A state the size of Pennsylvania, with its robust history of manufacturing and access to plentiful natural resources, inevitably has a big impact on the national economy.
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But if the state’s next big economic splash is going to come from a startup business, then Pennsylvania’s lawmakers have some work to do, according to WalletHub’s recent report, “2018’s Best & Worst States to Start a Business.”
WalletHub is a personal finance analysis firm, and its analysts looked at a series of 25 indicators across all 50 states to develop a final ranking. What they determined is that Pennsylvania right now is among the worst places to launch a startup, ranking the state 46th among the 50 states.
“According to U.S. Bureau of Labor Statistics data, about a fifth of all startups typically don’t survive past year one of operation, and nearly half never make it to their fifth anniversary,” WalletHub’s report states. “But startups fail for different reasons, a ‘bad location’ among the most common.”
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There were two main subcategories, and Pennsylvania did OK in one of those, ranking 22nd in “Access to Resources.” But when it comes to “Business Environment Rank,” that’s where the state’s score was really dragged down.
Drilling even deeper, a 46th-place score in five-year business survival rate was one of the most alarming findings. Put simply, that means that startup businesses in Pennsylvania are failing more frequently than in 45 other states. The state’s survival rate is 46.3 percent.
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Other problematic metrics included a 42nd place finish in startups per capita, 37th in job growth, and 32nd in the growth in the number of small businesses.
On the other hand, Pennsylvania finished 10th in “share of fast-growing firms,” according to WalletHub.
“The state does have a few positives, such as the percentage of fast growing firms, the amount of money it spends on incentives, and the use of technology to improve work,” WalletHub analyst Jill Gonzalez said. “However, as Pennsylvania’s 46th overall ranking suggests, these are hardly enough to compensate for the negatives.”
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One recent government policy proposal that might make life even more difficult for startups in Pennsylvania is Democratic Gov. Tom Wolf’s plan to raise the overtime salary threshold from $23,660 to $47,892. Anyone earning a salary below that threshold would be entitled to overtime pay when they work over 40 hours in a week.
According to the nonprofit Commonwealth Foundation, which advocates for free market solutions and small government in Pennsylvania, this proposal would likely hurt the state’s smaller businesses most of all.
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“The proposal’s one-size-fits all standard will hammer small and medium-sized businesses with compliance costs, potentially forcing some to close,” the foundation’s Derek Rockey wrote. “Robert Bee, vice president and general manager of WBRE-TV and the public affairs division chair of the Greater Wilkes-Barre Chamber of Commerce Board, put it succinctly: ‘If the business can’t survive, then the workers get hurt more…No one wants to hurt workers, but no one wants to hurt businesses.’”
There are other headwinds that the state government has created, as noted by Commonwealth Foundation Vice President Nathan Benefield in an opinion piece published online by the York Dispatch. Benefield noted that while the passage of a state budget with no tax increases was good news, there were plenty of warning signs to indicate that more tax hikes might be on the horizon.
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“Last year’s borrowing allowed lawmakers to put off many tough decisions. Plus, the budget relied on several hundred million dollars in one-time revenues and concealed additional spending in off-book funds called the ‘shadow budget,’” Benefield wrote. “Meanwhile, cost drivers such as human services increased faster than the state’s economy. On top of that, debt payments on more than $1 billion in borrowing begin next year, costing nearly $200 million annually.
“All told, this makes for a difficult budget year in 2019. If lawmakers come asking for a multi-billion tax hike next year, you’ll know why.”
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WalletHub consulted with Professor Paul Pavlou of Temple University in Philadelphia to talk about some of the characteristics that can create a good environment for startup businesses. Pavlou wrote that using tax breaks and incentives can be good policy, provided that the return on investment is monitored carefully.
“Besides tax breaks and other tax-related incentives, states should try to develop a favorable ecosystem in the state to attract new businesses in the form of a technology infrastructure (e.g., high-speed Internet), favorable environment for labor (e.g., nice environment to work and live, such as school system and culture), and favorable regulations in the sense of obtaining licenses, permits, and other ways to facilitate new business in the state and/or city,” Pavlou added.
