Nothing stings quite like a poor report card. A survey of more than 12,000 small business owners by a San Francisco online marketing firm gave Pittsburgh and Pennsylvania some of the worst grades in the country in business friendliness.
Pennsylvania earned a D in overall friendliness to small businesses, placing it 33rd out of the 38 states included in the survey. Pittsburgh also earned a D, ranking it 73rd out of the 82 metropolitan regions surveyed by Thumbtack in conjunction with the nonprofit Ewing Marion Kauffman Foundation.
Utah, Idaho, Texas and Virginia topped the list with A+ ratings. California, Illinois and Rhode Island each earned an F.
While one survey of small business owners may not be conclusive on its own, the region frequently bottoms out on lists for many metrics of small business friendliness and formation.
“The results of the survey are consistent with other information that indicates Pennsylvania and Pittsburgh do not do well in encouraging small business formation and growth,” said Harold Miller, an adjunct professor of public policy and management at Carnegie Mellon University.
On this new survey, Pittsburgh and Pennsylvania did poorly in nearly every metric in 2014, including tax code, zoning regulations, licensing, ease of starting a business and availability of training programs.
“One thing that’s declined is the ease of hiring, which is a pretty important variable.” said Jon Lieber, chief economist for Thumbtack.
Pittsburgh received an F in the training and networking program component of the scorecard in the survey, down from its D+ score in 2013.
“The training and networking programs are actually pretty important to the overall score as well, and were driven down,” Mr. Lieber said. “Businesses really like it when there is assistance available to them on how to comply with regulation, marketing, and how to grow their business and even customers.”
That low grade surprised Kevin White, acting director of the Pittsburgh district office of the U.S. Small Business Administration.
“The oil and gas industries have been very active,” said Mr. White, who noted that a number of small business and supply fairs have been held by both his office and local businesses, such as Highmark and UPMC. “Is the word getting out?”
In fiscal 2013, which ended in September 2013, the federal government met its goal of awarding more than 23 percent of nationwide contracting dollars to small businesses for the first time in eight years. That should represent “a great uptick for small business,” Mr. White said.
The Thumbtack survey included 436 small business owners from Pennsylvania and 92 from Pittsburgh, and was based on an Internet poll sent to its users, which connects customers with providers for services such as plumbing or tutoring. The report noted that the sample is “underrepresentative of the agricultural, retail and manufacturing sectors,” and also contained a higher proportion of small business owners with college degrees than average.
“You have to be cautious about any survey like this one that relies on voluntary responses rather than a controlled sample,” Mr. Miller said. But “policymakers and economic development agencies should take the results seriously.”
The report tracks with other assessments of business friendliness. The Kauffmann index on entrepreneurial activity, which tracks new businesses that often drive job growth, gave Pennsylvania among the 15 lowest scores in the country.
According to 2012 U.S. Census data, 84 percent of businesses in the Pittsburgh metropolitan area had fewer than 20 employees, placing the city in the bottom fifth of metropolitan areas in terms of small business share. The national average for metropolitan areas was 87 percent.
The 2014 annual CNBC ranking of the best states to do business in ranked Pennsylvania 44th overall, and 42nd in the cost of doing business.
Licensing and regulation requirements may be doing more harm to Pennsylvania’s reputation than its 9.99 percent corporate tax rate, the second highest among states with a corporate income tax, according to an analysis from The Tax Foundation, a Washington, D.C.-based think tank.
“There was no statistically significant relationship between people’s perception of their tax burden and their perceptions of friendliness of their government,” Mr. Lieber said. “But what was statistically significant was the relationship between how people perceived the ease of complying with taxes and the overall friendliness of the government.”
In the Thumbtack survey, 64 percent of businesses polled nationwide felt they paid the right amount of taxes, though as businesses got larger, they were more inclined to agree that their tax burden was unfairly high.
“What they are complaining about is the complexity of the tax code, how hard it is to comply with the tax code, and even more so than that is how hard it is to comply with licensing rules,” Mr. Lieber said.
Over 62 percent of the owners surveyed nationally reported being subjected to licensing requirements at more than one level of government, and 25 percent faced regulations at the city, state and federal levels. Pittsburgh earned a D+ for its licensing and a D for its tax code.
“We are currently working to improve our regulatory systems for businesses here, and have been since the start of Mayor [Bill] Peduto's administration,” said Henry Pyatt, small business and redevelopment manager for the mayor’s office.
Mr. Pyatt said he; Maura Kennedy, Bureau of Building Inspection chief; and Ray Gastille, planning director, are planning to issue guides explaining the city’s zoning and permitting processes to help reduce confusion. Plans also call for working to streamline those processes in the future.
But where some focus on the availability of training programs for licensing and regulations, others say that the real issue is the number of unnecessary regulations foisted on business owners by legislators.
“A lot of it stems from crony capitalism,” said Jay Sukits, an assistant professor of business administration at the University of Pittsburgh. “Businesses start lobbying legislators through campaign donations, and the legislators start protecting those businesses through regulations. It’s corruption to the extent that it limits competition.”
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