In a study examining regulatory burden more than tax burden, Wyoming ranked No. 20 for small-business friendliness. This stands in contrast to other studies where Wyoming has been ranked No. 1 and No. 2 for business.
The 124-page study, which developed a regulatory index for each state, emerged Thursday from the San Francisco-based Pacific Research Institute, a non-partisan, nonprofit think tank. The author, business economist Dr. Wayne Winegarden, said many conservative groups assembling similar rankings focus more on quantitatively measured taxes. What such studies fail to account for is the regulatory burden.
“[Taxes] don’t have the qualitative problem of regulations,” Winegarden said in a phone interview Friday. “They’re numbers.”
But, he said, he found small businesses often mention regulations as a top problem, right up there with taxes. So he took on the challenge of measuring qualitative regulations quantitatively.
“We’re trying to get our arms around the trunk of the tree not trying to measure it,” he said, admitting that some “data is difficult to come by” on the regulatory side.
Because he wanted to differentiate his study from past tax-focused studies, he discounted taxes as a qualifying metric entirely. While initial results showed Wyoming at No. 27 Thursday, Winegarden said he was in the process of reversing one list because the data got flipped upside-down.
“I made a mistake and the order was completely reversed,” he said. The result is that “Wyoming’s being punished for being a great tort liability state.”
That mistake was enough to push the state down seven rankings in the first data, but it will be No. 20 when the problem’s fixed, he said.
Winegarden said that employment in small businesses has been lagging behind larger businesses in the past decade.
“Due to their role as innovators and job creators, it’s vital to re-invigorate America’s small businesses,” he said.
Wyoming is doing a lot of things well, he said. Regulations don’t push a higher minimum wage than required by the federal government, they don’t require additional family leave obligations beyond federal requirements and it is a right-to-work state, meaning its workers can’t be forced to join a union.
However, other regulations are hurting the state, he said. For one, the state has no regulatory flexibility laws in place that could offer regulatory relief to small businesses.
“States that have formal regulatory flexibility … should be expected to have a larger number of small business exemptions from the costliest regulations and, therefore, impose a regulatory structure that is less burdensome on small businesses than similar states without regulatory flexibility (or less generous regulatory flexibility),” Winegarden wrote in the study.
The study also slammed Wyoming for its telecommunications regulations that don’t offer companies much flexibility in responding to markets and the state’s control over liquor sales. There are 18 states that control alcohol sales.
“The state usurps the right to sell these alcoholic beverages and assumes a monopoly position over the wholesaling and/or retailing of these products—either for itself or its designated agents and denies profitable business opportunities to small businesses within these states,” the study said. Winegarden admitted that anyone not involved in retailing or wholesaling would be little affected by alcohol laws, but said other metrics would only apply to specific industries as well.
For instance, minimum wage laws won’t matter to law firms or sole proprietorships.
“The rankings provide perspective – it’s not, like, definitive,” he said.
In fact, Winegarden said he expected Wyoming to rank in the top 10 on his list, and was surprised when it came in so much farther down the list.
Others will likely be surprised as well. Gov. Matt Mead often lists Wyoming’s finer attributes as divined by studies similar to Winegarden’s – particularly those that have to do with tax structure. When Pollina Corporate Real Estate ranked the state No. 2 last year for business friendliness, Mead quickly touted Wyoming as “having a climate that is conducive to starting and sustaining a business.”
He added at the time that the ranking – the highest the state had ever climbed on that annual study – represented an approach that’s working and leading to an expanding and diversifying economy.
“There is little question from a tax burden perspective, Wyoming is an excellent choice for doing business,” said Brent Pollina, vice president of Pollina Corporate Real Estate and co-author of the study.
But the regulations, Winegarden said, have room for improvement. He said he felt it was important to look at regulations more collectively to let people start talking about how regulations affect small businesses.
“Regulations can put small businesses at a competitive disadvantage,” he said.