Donald Fry: Are Maryland’s regulatory rankings about substance or process?

 

By Donald C. Fry

Maryland continues to receive mixed grades in national business climate rankings. Overall rankings that our state received during the last 12 months for business competitiveness range from 19th on the Forbes “Best States for Business” list to 41st on the Tax Foundation’s recently-released State Business Tax Climate Index.

Maryland is in the bottom 20 states for overall business climates rankings from two other widely-read sources. Our state ranks 31st on CNBC’s 2012 Top States for Business list and 40th on Chief Executive magazine’s “Best and Worst States for Business” list.

Of course, it’s difficult to leap to too many specific conclusions about a business climate based on the plethora of national rankings that are released because they are not only based on differing criteria, but also assign different weights to criteria.

But generally, the rankings tend to identify Maryland’s growth prospects, technology, innovation, workforce and education as key strengths. These are some pretty significant strengths to which we need to consistently claim “bragging rights.”

So, what is dragging down national perceptions of Maryland as a place to do business?

As disparate as the surveys are with their overall rankings, taxes are cited by most as a competitive challenge for Maryland. This is not news to policymakers in our state and this category lends itself to quantifiable metrics – such as tax rates and per-capita taxes paid – that shape statistical debate within our state over this issue.

Maryland’s perceived tax environment scores consistently low on most survey rankings.

In addition to the Tax Foundation’s 40th-place ranking for Maryland’s business taxes, the CNBC survey ranks Maryland 42nd for costs of doing business, which is based largely on tax burden and also includes labor and utility costs. Forbes also ranks our state 42nd for business costs.

The Chief Executive magazine survey gives Maryland four out of five stars for workforce quality and living environment, but awards only two stars for tax and regulatory policy.

But there is a troubling consensus among the surveys around one other key business climate element that is shaping up as an issue where specifics are apparently harder to come by – Maryland’s regulatory environment.

On many perennial major national surveys, Maryland regulatory climate rankings are, in most cases, significantly lower than its major mid-Atlantic competitors.

Forbes and CNBC rank Maryland 22nd and 24th respectively for regulatory environment and business friendliness, which includes perceptions of its regulatory policies. These rankings, nonetheless, are far below those of both Virginia and North Carolina on both surveys, for example.

A new survey of small business owners issued recently by Thumbtack.com – with help from the highly-regarded Kauffman Foundation – gave Maryland a grade of D+ for “friendliness of licensing” – our state’s lowest grade on the survey. Among seven mid-Atlantic competitors, our state ranked 6th in overall regulatory friendliness, tax code and licensing regulations.

Within Maryland, business executives and economic development experts consistently cite the state’s regulatory environment as a major challenge to our business climate. But the business community struggles when asked to identify specific regulations that are major impediments to business.

Last fall, Governor Martin O’Malley asked state agencies to review their regulations and identify those that should be eliminated, revised or reviewed. He also set up a Web site to collect suggestions from business owners and the general public.

The agencies produced a list of 131 state regulations for which elimination, revision or streamlining was recommended in order to make it easier to do business in Maryland. Most of the suggestions amounted to policy housekeeping, however, and the relatively sparse public response to the governor’s Web site did not produce suggestions for any major regulatory revisions.

Since then, Greater Baltimore Committee chairman Brian Rogers, T. Rowe Price’s chairman and chief investment officer, reacting to the state’s low rankings for business climate, called on business advocates to develop a Top 10 list of the state’s most onerous regulations.

Few business executives have come forth with suggestions for the list.

So where do we go from here? Just thinking out loud, a couple of thoughts come to mind.

Could it be that there are so many onerous regulatory provisions in Maryland that skeptical business owners don’t know where to start and presume that such an exercise would be futile anyway? That’s possible but not likely.

More likely, in my estimation, is that business community frustration stems less from the substance of the regulations themselves, but more to the manner in which Maryland state government implements them.

When the GBC in 2010 conducted a year-long series of focus groups that resulted in the development of eight core pillars for a good business climate (outlined in a report “Gaining a Competitive Edge“), business executives and economic development experts from across the state made it clear that our state’s regulatory environment was a key challenge to business growth and job creation.

The regulatory process and the state’s posture toward implementing the regulations generated many critical comments during the focus groups.

A high priority mentioned by many was that the state’s permitting process should be re-evaluated. It is slow, redundant and unpredictable, focus group participants complained.

Participants also did consistently point out that state regulators are unpredictable when it comes to implementing regulations and are generally not considerate of the private sector’s need for a timely government transactional response. “Time is money and money is jobs,” said one economic development director.

Consequently, one of the eight core pillars for a competitive environment for business growth developed through the focus groups calls for regulatory policies that are “streamlined, stable and predictable.” State government must project to business that its regulatory policies are “reasonable, relevant, free of surprises or redundancy, and considerate of businesses’ sense of urgency,” participants in the GBC study concurred.

Maybe the key focus of our Top 10 list should be the regulatory process, not necessarily the substance of regulations. A broader question, beyond what regulations are onerous, that business executives should answer and communicate to state government leaders is this: what can Maryland do to improve its regulatory processes?

It’s a fair question and appears to be one of the key factors driving Maryland’s poor performance among national rankings of a positive business climate.

Let’s hope Maryland’s government leaders remain receptive to the answers.

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