It’s a mixed bag for small businesses in Indiana.
On one hand, there’s very little red tape, which experts say enables small businesses to get off the ground, expand and thrive. The rub, however, is that those businesses don’t receive the lion’s share of state-backed grants and tax credits, according to a recent national study.
“Compared to the rest on the nation, the small-business climate here is really very good,” said Barbara Quandt Underwood, Indiana’s director of the National Federation of Independent Business. “Indiana has been proactive in ways to improve the small-business climate.”
Underwood credits the state’s business-friendly climate, which includes tweaks to property, inheritance and income taxes and other recent actions by state lawmakers. They’ve made it easier to be a small business in Indiana, compared to other places, such as California, where there’s a myriad of obstacles to running a small company, she said.
Wayne Winegarden, a senior fellow in business and economics at the Pacific Research Institute, a San Francisco-based think tank that advocates free-market policy solutions, recently released a study that said Indiana had the most welcoming regulations for small business in the country.
The report examined factors, such as minimum wage laws, unemployment insurance and right-to-work laws. Although the policies are beneficial for business, they sometimes limit workers’ rights and protections, allowing employees to be more easily fired.
Initially, Winegarden was surprised by his findings but said when he gave Indiana a closer look, he found the state has worked to foster its business climate.
“A lot of the changes to small business are more recent in Indiana, and I wasn’t aware of all of the changes happening there,” he said. “That’s a testament to the past couple of administrations in Indiana that have improved its competitiveness.”
Pete Bitar, CEO and founder of the Anderson Innovation Center, a business incubator, said Indiana is primed for growing small businesses because it doesn’t impose many complicated regulations on business owners.
“The state, in and of itself, is doing pretty well,” he said. “If it wasn’t for the federal government, I think we’d see even more growth.”
Even so, another national report that focused on small business showed that the bulk of Hoosier economic-development incentives are paid to large companies.
The study, released by Good Jobs First, which tracks subsides and promotes accountability in economic development, evaluated more than 4,200 economic-development incentives across 14 states and found that large corporations almost always receive the biggest incentives — between 80 and 96 percent of their dollar values.
The report classified large businesses as those with more than 100 employees or those that are not independent/locally owned or have 10 or more establishments.
For Indiana, 87 percent of the $618 million awarded under the Economic Development for a Growing Economy (EDGE) tax credits went to large businesses. About 96 percent of the $80.4 million distributed under the Hoosier Business Investment Tax Credit program went to big business.
Both programs are administered by the Indiana Economic Development Corp.
“Generally, the thing I heard over and over again is many of these small-business networks believe they are getting shortchanged by states’ economic development policies,” said Thomas Cafcas, a research analyst who worked on the study. “We asked them in various ways, ‘What really matters to you?’ and many small-business networks are concerned about the credit crunch. Since the Great Recession, lending has been off.”
The Indiana Economic Development Corp. took issue with the report, saying it “established a very narrow definition of a small business (100 or fewer associates) while most organizations, including the Small Business Administration, typically define a small business as 500 or fewer associates.”
In the past two months, more than two-thirds of Indiana’s expansion announcements were about small businesses, the IEDC said. It also noted that the report only evaluated tax credits awarded through EDGE and HBI and did not include other incentives awarded by the corporation.
Many incentives are performance-based and tied to a company’s ability to meet its promises of new jobs. The IEDC said job creation, whether at a small or large business, is the driving factor for supporting businesses in Indiana.
“By design, HBI credits are issued for significant capital investments — something that large companies like Rolls-Royce have the capital to do more frequently,” the IEDC said.
Deb Peters, managing principal of Quality Environmental Professionals Inc., an Indianapolis-based company that provides environmental, engineering and management consulting services, said the state has been friendly to small businesses.
Peters founded her company in 1996 and it has remained in Indiana since its inception.
“From my standpoint, I don’t see an issue with over-regulation in Indiana,” she said. “I like the fact that we’re a right-to-work state and we can choose things. I don’t see any problems that are impeding small business here in Indiana.”