2015 Regional Report: The Northeast



RECOVERY? Not in the Northeast. The Northeast lags the nation in post-recession recovery. Real GDP increased just 1 percent in 2013, the last full year for which data is available. As a whole,

that year the nation grew 1.8 percent. Slow job gains have frustrated efforts to bolster economic growth despite such positive signs as falling unemployment and rising personal income.

The news isn’t all dour. “There is quite a bit going on in the Northeast,” states a report from Wells Fargo Securities’ Economics Group, which hails job growth in New York City and Boston. Strong gains have been made in technology in these cities and elsewhere. At the same time, traditional employment strongholds as publishing, legal services and financial services have faltered. New jobs created in such fields as home health care, hospitality and retail have bolstered employment metrics but hampered income growth; many are low-paying McJobs.

Mapped out by state GDP growth, the region’s overall performance is visibly lame. Despite those gains in New York and Boston, the Mid-Atlantic states show the slowest real GDP growth of any region in the nation.

“Nationally, the economy expanded in the second half of 2014 at its fastest rate in more than a decade.”

Delaware, whose revenue-forecasting practices during the slow recovery are raising corporate eyebrows, paced the limping pack with 1.1 percent GDP growth. The District of Columbia actually slipped, posting .5 percent negative growth. New England fared slightly better. Vermont led its neighbors with a 1.9 GDP growth. Maine and Connecticut, bringing up the rear, share a .9 percent expansion pace.

The numbers for 2014, when they arrive, should be better. Nationally, the economy expanded in the second half of 2014 at its fastest rate in more than a decade. Hopefully, some of that progress will shine a warmer light on the Northeast. Meanwhile, economic development advocates in the region cheer each positive news announcement with maximum enthusiasm, hoping the bottom has at last been reached—and that the only way out is up.


#23 Delaware: Plagued by Unemployment

DELAWARE’S BEEN ADDING jobs, but unemployment is still rising. The reason might be the long-term drop in labor force participation. Delaware enjoyed stronger job growth than its neighbors in recent years, but two-thirds of the new positions are part-time or short term.

“I think Delaware is underrated. Their incentives are better than people think—for the right projects.”

While Delaware led the region in GDP growth in 2013, business leaders worry that the state’s gimmicky revenue projection models will eventually lead to shortfalls. Meanwhile, forecasts show fall-offs in professional and business job growth midway through 2015. DuPont’s decision to exit Wilmington for a new headquarters in the burbs rattled business leaders without seriously affecting the job rate. Corporate recruitment and retention efforts are small but potentially attractive. “I think Delaware is underrated,” says Dan Breen, relocation advisor and executive VP at Jones Lang LaSalle in Parsippany, New Jersey. “Their incentives are better than people think—for the right projects.”

Education is a divisive topic: nearly 40 percent of students have “choiced out,” leaving public schools depleted and underfunded. Increasingly, relocating executives put their kids in private schools—or buy homes across the border in Pennsylvania. “An executive considering relocating here better take a hard look at the public schools,” says Bob Byrd, a partner with Wolf Block Public Strategies Delaware.

The Tax Foundation ranks Delaware’s state and local tax burden 15th highest out of 50 states and ranks it 13th in business tax climate. Delaware spends over $43 million a year on incentive programs.



#24 New Hampshire: On a Slow Growth Track

THE GRANITE STATE is still below pre-recession job levels. Jobs are returning—s-l-o-w-l-y, but two-thirds of the new jobs pay below-average wages. Manufacturing, traditionally the state’s
breadwinner, is declining, but it still dominates the labor market. After five straight years of diminishing job totals, the sector is expected to start adding jobs this year, albeit at a barely-there .4 percent rate.

Dennis Delay, economist at the New Hampshire Center for Public Policy Studies, says the state struggles with declining rates of in-migration and an aging work force. This year through 2020, he projects 2.5 percent real economic growth, while the annual job growth will remain under 2 percent. Most new jobs will be in professional and business services, followed by hospitality, leisure services, education and healthcare.

“I think 2015 will be a fairly solid year for job gains in Maine. I think we will be most of the way back.”

Government efforts to promote the state to employers and/or to foster job creation have come under criticism; last year, a state audit deemed over half the state’s tax credits issued were awarded erroneously or without documentation; expect incentives to be awarded more cautiously now. The Tax Foundation ranked New Hampshire’s state and local tax burden 43rd highest out of 50 states and ranked it 8th in business tax climate. New Hampshire spends over $39 million in incentive programs.


