Business Costs in N.Y. State Among Highest

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New York’s labyrinthine tax and regulatory codes make the Empire State one of the costliest places in America to run a business, according to a study released yesterday by a pro-business Albany think tank, the Public Policy Institute.


For example, New York is second only to Hawaii in electricity costs per kilowatt hour, with prices in both the commercial and residential sectors coming in 57% above the national average, the report says.


The study – part of an ongoing series called “Just the Facts: Key Economic and Social Indicators for New York State” – found that New York State’s overall business costs are America’s ninth highest. Its 10thplace finish in the Energy Index and its first-place rank in the Local Tax Index diminished the state’s relatively low average wage cost, as measured by the Labor Index ranking, in which New York placed 28th.


The institute’s survey found Massachusetts and California had the highest overall business costs.


The cost associated with turning the lights on in the morning is symptomatic of how New York has treated the private sector, the report’s author and the institute’s director of research, Robert Ward, said.


What’s worse, he said, is that a witch’s brew of fees and regulations has prevented new entrants from competing for New York customers. “It is almost impossible to imagine how another generation facility could get built these days,” Mr. Ward said.


Electricity is so expensive in New York because utilities have traditionally been seen as a quick way for state legislatures to pay off – or buy off – vocal constituencies, such as environmentalists, Mr. Ward said. To illustrate that point, he pointed to research by the institute estimating that 15 to 20 cents of every ratepayer dollar is a tax or surcharge.


“I’m pretty sure that for all the well-intentioned costs added to utility bills,” Mr. Ward said, “Research will prove our air is not much cleaner than Connecticut’s or New Jersey’s.”


New York is also an expensive place to make sure workers are covered for all things medical, the report says. State residents have average premiums of $8,227 a year, the third-highest level in America, behind only Alaska and Connecticut. The national average was 10% lower, $7,509.


That is because New York mandates more than 30 separate types of coverage, including chiropractic care, Mr. Ward said. In fairness, the report said the cost of the average New York State based worker health-insurance contribution was $1,557, which ranked 40th.


The institute’s report said – unsurprisingly – that New York’s tax levels, too, were a problem.


Citing research from the Tax Foundation, the report said the Empire State had the second worst business tax climate – which it defined as a combination of tax levels, complexity, and cost of compliance – in America. New York was topped only by Hawaii.


The state also fared poorly in corporate taxes per capita, coming in fourth, with New York-based corporations paying an average of $265 in taxes per capita, 171% above the national average of $98. New Jersey’s corporations, meanwhile, paid $128 per capita.


“Government in New York works to the advantage of those who produce services rather than those who pay for them,” Mr. Ward said.


The problem is exacerbated, he said, because businesses making decisions on relocation traditionally use energy costs and tax costs – New York’s weak points, according to the survey – as primary determinants.


One of the institute’s frequent intellectual adversaries, the legislative director of the pro-regulation New York Public Interest Research Group, Blair Horner, said the study had some merit for understanding how business executives view regulatory matters.


“The parts of the study that were taken from Census data were a pretty devastating critique of the Pataki administration’s business policies,” Mr. Horner said.


The study’s weaknesses, he said, were a reliance on what he termed “single source” research from “right-wing” think tanks, such as the Beacon Hill Institute and the Pacific Research Institute.


“You can’t be sure if those places have been thorough or are just playing some findings up for their constituencies,” Mr. Horner said.


Also missing from the Public Policy Institute’s analysis was a sense of context, Mr. Horner said. While he conceded that New York probably does have high tax and regulatory burdens, he said the new report made no effort to determine if state taxpayers got their money’s worth in services.


“Do New York kids have access to the best schools? Is our infrastructure good? Do residents have access to the best doctors and hospitals?” Mr. Horner said. “The report didn’t address this, making it seemed that taxes are paid in a vacuum.”


One of America’s most prominent analysts of state and city demographics, Joel Kotkin, said New York State “has always been, and will likely continue to be, a high-cost area, but that’s only half the problem. “


In addition to the problem of taxes and regulatory costs, he said, were New York’s high housing costs, which he characterized as “always among the top three or four in the country.” Moreover, market-based housing costs are largely out of the reach of the legislature.


Mr. Kotkin, a professor at Pepperdine University in California, said cutting New York taxes in half in the next legislative session would do little to stem the annual flow of educated professionals from the state to other regions.


“My research shows that professionals, especially young professionals, often migrate to where they can afford housing on a long-term basis,” he said. Put that way, Mr. Kotkin said, the lower housing costs of much of Florida, Texas, and areas of North and South Carolina will be consistently attractive.


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