Land costs harm Bay State businesses, report says
High land costs make Massachusetts uncompetitive – driving up rents, lessening affordable housing, and creating a less profitable business climate than its most likely competitor states, says a new report from a Boston-based research group.
In October, the Pioneer Institute published the report, called "Measuring Up? The Cost of Doing Business in Massachusetts." It compares the relative costs and profitability of business in nine of the state’s most significant industries to six other regional or national competitor states – New Hampshire, Rhode Island, North Carolina, Texas, New York, and New Jersey.
The Bay State is second-highest cost state – higher across the board than New Hampshire, North Carolina, and Texas, and mostly higher than New Jersey and Rhode Island. Only New York fared worse. The report, shows a competitiveness problem due to higher costs, and quantifies the disincentive for businesses to stay or locate in the state, says David Iaia of Global Insight, its principal author.
On December 12, Iaia will join Steve Poftak and James Stergios of the Pioneer Institute to discuss the implications of the report during a presentation by the Worcester Regional Research Bureau. "The bottom line is that their analysis shows it is much more expensive to do business in this state than the others they looked at, and we need to look at that issue more closely," says Roberta Schaefer, executive director of the bureau.
The exodus of high-skilled workers from Massachusetts could hurt the state∈s competitiveness, says David Iaia of Global Insight, the author of the Pioneer Institute report.Quantified anecdotes
The report helps quantify much of the general consensus among state business and political leaders that the Bay State is uncompetitive, and needs to become more so to attract businesses.
At a gathering of business executives at the Marlboro Regional Chamber of Commerce last month, Tom Finneran, the state’s former house speaker and current president of the Massachusetts Biotechnology Council, told the gatherers that the state must change its attitude toward business, and be more accommodating to work with.
On the campaign trail for governor, both Republican challenger Kerry Healey and eventual-winner Deval Patrick, a Democrat, stressed the need to create a more business-friendly environment, particularly when it came to streamlining the permitting process for new buildings and factories. Streamlined permitting is seen as one effective way to attract new businesses, and has been used successfully in North Carolina – one of the competitors studied in this latest report.
In fact, earlier in the year, the Central Mass. economy got a big boost from the announcement of a $600- million plan to build a Bristol-Myers Squibb factory at the former Devens Army base. That deal, state economic development officials noted, hinged substantially on a streamlined permit process.
But by and large, business leaders see the state as a difficult one in which to do business.
Land costs have multiplier effect
Land costs, says Poftak, are the biggest problem, imposing a kind of multiplier effect on uncompetitiveness. The land squeeze has driven up the price of commercial rents in the state, a big hurdle for business.
But the lack of land means there is less available for affordable housing, meaning workers need higher wages because of the increased cost of living. An unintended effect of the lack of affordable housing is to drive away workers.
Massachusetts lost a net 19,000 residents over the last two years, one of only three states in the nation to shed population in that time period. A shrinking population makes workers harder to find. That, in turn, drives up wages, raising costs for business.
Many of the firms that operate in Massachusetts choose to do so because of the high skill level and consequent high productivity of its workers, says Jack Healy, director of the Manufacturing Advancement Center, part of the Massachusetts Manufacturing Extension Partnership in Worcester. Most of the industries stay or locate in Massachusetts to gain access to the workforce, he says.
Global Insight’s Iaia says a relative drop in Massachusetts workers’ skill compared to its competitors could draw businesses out of the state. Texas and North Carolina offer very competitive land costs, but their workers’ skill level is relatively lower. If those states raise their workforce quality, or the Bay State’s quality declines due to population loss, for instance, the effect could bode ill for Massachusetts.
Land costs have driven up rents and the cost of affordable housing, harming the profitability of the state∈s businesses, says Steve Poftak of the Pioneer Institute.Plastics and metal outlook OK – hypothetically
The Pioneer Institute considered the outlook for two key Central Mass. industries – plastics production and precision metals manufacturing – and found that Central Mass. remains fairly competitive. Plastics manufacturing is especially well entrenched in the Fitchburg area, and precision metal manufacturing is done throughout the area, and were chosen because of that fact.
A hypothetical plastics plant with $9.65 million in sales was placed in all seven states – Massachusetts and its six competitors – to find out how the business would fare. After-tax profit was about $480,000 in Massachusetts. That same firm would have done better in Texas, North Carolina or New Hampshire, netting $956,000, $954,000 and $723,000 respectively. It would have done worse in Rhode Island, earning $198,000. In New York it would have lost $713,000, and in New Jersey, it would have lost $109,000.
The hypothetical precision metal plant would have similar results. On $4.3 million in sales, that plant would earn $255,000 in after-tax profit. It would have made $392,000 in New Hampshire, $511,000 in North Carolina, and $520,000 in Texas. Moving to Rhode Island, would halve the firm’s profits at $103,000. New Jersey and New York would create losses of $22,000 and $36,000 respectively.
Health care and workers compensation costs
Two of the biggest surprises in the Pioneer report are the state’s relatively competitive health-care and workers compensation costs.
Health-care costs are the bigger surprise, says Poftak. The perception of relatively high Bay State health-care costs is driven by the state’s concentration of high-cost research hospitals, which one would mistakenly assume drive up the price of care.
A manufacturing business located in Massachusetts would have lower health care premiums than in New Hampshire, New Jersey, Rhode Island or Texas. New York would be 4.6 percent cheaper premiums than in Massachusetts, and North Carolina 6.4 percent cheaper. For software and finance companies, that difference was less pronounced. New Jersey, North Carolina, Rhode Island and Texas had lower rates. New Hampshire and New York had higher health-care premiums.
As far as workers compensation goes, Massachusetts actually has the lowest rates (1.7 percent) among the seven states compared, although the rates in North Carolina are slightly lower because of the state’s ultra-low wages.
Those low rates, driven by reforms made by the state in 1991, make Massachusetts very competitive in that one piece of the puzzle, although its uncompetitiveness in other areas minimizes that advantage, Poftak says.
In all, he added, while the state holds some advantages for potential business, "we are uncompetitive in a variety of ways and it behooves us to think of these things."
WBJ Web Partners
Most Recent
Most Recent
0 Comments