#36 Maine: Coming Out of the Woods?

WHEN PRIDE MANUFACTURING of Burnham announced it was bringing Lincoln Logs manufacturing from China to Maine, state business advocates cheered long and hard. The deal, however, hardly reversed the state’s persistent manufacturing decline. Once accounting for one in every three Maine jobs, factory work now represents 1 in 12—and most are in shrinking industries.

“Once accounting for one in every three Maine jobs, factory work now represents 1 in 12—and most are in shrinking industries.”

Heavily reliant on forest products, Maine has struggled for years to bolster declining wood and paper product sales. The Pine Tree State’s aging population and relative lack of inbound migration stunt workforce growth. New governor Paul LePage came into office promising to cut income taxes; critics worry he’ll raise sales taxes to cover the difference.

Charles Cogan, a professor at the University of Southern Maine’s Muskie School of Public Service, and a former state economist, says economic growth picked up in 2014. He sees signs of renewed hiring this year in professional and business services, education, health care and tourism. “I think 2015 will be a fairly solid year for job gains in Maine,” he told the Bangor Daily News. “I think we will be most of the way back in 2015.”

The Tax Foundation ranks Maine’s state and local tax burden 14th highest out of 50 states and ranks it 29th in business tax climate. Maine spends over $504 million a year in incentive programs.

#39 Vermont: No Job Problems Here

VERMONT’S UNEMPLOYMENT RATE is among the lowest in the nation, and “Help Wanted” signs are popping up. Vermont Economy Newsletter projects 6,000 new jobs this year, but the state’s population is falling and younger workers aren’t moving in.

Vermont faces a $100 million shortfall this fiscal year and employers worry the state will impose a payroll tax. “The payroll tax has been scuttled, at least for now,” says William Driscoll, vice president of the Associated Industries of Vermont, a manufacturers’ trade group. Driscoll’s association and other trade groups continue to press for tax reform and energy-rate restructuring.

“The closing of the Vermont Yankee power plant left a sour taste among manufacturers.”

The closing last winter of the Vermont Yankee power plant left a sour taste among manufacturers. “This was a big missed opportunity” to lower rates, Driscoll said. The Tax Foundation ranks Vermont’s state and local tax burden 9th highest out of 50 states, and the state came in at No. 45 in business tax climate. Vermont spends more than $407 million a year on incentive programs.


#40 Rhode Island: Lacking Leadership

THE RHODE ISLAND ECONOMY is healthier now than it was at this time last year, but the Ocean State continues to face “significant uncertainties and challenges,” according to the New England Economic Partnership. While unemployment continues to drop, Rhode Island’s current level remains third-highest in the country. Along with New Hampshire, it is one of two Northeastern states still below pre-Recession employment levels.

“Taxes are too high, the regulatory burden is
too high and it’s too bureaucratic.”

The state suffers from slow growth in key industries, including manufacturing, construction, information, financial services, trade, transportation and utilities. Older and less-educated workers are marginalized in the state’s largely stagnant economy. Leadership has been problematic. Rhode Island “has been dis-served by successive government administrations,” asserts site selector Dennis Donovan, a partner at WDG Consulting in Bridgewater, New Jersey. “Taxes are too high, the regulatory burden is too high and it’s too bureaucratic.”

Last fall, voters sent state treasurer Gina Raimondo to the governor’s mansion after she succeeded in cleaning up her state’s pension-system mess. Having campaigned on promises to reignite a sputtering economy, the 43-year-old new governor will now be held to it by business leaders. “She is talented, educated and smart,” says Dennis Roberts, a lawyer, ex-attorney general, and son of a former governor. “I have faith in her.”

The Tax Foundation ranked Rhode Island’s state and local tax burden 8th highest out of 50 states and ranked it 46th in business-tax climate. Rhode Island spends over $356 million a year on incentive programs.


#41 Maryland: Lukewarm on Business

AS A CANDIDATE FOR GOVERNOR, Maryland’s Larry Hogan campaigned on a pro-business platform, promising to “get the government off our backs and out of our pockets, so we can grow the private sector, put people back to work and turn our economy around.”

