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Regional Report: Northeast

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

Rhode Island (No. 37): Taxing Matters

Rhode Island continues to lag the rest of New England in economic recovery. Growth of gross state product remains tepid, and unemployment is still high at 9 percent. The New England Economic Partnership forecasts “moderate” hiring over the next few years, paced by job hiring in construction, financial services, office services, leisure and hospitality, education, healthcare and technology. Rhode Island’s 7 percent sales tax, second-highest in the U.S., handicaps retailers and burdensome estate taxes hasten out-of-state retirements. The Tax Foundation ranks Rhode Island 6th highest for tax burden out of 50 states, and ranks it 46th in its State Business Tax Climate Index. Rhode Island spends over $356 million annually on incentives, according to The New York Times. The most popular programs are sales tax refunds and corporate income tax credits. Food companies are the top recipients.

Vermont (No. 39): Population and Labor Force Declining

Energy, food, forestry and transportation are Vermont’s key industries. Vermont’s labor force and its overall population declined last year, deepening concerns of local business leaders. The New England Economic Partnership forecasts economic growth in most sectors except government through 2017, with construction, leisure/hospitality, business services and natural resources adding jobs. The Green Mountain State spends over $407 million per year on incentive programs, according to The New York Times, primarily sales tax refunds and exemptions. The top recipients are manufacturers, followed by agricultural interests.

Maryland (No. 40): Regulation Rising

Heavily reliant on federal government spending, Maryland’s economy suffered from federal budget cutting and other effects of sequestration last year. Sector growth is led by transportation services, concentrated on the Port of Baltimore and connected intermodal services. The Free State is also a major center for life sciences research and development, home of the country’s fourth-largest biotech cluster. Administrative services, largely dependent on the federal checkbook, employ large numbers. Regulatory and tax changes have added complexity and increased tax bite, according to the Tax Foundation, which ranks Maryland 15th best in the nation, and 41st in its State Business Tax Climate Index. The Maryland Chamber of Commerce is pressing to reduce the corporate tax rate. The state spends over $554 million per year on incentive programs, according to The New York Times. Corporate income tax credits and sales tax refunds are the most popular programs; agricultural concerns are the top recipients.

Pennsylvania (No. 43): Unemployment Uptick

After keeping below the national unemployment rate since the start of the Great Recession, Pennsylvania rose above it in September 2012 and is still struggling to restore jobs lost since late 2007. Hydraulic fracking of the Marcellus Shale formation has created new jobs and generated enormous wealth, as well as produced turbulence and unexpected downsides. Natural gas prices have dropped. The state’s key industries, including Energy, Advanced Manufacturing, Technology and Agri-business comprise a $570 billion economy, sixth in the nation. Education and healthcare continue to expand, and tourism is on the rise. In terms of tax burden, the Tax Foundation ranks Pennsylvania 10th highest in the country and 24th on its Business Tax Climate Index. The Keystone State spends around $5 billion a year in order to attract or retain companies, according to The New York Times. Sales tax refunds and corporate tax credits are most popular, targeting manufacturers in particular.

Connecticut (No. 44): Hampered by High Taxes

Connecticut’s economy is shrinking. The Nutmeg State ranks 50th in the Department of Commerce’s Bureau of Economic Analysis. High taxes, budget gimmicks, regulations and unfunded government pension liabilities exasperate business owners and entrepreneurs across the state. Employment growth post-recession continues at about two-thirds the national rate, set back by ongoing job loss in the finance and insurance sectors, traditionally Connecticut’s wheelhouse. The Tax Foundation ranks Connecticut’s tax burden 3rd highest in the country, and ranks the state 42nd on its Business Tax Climate Index. Connecticut spends over $850 million per year on incentive programs, according to The New York Times. Most popular programs are sales tax refunds and exemptions, and corporate income tax credits.

New Jersey (No 46): Housing an Albatross

New Jersey trailed the nation in most economic indicators in 2013. Housing was a sore point; the Garden State has the second-highest percentage of homes in foreclosure than any other state after Florida. Real GDP rose at barely half the national rate. Job growth lags the U.S. pace; employment remains submerged below its pre-recession peak. Even the IT sector has retreated, disgorging 3,600 jobs. Hurricane Sandy destroyed enormous swaths of the state’s housing and infrastructure, providing construction jobs—albeit temporary—in its aftermath.

