State’s economy at year’s beginning

State’s economy at year’s beginning

State lawmakers convening on Monday in Olympia will not have to rely on staff reports to tell them how bad the economy is, the evidence is all around them. A few reports they would be wise to read, however, are four released last year that examine the underbelly of the Washington economy.

Regenerating the state’s economy begins with a peek at its engine, and that is small business. According to the U.S. Small Business Administration’s Office of Advocacy, small businesses are 98 percent of the employers in Washington. So what shape is the state’s economy in structurally?

About every four years, the Pacific Research Institute in San Francisco releases one of the most exhaustive reports on state economies. Its U.S. Economic Freedom Index: 2008 Report took a look at 143 indicators and categorized them in to five sectors: fiscal, regulatory, judicial, government size, and welfare spending. Washington isn’t faring well, coming in a dismal 37th in economic freedom, a slip of six points from its 2004 ranking and only three ahead of its 1999 spot. The state did improve its fiscal sector ranking, moving from 36 to 16, but that was not enough to overcome the bad postings in other areas.

The Fraser Institute of Canada also issues a quadrennial report on economic freedom, not only for its own country, but for America, Mexico, and every state and province within. The institute’s Economic Freedom of North America, 2008 Annual Report rated economic freedom on a 10-point scale at two levels, the all-government (local, state, and federal) and the sub-national (just state and local).

The ten components were divided into three areas: size of government; takings and discriminatory taxation; and labor market freedom. After wringing Washington through these filters at the sub-national level, our state emerged tied for 41st best in North America with New Mexico, hardly a credential to boast about. Alberta was the only Canadian province with a better economic freedom ranking than Washington’s, which came eighth when compared with 10 other western states. Click here for source.

The Small Business & Entrepreneurial Council issues an annual report on business climates in each state. In its Small Business Survival Index 2008: Ranking The Policy Environment For Entrepreneurship Across The Nation, Washington crosses the finish line in a highly respectable fifth place. But a drug test of this finalist reveals the steroids of not having personal and three other types of income taxes as the main reasons for the fine run. A look at other indicators shows what hobbling effects Washington would have to compete under in natural circumstances.

The SBE Council “ties together 34 major government-imposed or government-related costs impacting small business and entrepreneurship across a broad spectrum of industries and types of business.” Within those 34 bands, our state’s worst scores come in at the state and local sales, gross receipts and excise taxes (50th), workers’ compensation (49th), crime (46th), health insurance mandates (45th), and adjusted unemployment taxes (44th) categories. Click here for source.

In short, Washington is a nice place to be a taxpayer from, but not a business owner from. How you can have more of the former with fewer of the latter is an economic impossibility.

A fourth barometer put out last year by America’s leading small business association, the National Federation of Independent Business, called Laissez Les Bon Temps Rouler 2008 (Let the good times roll): The Continued Rise in State Spending And Deficits, gives Washington fairly high marks. Click here for source.

In percent changes in inflation-adjusted state expenditures between 1992 and 2006, Washington was tied for ninth lowest (24.05 percent), but in the inflation-adjusted revenue category for the same period, our state notched only 22.62 percent. What this means is that we’ve run a slight deficit, but not one as nearly as bad as other states (Arizona, for example, increased state expenditures by 79 percent, but revenue by only 54 percent). Chalk our not-so-small victory up, in part, to successful efforts establishing a real Rainy Day Fund.

From these four reports it becomes rather clear that structural improvements aimed at getting small businesses to create more jobs should be the order of the day. More state spending is clearly not.
Troy Nichols is Washington state director for the National Federation of Independent Business

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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.