Not all reports give valid picture Center says rankings of Maine businesses can be misleading

BANGOR – Not all reports on the Maine’s business climate are created equally, and individuals or groups that use them to pan or praise the state’s business environment should use caution, according to a new study.

The Maine Center for Economic Policy recently reviewed some of the more publicized and often quoted reports for accuracy. It found that the term “business climate,” used frequently to define a state’s economic development potential, is hard to pin down and typically leads to negative connotations of Maine.

The center’s report, “Ranking Maine’s Business Climate,” was written by Charles Lawton and Frank O’Hara of Planning Decisions, a Portland research firm, and released Friday.

“Indexes and rankings can be useful, but the reader must be careful to evaluate who is putting them forth, what the purpose is, what data are used, how the data are combined, and whether the ranking reflects what it purports to affect,” according to report.

Lawton and O’Hara complimented the way the Maine Development Foundation compiles its annual “Measures of Growth” report because the organization recognizes that “economic development is more than just jobs and per capita income.”

MDF studies gains or the lack of growth in 58 performance measures, from personal income growth to productive farmland, in the categories of economy, community and environment. The organization then grades each measure for “exceptional performance” to “needs attention.” MDF also lists dates to repair poorer-performing areas and then checks on whether those goals were reached.

The authors said reports such as MDF’s “do a much better job indicating the many aspects of the state’s public services, economy, and quality of life that impact business climate than do ideologically driven scales.”

Those “ideologically driven scales” are reports issued by the Tax Foundation, the Small Business Survival Index and the Economic Freedom of North America, according to the authors.

Although the Maine Center for Economic Policy encourages people to be open-minded before dismissing Maine as having a poor business climate, it doesn’t let the state off the hook either for how it taxes businesses.

The authors wrote that state and local taxes, which compose 1.5 percent of nonretail sales, are a “relatively minor cost item” for businesses and do not have a substantial impact on business location decisions.

“However, Maine’s taxes on business are both inequitable and discriminatory and should be changed,” the authors said in a statement.

Lawton and O’Hara recommended that the Legislature eliminate the personal property tax on business equipment, replace the corporate income tax with a business enterprise and profits tax applicable to all businesses, and broaden the coverage of the sales tax while lowering the sales tax rate.

Also, with the tax structure changes, there would be a need to enhance revenue sharing to the major service-center communities since they would lose more in property taxes than rural areas, according to the report.

The changes could be “revenue neutral,” according to the authors, “but clearly some businesses would end up paying more taxes (particularly those whose purchases are not now subject to the sales tax) and others would be paying less.”

Lawton and O’Hara studied the following reports and gave the following conclusions:

. The state Department of Economic and Community Development hired PricewaterhouseCoopers to compare the cost of doing business in Maine for seven types of businesses. “Maine was found to be in the middle of the pack.”

. The U.S. Census of State and Local Government Finances, whose sample survey is used by other index rankers, “overestimates property tax collections in Maine by nearly $200 million.”

. The Tax Foundation ranks Maine as having the second-highest tax burden and 43rd in terms of business climate. “There calculations used the erroneous Census property tax data, do not adjust for how much tourists and seasonal owners pay in, and are influenced by business cycles.”

. The Small Business Survival Index ranks Maine at the bottom of all states. “The way it combines its data distorts the importance of tax rates compare to, say, health costs.”

. The Council on State Taxation’s ranking uses data “that do not match up with available data in Maine.”

. The Metro Area and State Competitiveness Report measures 38 factors and “claims scientific methodology, but in fact is flawed.”

. The 2003 Development Report Card for the States measures 68 factors “and provides a valuable overview, however one can quibble with its results.”

. The Economic Freedom of North America 2004 Annual Report “is an ideological exercise with little to offer.”

The Maine Center of Economic Policy’s report is available at www.mecep.org.