“Get the government off our backs and out of our pockets, so we can grow the private sector, put people back to work and turn our economy around.”

During the race, he called for better state corporate recruitment and job-creation programs and promised an overhaul of the Department of Business and Economic Development if elected. Expect Maryland’s business leaders to press him to make good on his promises—and perhaps reverse his opposition to completing the Purple Line, the $2.45 billion light rail project that many consider key to the region’s economic future.

Historically, Maryland has not been aggressive with incentives. “I don’t get the sense [that] they are very pro-business,” says Dan Breen. The Tax Foundation ranked Maryland’s state and local tax burden 7th highest out of 50 states, and ranked it 42nd in business-tax climate. Maryland spends at least $554 million a year on incentive programs.

#42 Pennsylvania: Lagging the Nation

PENNSYLVANIA’S ECONOMIC RECOVERY continues to lag the national pace. Jim Glassman, head economist at Chase Commercial Banking, sees the Keystone State’s economy as “on the mend” and forecasts a moderate expansion pace for the rest of this year. The Federal Reserve Bank, in regard to Philadelphia’s Survey of Business Conditions, showed most businesses are seeing “an uptick” of activity, leading the Fed to anticipate continuing strengthening throughout 2015. The state’s soft employment market recovered significantly last year, falling below 6 percent for the first time since the Recession.

“People aren’t thinking about Pennsylvania as much, perhaps, as they should.”

Fall-off in global energy prices continues to hold back the pace of new drilling, but Pennsylvania benefits from past natural gas exploration, and local industries enjoy access to cheap natural gas. Glassman forecasts a 2.8 percent annual growth rate through 2017. Economic development efforts have cut back in recent years; the popular Pennsylvania First program is now unfunded, and replacement programs have not impressed many. Says Dennis Donovan: “People aren’t thinking about Pennsylvania as much, perhaps, as they should.”

The Tax Foundation ranks Pennsylvania’s state and local tax burden 10th highest out of 50 states, and ranks it 24th in business tax climate. Pennsylvania spends more than $4.8 billion a year on incentive programs.


WHY WE’RE HERE / PENNSYLVANIA

WHO Jason Wolfe, CEO of GiftCards.com

WHAT Internet payment transfer company

WHERE Pittsburgh, Pennsylvania

SITE HISTORY While newly homeless, Wolfe launched an early Internet coupon business in 1995, working at desk space offered by a friend in an apartment used as an informal incubator. Tapping GiftCards.com cash flow, he rented an apartment. Then, in 1999, he moved into a shared office suite in Foster Plaza in Green Tree, a Pittsburgh suburb. In 2000, he expanded into a 5,000 square-foot private office in the same building.

After the dot-com bubble burst, Wolfe accepted a North Dakota state economic development incentive offer and relocated to Beulah, North Dakota, setting up inside a converted warehouse. In
2006, he returned to Pittsburgh and purchased his current headquarters, a 5,000-square-foot building inside a former union hall.

WHY PENNSYLVANIA “Western Pennsylvania has a lot going for it. I see great opportunity with the Marcellus shale being a big part of the economy. Pittsburgh has a thriving technology sector. Operating costs are low. There is a great work force and people will relocate here.”

BOTTOM LINE “My son is here in Pittsburgh. I am divorced and my ex-wife is here. I am going to stay in my son’s life.”


#44 Connecticut: Financial Sector Faltering

CONNECTICUT IS DOING OKAY, but it could be doing much better. The Constitution State’s major cluster, the financial sector, was hammered by the Great Recession. It continues to recover fitfully. A soft housing market has deleveraged many thousands of households and businesses. Forecasters look for the weather to break in 2015, calling for 35,000 new jobs (Moody’s) or a more
tempered 25,000 (New England Economic Partnership). Economic stimuli include financial hiring, construction starts and increased orders for the F-35 jet fighter program.

“Restraints on the financial-services industry will likely be a challenge for Connecticut.”

However, Wall Street restructuring, Dodd-Frank regulatory restrictions, casino retrenching and a well-educated but chronically tight job market are hampering the state. “Connecticut is seen as having a surplus of workers juxtaposed with a shortage of worker skills,” says Edward Deak, the partnership’s Connecticut forecast manager. “Restraints on the financial-services industry will likely be a challenge for Connecticut,” says Chase forecaster Jim Glassman. “The slow mend in the state’s commercial real estate market is a reflection of the slowly recovering economy.”

