California, And Particularly The Bay Area, Has Worst Regulatory Climate For Small Businesses, Study Says

A new study from the San Francisco-based Pacific Research Institute has ranked the regulatory climate for small businesses in California the worst out of all 50 states — and the Bay Area is a prime example of why.

The reasons? Costly regulations on short-term disability insurance and a minimum wage that’s 25 percent higher than the national average.

“California’s regulatory policy makes it more difficult and more costly for current and potential entrepreneurs,” said study author Wayne Winegarden, a senior fellow at PRI and a partner in the consulting firm Capitol Economic Advisors, in an interview Friday. “These higher costs reduce the amount of business growth and reduces the ability of small businesses to withstand economic shocks because their buffers are smaller. More broadly, the regulations are raising the cost of living for all Californians.”

Regionally, the Bay Area ranks among one of the worst places to operate a small business, said Winegarden.

“The Bay Area exemplifies these problems,” he said. “The high costs of rent, partly due to zoning regulations, are a major deterrent for business growth in the region. And it is not just rents. Overly zealous local regulations helps make the Bay Area a very difficult region to start and run a business.”

The regulatory structures in Vermont, Connecticut, Rhode Island, New Jersey and California are ranked as having the “most burdensome” regulations on small businesses.

“Due to the large litany of anti-growth regulations in the lowest ranked 10 states, significant improvements to their regulatory environments require broad-based regulatory reforms in addition to adopting right-to-work laws,” said the report.

That includes pressing lawmakers to reduce family leave mandates, ideally deferring to the federal regulations as opposed to including additional state mandates and eliminating energy policies, such as policies that subsidize politically favored energy sources, that increase the costs of electricity and other forms of energy.

The institute also suggests lessening the costs (and time) it takes to develop and license real estate and reining in “excessive” workers compensation and unemployment insurance mandates.

The report also showed California’s payroll continues to trail other states, despite a roaring Bay Area economy and significant job growth.

“In other states, such as New Jersey and California, payroll growth significantly lagged the sub-par national average,” it said.

“The average annual growth in payrolls of small businesses tends to be higher in states that rank higher in the 50-State Small Business Regulation Index, and lower in the states that rank lower.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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