Impact of Forbes list fuels debate
On Oct. 13, Forbes magazine released its annual “Best States for Business” list, which ranks the 50 states on various economic indicators and business-related factors, including regulatory environment and business costs. Maine, which has not historically shone on this list, hit a new low this year: dead last.
Economic development directors and academics debate the validity of the rankings, and the state government has contacted Forbes editors asking for clarification of its criteria. Accurate or not, though, the ranking will likely affect perceptions of the state’s business climate, both for businesses thinking about locating here and policymakers crafting the state’s economic development efforts.
“It’s all anyone is talking about,” Laurie Lachance, president and CEO of Maine Development Foundation, says of the list.
Lachance doubts the ranking will greatly impact a business’ decision to locate here,
since many give preference to more tangible factors when contemplating a move, or significantly impact investment decisions. Rather, she sees the greatest impact inside the state, instilling uncertainty among Maine’s policymakers and leading to roundabout debates over whether Forbes got it right — not what can be done about it. “There’s some degree of truth to it, and we can use it as a call to action, to say ‘Enough’ or ‘Uncle,’” she says.
Instead of attacking the report, Maine should use it as a springboard to new initiatives, mainly increased investment in higher education, which will in turn lead to more R&D investment and job creation, Lachance says. “This has captured people’s attention and is an opportunity to do something … something bold.”
David Clough, Maine state director of the National Federation of Independent Business, calls the ranking “disturbing” and says it could negatively impact Maine businesses’ ability to attract out-of-state investment, since “business and investors are always looking for the largest return and the lowest critical risk.” But despite the negative, the ranking could be a call to arms for state policymakers. “This presents a dilemma to the next governor and Legislature,” he says. “What are you going to do about it? Are you people satisfied with ranking 50th or do you think something more ought to be done about it?”
Rank and file
It’s not news that Maine is trailing on the list, though since 2007, when the state was 48th, it had improved its ranking to No. 41 in 2009 (see table, below). Over the past four years, New Hampshire has generally earned the best ranking among the New England states, hovering around the No. 19 mark, though Massachusetts this year jumped 18 spots to No. 16.
Among the biggest gripes with the report in Maine: the state’s No. 16 ranking for quality of life. Maine fell behind all of the other New England states except Rhode Island.
Maine has received average to subpar marks for its business climate in other reports as well. The Virginia-based Small Business and Entrepreneurship Council ranked Maine 48th on its “Business Tax Index 2009” report, which analyzes the favorability of state tax systems for small businesses. The state’s business tax climate also regularly puts it in the bottom half of the Tax Foundation’s annual tax climate index ranking, though Maine did improve from 40th to 34th place last year.
Forbes’ list isn’t the only black eye for Maine’s business climate, but it’s the most significant because it’s what CEOs and other business decision-makers are reading, says Matt Jacobson, president and CEO of Maine & Co., a business attraction nonprofit. “A think tank report is great, but no one’s reading it,” he says.
Usually, when the list is released, at least one site location consultant calls Maine & Co. to ask if the information is true. “Press like this confirms people’s suspicions and justifies them not looking at Maine,” Jacobson says.
However, the Forbes ranking played no part in Watertown, Mass.-based athenahealth’s decision to open an office in Belfast in 2007, says spokesman John Hallock. The company, which offers Internet-based physician services, looked at other New England states but settled on Maine and Belfast in particular because of the talent base, Pine Tree Zone incentives and efforts by Maine & Co. The Belfast office’s 200 employees also fit in well with the company’s corporate culture, “which I don’t know if you can measure in a Forbes ranking,” Hallock says.
“Let’s be fair, any time we get a rating like this, there’s bound to be some effect, but I don’t believe in my heart it’s going to be that serious,” says Maine Department of Economic and Community Development Commissioner Thaxter Trafton. Staff in the governor’s office have sought additional information on the methodology used by the business publication.
The effect of the ranking on the state’s venture capital sector is harder to gauge, given the small size of the state’s VC community, says Michael Gurau, president of Clear Innovation Partners. A $3 billion investment from VCs last year helped propel Massachusetts to No. 16, despite having the highest business costs in the nation.
Carla Dickstein, senior vice president for research and policy development at Coastal Enterprises Inc., says that though “an article like this adds fuel if people already think Maine is in bad shape,” it won’t impact the organization’s New Markets Tax Credit program, which “has a long pipeline of potential deals” and attracts both in-state and out-of-state investors. As for the rest of Maine business owners, “I believe they are less affected by a report than by day-to-day challenges of running their businesses,” she says.
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