Charles Arlinghaus: Helping businesses make a rational choice for New HampshireCHARLES ARLINGHAUS
July 02. 2014 7:35PM
PLEASE FORGIVE ME for returning once again — on the heels of last week’s column — to the subject of jobs in the Granite State, but the issue of jobs is more important than any other issue we face and is an area in which we continue to fail. No one wants a future in which New Hampshire is a lackluster economic backwater, but that’s the track we’re on. A true economic recovery plan depends not on rhetoric or gimmicks, one bold idea, nor government “investment.” Recovery rather requires a comprehensive commitment to developing the right climate.
I’m regularly asked “what’s the one thing you would do to improve our economic competitiveness?” The first thing I would do is to try and get people to stop thinking that way. There isn’t one thing standing in our way. No governor or legislator will come up with the one silver bullet. Climates and reputations don’t come from doing everything just like everyone, but with one magic tweak.
Businesses make rational decisions. As a state we can influence those decisions through reputation, but most of all through competitive advantages. Historically, New Hampshire had a reputation for being business-friendly, fair, and economically quite competitive. That reputation is significantly diminished on nearly every count.
Before any business location professional got around to doing spreadsheets, they each started with the notion in their mind that New Hampshire was “an island of economic freedom in a Northeast sea of socialism.” No doubt this was an exaggeration, but we had been able to build a reputation contrasting a low-tax reputation with our neighbor known throughout the country as Taxachusetts.
In both the 1980s and 1990s we were seen as using economic growth to lower the Business Profits Tax – the most obvious signal to potential businesses of our attitude. Three reductions in the 1980s lowered the tax from a high of 9.56 percent down to 8 percent. The 1990s reform that included the Business Enterprise Tax was a net tax cut and lowered the marginal rate again in two steps down to 7 percent. Both periods of cutting were followed by periods of extraordinary economic growth — more jobs, more higher paying jobs, more economic opportunity.
Recall that the late 1990s and turn of the century is when our stagnation began. We tripled the low rate of the Business Enterprise Tax and passed two separate increases in the profits tax. Today our tax is 8.5 percent while the tax in so-called Taxachusetts in only 8 percent.
However, it is important to note that tax changes are not the only thing that matter. Businesses want lower costs and lower taxes, but they also care about regulation and the general attitude toward business issues.
New Hampshire is not unfriendly toward business, but we do currently have a reputation for being not quite the same state we were. Regulations and fees are seen to be nickel and diming businesses. Recall the late 2000s when more than 100 different fees were raised. None was particularly burdensome in and of itself, but they lent themselves to a reputation.
I’ve spoken for a couple years about creating, perhaps within the governor’s office, a council on competitiveness. So much of the administration is charged with enforcing the administrative regulations that have accumulated over time. It would be sensible to have a task force charged with comparing and contrasting regulatory structures of ours and other states, examining the precise ways in which businesses are forced to interact with the government and its regulations.
In Kansas, the governor created something like this and called it the Office of the Repealer. Rather than new programs or new ideas, Gov. Sam Brownback found laws and regulations to eliminate.
There is no reason we shouldn’t examine every business cost, find the ones in which we aren’t competitive and act specifically to change that. Two big examples illustrate the point. Our electric rates are double what they are in the lowest cost states. No high electric use business should currently consider New Hampshire. Yet electricity policy discussions rarely focus on reducing rates by 40% or 50%. It’s as if we concede those businesses to other states.
States can put out a welcome mat for new business and expansions by showering the potential business with gifts or creating an inviting climate and a friendly reputation. Economic development professionals will tell you the first question every potential business asks is about taxes with regulation and reputation following closely. We have to work harder but we can be nimble, frugal, and accommodating to restore the economic growth that once did and will again define our economy.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy in Concord.