Quality of Life and Education. We were in the middle on a few things (including the oft-criticized Business Friendliness, #31), but right near the bottom on Cost of Doing Business, Cost of Living, Infrastructure & Transportation, and Workforce.
All right, so we’ll take credit for Quality of Life and the excellent education system that the Republicans would like to undercut (gubernatorial candidate Scott MIlne calls for as much as a 30% slash in public school funding). But let’s see why we fare so poorly in those four major categories. CNBC lists the criteria in each category, although there’s no explanation of how the criteria are evaluated and weighted, so it’s only of limited utility.
Cost of doing business. Criteria include state and local tax burden (income, property, business, gasoline), utility costs, wage rates, and rental costs for commercial space.
Regarding taxes, first of all I’d note the absence of sales tax, which hits middle- and lower-class residents hardest. For included taxes, CNBC used the official tax rates. However, some of our tax rates are artificially high compared to taxes actually paid. This is especially true for top income earners. Vermont’s official top income tax rate is 8.95%, which is on the high side; but because of generous rules on eligible income, top earners pay an effective rate of only 5.2%. And when you combine all taxes, the top 20% pay a smaller share than any other group.
As for utility costs, yes, they’re relatively high. That’s partly because of Vermont’s relatively aggressive adoption of renewables, but also because of our relative lack of home-grown sources. We don’t have any of our own coal, oil, or natural gas.
On wage rates, well, I’d just as soon have better wage rates than some “business-friendly” states like Texas and Utah and Nebraska. Ditto rental costs: I’m glad we put reasonable limits on commercial development. It’s part of the price we pay to keep our “Quality of Life” score high. (If, like Scott Milne, you’d like to see Vermont look more like the West Lebanon, NH commercial strip, then you’re entitled to your opinion. I guess.)
Cost of Living. A fairly straightforward category. Some of the low ranking is due to social choices (energy and development, see above) and some is inherent in being a small, rural, cold place (food, heat).
Infrastructure & Transportation. This category is a little funky. “Quality of roads and bridges” is only a small part of it. CNBC’s top criteria:
We measure the vitality of each state’s transportation system by the value of goods shipped by air, waterways, roads and rail. We look at the availability of air travel in each state, the quality of the roads and bridges, the time it takes to commute to work and the supply of safe drinking water.
Well, hell. Vermont’s never going to score well on most of that. We don’t produce a lot of goods, so we don’t transport much. We don’t have much of a transportation infrastructure because we’re so small: only a couple freeways, a lot of winding two-lane roads, very little rail or air. And our commute time is long because we’re rural.
Workforce. This is another funky one. Along with education level of employees and number of available workers (we struggle on that one), CNBC puts a lot of stock in right-to-work laws and toothless labor unions. Again, if that makes us a bad place to do business, it’s a trade-off I’m more than willing to make.
There’s one more crucial piece you need to understand about the CNBC ranking. Not every category gets equal weight. In fact, the most heavily weighted category, Cost of Doing Business, is worth 450 points, while Education is worth only 150 points and Cost of Living only 50.
CNBC’s weighting system pushes Vermont farther down the rankings because we generally score worse on the heavily-weighted categories than on others.
Some of the weighting is reasonable, and some of it is standard fiscal-conservative dogma. Education, in particular, seems to be very important to a lot of Vermont businesses, and yet it carries little weight in CNBC’s rankings.
But then, it’s depressingly normal for the business world to focus on the immediate and short-term, instead of the long-term. You’d think that businesses would be smart enough to realize that a little short-term pain (enough tax revenue to support infrastructure, education, and social services) is more than justified by the longer-term gain of doing business in a strong, stable environment rich in social capital.
The survey is somewhat useful if you look beyond the mere rankings and use it to evaluate your state’s strengths and weaknesses. And if you make thoughtful decisions on which factors are worth improving, and which things you’d like to keep the way they are. Even if they don’t absolutely maximize the business climate.