The state’s generous but complex incentive programs can intimidate; Connecticut “has good programs, but there are so many incentives [that they are] complicated to figure out,” says site selector Donovan. The Tax Foundation ranks Connecticut’s state and local tax burden 7th highest out of 50 states and 41st in business tax climate. Connecticut spends more than $860 million a year on incentive programs.

#46 Massachusetts: Job Growth Continues

THE MASSACHUSETTS ECONOMY is in Year 5 of an expansion that began just as the last recession was ending. Job growth in Massachusetts will continue accelerating over the next couple of years before stabilizing in 2018, according to a New England Economic Partnership forecast.

While the commonwealth’s technology-driven growth continues to fuel prosperity, its aging work force causes concern. Increasingly, job growth will be in non-manufacturing jobs, particularly
education, health services, professional and business services, leisure and hospitality.

“Massachusetts feels they have a stranglehold on the pharma industry and they haven’t done much spending to welcome relocators.”

Business groups like the Boston Chamber of Commerce want to expand charter schools, “close the achievement gap,” and strengthen connections between employers and students. They’re also focused on tax-reform proposals, reining in unemployment insurance taxes and reducing health care costs. To bolster global positioning, business leaders call for expanding international connections at Logan Airport and funding improvement to the Port of Boston.

Incentives? Massachusetts “feels they have a stranglehold on the pharmaceutical industry and they haven’t done much” spending to welcome relocators, asserts Dan Breen. The Tax Foundation ranks Massachusetts’ state and local tax burden 11th highest out of 50 states and ranks it 25th in business-tax climate. Massachusetts spends more than $2.26 billion a year on incentives.


#47 New Jersey: Moving on Out?

BY MANY ACCOUNTS, the Garden State’s economy is rocking. So why all the wanderlust? Mercedes made headlines this winter when it accepted a $23 million incentive package from Georgia and bid farewell to Montvale.

“New Jersey has some of the strongest incentives you’ll see in this countr.”

Households have been antsy, too; New Jerseyites led the nation in outmigration in 2014, the fourth time in the last five years that they’ve captured this dubious honor. Behind the exodus are such factors are high costs of doing business: taxes, fees, real estate costs and payroll. Professional services are scaling down. Still, 2015 will be “a positive year,” according to the New Jersey Business & Industry Association. In a survey last fall, 40 percent of companies the NJBIA surveyed said their profits rose in 2014, with 45 percent anticipating higher sales in 2015. Plus, 44 percent of companies spent more in 2014 than in the previous year, a rate they expect to continue this year. Furthermore, 22 percent expect to hire this year, twice the rate of future downsizers.

Executives surveyed listed health care benefits and taxes as major concerns, while fretting that government will reach into their pockets to make up budget shortfalls. New Jersey’s economic
development programs generally earn glowing reviews. The state “has some of the strongest incentives you’ll see in this country,” says Joe Lacy, managing director of Biggins Lacy Shapiro
& Company, based in New York, Princeton and Chicago.

Jones Lang LaSalle’s Breen says, “Grow New Jersey has been very well received by the business community.” Others blame application complexity for scaring off aspirants. Infrastructure
improvements and more competitive labor costs will please business owners and chiefs, but don’t expect them short term.

The Tax Foundation ranked New Jersey’s state and local tax burden 2nd highest out of 50 states and ranks it 49th in business tax climate. New Jersey spends more than $675 million per year on incentive programs.

#49 New York: Bringing in the Bottom

DERIDED FOR STIFLING REGULATIONS, archaic permitting and bureaucratic logjams, New York ranks behind only California as Chief Executive readers’ worst state in which to do business. (To be fair, most states in the Northeast cluster near the bottom.) Taking aim at widely held perceptions, two-term governor Andrew Cuomo last year slimmed the state’s corporate income tax system and estate tax, pruned some red tape and revamped the state’s economic-development efforts, most noticeably touting “Start-Up New York” with a $160 million marketing budget. His administration’s signature economic-development offensive, the program offers 10-year tax write-offs to execs willing to move onto government-specified campuses of the state university system. Albany claims it’s already created 2,100 new jobs while attracting 40 companies.

“New York has not addressed the major issues affecting its business climate.”

