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Regional Report: Northeast

A state-by-state look at what the Southwest has to offer businesses.

How well is the Northeast doing? Its $3 trillion economy, fueled by the Knowledge Economy centered on the cities of New York, Boston, Philadelphia and Washington, D.C, and the heavy lifting provided by still-vital manufacturing prowess, produces some 20 percent of the goods and services. Much of America’s wealth is produced here, and much value accrues here. Three of the nation’s wealthiest states, based on per capita income are here: Connecticut, Delaware and the territory of Washington D.C. Of the country’s 75 wealthiest counties by per capita income, 44 lie in the Boston-Washington corridor.

But look a little closer, and the picture turns less rosy. In 2012, the last full year for which economic growth is available, U.S. GDP grew 2.5 percent. It’s notable that every one of the 11 states that constitute the Northeast registered below-average growth. Maryland topped the regional rankings at 2.4 percent; the giant economies of New York and New Jersey both limped along at 1.3 percent; and Connecticut, alone among the 50 states, showed a negative GDP of -.1 percent.

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Led by aggressive governors doubling as their states recruiters-in-chief, Texas and Florida—as well as other sun-belt states—have been siphoning off a substantial chunk of the region’s economy, luring a steady stream of corporate chiefs to expand or relocate in warmer climates. Not surprisingly, much of the nation’s job-creation activity has taken place away from the Northeast. When Bright.com, an aggregator of job postings and resumes, calculated which cities offered job hunters the most opportunities, greater Seattle topped the list. Greater Schenectady, alone among Northeastern cities, made the top 30.

Chiefs in the Northeast are increasingly beset by wanderlust, eyeballing states and regions around the country—and sometimes overseas—for expansion opportunities, or to relocate headquarters and operations entirely. It’s not just incentives and subsidies that draw them out of the region. Chiefs complain about such issues as aging infrastructure, punishing climates and housing costs that deter new or relocating employees. Tax rates are, and have long been, an irritant; of the 10 worst states on the Tax Foundation’s state business tax climate index, five are in the Northeast. Add to that such factors as unionization and government bureaucracy, and the pace of out-migration comes as no surprise.

Many of the Northeast’s chief appeals—as a location for headquarters, for access to capital, for access to technological innovators and as a gateway to export markets—have diminished in recent years. Other regions have caught up and, in some cases, edged ahead. Yet, technology companies continue to move their headquarters to New York, Boston and Philadelphia, observes Dennis Donovan, head of worldwide site selection services at Wadley-Donovan-Gutshaw Consulting in Bridgewater, New Jersey. “The Northeast is one of the few areas in the country that offer companies a global platform for conducting business,” Donovan says. “Given supply-chain demographics, there are more and more regional suppliers” for whom a Northeast location can mean meaningful reductions in fulfillment times.” He adds, however, that, “unless you are serving a regional market, and have a compelling reason to be here, it’s very tough to compete here.”

The region’s historically high tax burden, once justified by superior infrastructure, arguably better educational systems and more expansive government services, have become increasingly archaic and onerous. The Tax Foundation’s annual State Business Tax Climate Index names New York and New Jersey the worst and second-worst states, respectively, in the country ranked by business tax. Of its 10 lowest-ranked states, no fewer than six are in this quadrant.

“The Northeast is the most competitive marketplace in the world, bar none,” says Thomas Stringer, a New York-based site selection consultant and principal at Ryan, a tax advisory firm. “This is testament to our history as an economic powerhouse. We’ve always had the talent and the capital and we’ve done well. We’ve done very well. As a result, perhaps we’re a little more complacent, a little less scrappy.”

Often criticized for handicapping their own employers by dint of heavy taxation burdens, sluggish permitting processes, and overly zealous bureaucratic processes, state governments across New England and the Middle Atlantic states increasingly market themselves, without irony, as business friendly. All of the Northeast states have developed economic revitalization plans over the last several years, intended to help startups get off the ground and to deter established businesses from entertaining the offers of roving economic development teams from other states and, increasingly, other countries.

Karl Seidman, president emeritus of the Northeast Economic Developers Association and a senior lecturer on urban planning at M.I.T., contends that the region’s governors have become increasingly solicitous to business. “There has been quite a lot of attention over the last few years on retention of existing business and attraction of new businesses,” he says.

“The Northeast has a lot of assets including its skilled work force, its university and public school systems and the opportunity to live car-free lives in walkable urban centers,” he continues. “Governors in every state know their political fortunes are tied to how well the state does in terms of business retention and job creation. They want to get it done, and they want to get it done right.”

New Hampshire (No. 26): Gaining Ground

Top-ranked by Chief Executive readers in the Northeast, New Hampshire has historically functioned as an extension of the Greater Boston area. The Granite State has lagged behind Massachusetts in post-recession economic recovery; only now is it regaining all the jobs lost in the Great Recession. Manufacturing productivity continues to grow, although hiring is, and is expected to remain, sluggish. Fastest growth will take place in business services, leisure and hospitality, education and healthcare. New Hampshire’s lack of sales tax has burnished the state’s reputation for being anti-tax. The Tax Foundation ranks it 7th lowest in tax burden in the country and 8th in its State Business Tax Climate Index. New Hampshire spends upwards of $39 million a year on business incentive programs, the most popular being corporate income tax credits
and cash grants.

Delaware (No. 27): A Pro-Business Legacy

Job growth continues to edge forward at under 2 percent annually, while the unemployment rate seems stalled at 7 percent in Delaware, where more than half the nation’s publicly-traded companies are incorporated—courtesy of the state’s pro-business corporate law. Dominated by companies owned or controlled by the DuPont industrial family, the state’s $66 billion GDP is driven by banking, chemicals, pharmaceuticals, technology and healthcare. Increased worker compensation costs darken prospects in the construction industry. The Tax Foundation ranks Delaware’s tax burden 20th lowest in the U.S. and ranks it 13th on its Business Tax Climate Index. Delaware spends over $43 million per year on incentive programs, according to The New York Times, predominantly cash grants, loans and loan guarantees, as well as corporate income tax credits. Top incentives go to the finance industry.

Maine (No. 35): Job Growth Continuing

Maine’s chief industrial products are paper, lumber and wood products, electronic equipment, leather products, food products, textiles and biotech products. Key employers include shipbuilders and construction firms. Maine assembled four consecutive quarters of positive job growth in 2013, the first year that’s happened since 2008. Job growth is expected to continue this year and next at the rate of about 4,000 new jobs annually. The Tax Foundation ranks Maine’s tax burden 9th highest in the country, and ranks the Pine Tree State 29th in its State Business Tax Climate Index. Maine spends over $504 million per year on incentive programs, according to The New York Times, primarily sales tax refunds and exemptions. The lion’s share goes to manufacturers.

About Warren Strugatch