On the bright side, manufacturing exports are growing again. Healthcare, logistics and life sciences companies are posting Help Wanted signs. Geographically, the state’s position between New York City and Philadelphia benefits companies that need access to both markets; it’s also a strong location for national distribution, says incentives advisor Jim Damicis, a senior vice president with Camoin Associates. New Jersey executives gripe about taxes, and the Tax Foundation bears them out; the state is ranked second highest of the 50 states, and its business tax climate ranks second to last. Gov. Chris Christie has proposed 10 percent corporate tax cuts and a 10 percent property tax credit in—he has said little on the subject. New Jersey spends nearly $700 million per year on its Grow NJ incentives program. Grow NJ “is gaining a lot of momentum in the business community,” says Adam Tkaczuk, Northeast practice head for business incentives at Duff & Phelps. “They’re tough but fair, and projects are well-funded once you qualify.” Corporate income tax credits and sales tax refunds were the most popular incentives; top beneficiaries were print media companies and biotech firms, according to The New York Times database.

Washington, D.C. (not ranked): Private Pathway

Contrary to public image, Washington, D.C., is not strictly a government town; only one out of every six workers is on the public payroll, according to A1Source. Still, many companies depend on government contracts; contractions in federal spending hurt, and last fall’s sequestration kneecapped economic activity. Headquarters to nearly a tenth of the nation’s Fortune 500 businesses, Washington—the nation’s first planned city—also hosts many association headquarters, national law firms and major banks. Other professional service providers are major employers. In recent years there has been growth in Information Technology and Telecommunications. Metro D.C. continues to spread out into the northern Virginia suburbs. M&A dealmaker David Braun moved his office to Tysons Corner in McLean County, Virginia after 15 years across the street from the White House. In three years, “I’ve seen enormous growth in terms of corporate headquarters moving in,” he says. New neighbors include Hilton Hotel Corporation’s worldwide headquarters, and the Gannett Company building is within view. The Tax Foundation ranks the District of Columbia 20th lowest out of 50 states, and 44th in the Business Tax Climate Index.

Massachusetts (No. 47): Federally Focused

Massachusetts’ recovery from the Great Recession has been fitful; the Bay State has outpaced the national economy in job growth and real GDP in some quarters, lagged behind in others. The labor market has favored employers, who have steadily raised their hiring standards. Knowledge is the currency of the realm in Massachusetts, which continues to graduate a steady stream of some of the nation’s best-educated and top-earning professionals. Key economic sectors are biotechnology, finance, healthcare and tourism. Deeply reliant on federal dollars to support its health, defense and higher educational sectors, last year budget cuts, tax increases and spending prohibitions sucker-punched the state economy. Executives grimace at state taxation levels; the Tax Foundation ranked Massachusetts 8th highest in tax burden and 25th in State Business Tax Climate Index. The recently enacted computer and software services tax was slammed as “most burdensome in the nation” by the Massachusetts Taxpayers Foundation. Massachusetts spends at least $2.26 billion per year on incentive programs, according to The New York Times. Sales tax refunds and corporate income tax credits are the most popular subsidies. The top beneficiaries are manufacturers, followed by the energy industry.

New York (No. 49): Transition Time

New Yorkers bid farewell to popular billionaire mayor Mike Bloomberg last November; his successor Bill DiBlasio, a career politician, took office calling for new taxes on the wealthiest New Yorkers. While New York City residents have seen their per-capita income outpace the national rate over the past two decades, upstate residents have fared less well; the Empire State has lagged the nation’s post-recession recovery in recent quarters and the manufacturing sector has eroded enormously.

New York’s demographics are troubling. Its population is graying and prone to migration. While inbound migration has more than offset outbound, recent arrivals are generally poorer and non-English speaking; those exiting generally relocate in states with lower taxation, reduced regulation and brighter economic visages. In terms of business environment, the state’s high taxes, regulatory zeal and reputation for bureaucratic nitpicking hamper economic growth.

New Yorkers pay the highest property tax rate in the nation, according to the Tax Foundation, shelling out 12.8 percent of their income to the government. The state ranks dead last in the Tax Foundation’s 2014 State Business Tax Climate index. In January Gov. Andrew M. Cuomo announced a $2 billion slate of economic growth and tax reform proposals, calling for slashing both property and corporate tax rates. The plan would freeze property-tax rate increases, provide a tax credit for New York City renters, and raise the exemption for estate taxes from $1 million to $5.25 million. The governor also proposed cutting the top corporate income tax rate to 6.5 percent from 7.1 percent and to eliminate taxes altogether for manufacturers upstate. A series of business-incentive proposals would tap the brainpower of the state’s university system, spur technology-based industries, encourage companies to expand without relocating and encourage start-ups by cash grants.

About Warren Strugatch