The verdict is mixed. New York “offers an impressive range of incentives, and it’s an easier sell these days,” says Dennis Donovan, a partner at WDG Consulting, a site-location advisory firm in Bridgewater, New Jersey. Other relocation advisors wonder why their clients now have to go back to college to benefit. Mike Durant, New York State chapter president for the National Federation of Independent Businesses, likes Governor Cuomo’s direction but warns that heavy taxes and regulatory strangleholds remain.

“New York has not addressed the major issues affecting its business climate,” he told the Rockland County Times. Case in point: the Scaffold Law, a worker’s compensation liability he says is the country’s most onerous. Governor Cuomo’s year-end decision to ban fracking, which is legal across the border in Pennsylvania, won him praise from environmentalists but scorn from many business leaders. The Tax Foundation ranks New York’s state and local tax burden No. 1 in the nation and ranks it 50th in business tax climate. (Both rankings were determined pre-Cuomo tax cuts.) New York spends over $4 billion a year on incentive programs.


WHY WE’RE HERE / NEW YORK

WHO Phil Grucci, CEO of Fireworks by Grucci

WHAT Pyrotechnics company

WHERE Long Island, NY

SITE HISTORY Fireworks by Grucci was originally founded in 1850 in Bari, Italy by Angelo Lanzetta. Lanzetta and his family immigrated to U.S. in 1870 and set up in Elmont, Long Island. After a brief relocation to Miami, his descendants returned to Long Island in 1929 and built a munitions factory in Bellport. The factory was leveled by a 1983 explosion that killed three family members. In 2013, the company purchased a 20,000-square-foot office building in Bellport for under $3 million. They manufacture fireworks in a leased factory on a military compound in Radford, Virginia.

WHY NEW YORK “About 65 percent of our market is in the New York tri-state area. Access to the city’s marketing and public relations channels is invaluable.”

BOTTOM LINE “It’s the community. My family lives here. Many aunts, uncles and cousins live here. Many of our employees live here. We couldn’t find this talent in other communities.”


District of Columbia: Bouncing Back

THE D.C. AREA, one of the nation’s fastest-growing metropolises, took a huge hit last year. Washington’s GDP shrunk half a percent, as cuts in federal spending played dominoes on contractors, subcontractors, service companies and household spending. The D.C. metro area, which includes the capitol, nine counties in Virginia, five in Maryland and one in West Virginia, has largely bounced back, and leaders are more intent than ever on reducing dependency on government spending. An influx of foreign, direct investment has capitalized a boom in commercial construction. “We’re not just a company town anymore, with government the company,” says Harry Wingo, president of the D.C. Chamber of Commerce. “Diversification in Washington has been enormous.”

“Red tape, once synonymous with doing business in Washington, is becoming less of a problem.”

D.C.’s appeal as a cultural hub and its quality of life pull in a highly qualified and educated 25- to 34-year-old work force. New Mayor Muriel Bowser is committed to implementing the five-year economic plan inherited from her predecessor, formulated with help from the D.C. Chamber, Georgetown University and other business thought leaders. Red tape, once synonymous with doing business in Washington, is becoming “less of a problem,” says Wingo. The Tax Foundation ranks Washington D.C.’s local tax burden 20th highest out of 50 states and ranks it 44th in business tax climate. D.C. spends over $94 million a year on incentives.


WHY WE’RE HERE / WASHINGTON, D.C.

WHO Antwanye Ford, CEO of Enlightened

WHAT IT consulting firm

WHERE Washington, D.C.

SITE HISTORY Targeting office locations within the capitol’s HUB Zone program, Antwayne Ford opened his IT business in 1,000 leased square feet across the street from the White House in 1999. Four years ago, he moved to the corner of 15th and L, next to The Washington Post building. Enlightened occupies about 8,000 square feet over three floors.

WHY WASHINGTON, D.C. “We’re near the center of government, where we need to be. Our clients are largely government agencies. We meet with legislative staffers all the time.”

BOTTOM LINE “I grew up in D.C. and went to college here (George Washington University). It’s a big deal to me to go back to the high school I attended and give out scholarships or to go back to GW and recruit interns. When kids find out I’m from D.C., they’re motivated. They don’t see me as foreign to them.”

" Warren Strugatch : Warren Strugatch is a writer, speaker and consultant based in Stony Brook, NY. He covers economic development, global business, management and marketing.."