A new study from the Cato Institute finds that New York is the 44th worst state when it comes to regulatory barriers facing entrepreneurs.
But at least it isn”™t Connecticut, which ranks dead last.
“Entrepreneurs and Regulations: Removing State and Local Barriers to New Businesses” was written by Chris Edwards, Cato”™s director of tax policy studies. It includes the Entrepreneur Regulatory Barriers Index, which ranks the states on how their regulatory barriers impact startup businesses.
The overall rank is based on scores for 17 variables averaged across four categories:
- small business views of regulations;
- occupational licensing;
- other entry barriers; and
- regulation-related costs.
“I was not going to do an index originally,” Edwards told the Business Journal. “I started out looking at startup businesses and how their rate of opening had fallen over the last two decades.”
Noting that many economists have concluded that the falloff is due to an increased rate of federal, state and local government regulations, Edwards said his research found that the share of U.S. jobs requiring an occupational license increased from 5% in the 1950s to 22% in 2020.
Acknowledging that part of that rise is due to increased concerns about public health and safety, Edwards argued that the pendulum has swung too far the other way when it comes to occupational licensing ”” which, he said, New York and Connecticut both overdo.
“Everyone sees that people like doctors and dentists need to be licensed,” he said, “but when you get down to occupations like interior designer and floral arranger, it doesn”™t make any sense.”
Instead, Edwards continued, people working in such occupations should be allowed to follow the route allowed auto mechanics in most states; instead of state-issued licenses, mechanics usually receive certifications from independent organizations.
“They earn a living by doing the basic things and can climb the ladder by putting in extra time for training and getting additional certifications,” he said. “That makes more sense ”” you voluntarily get certified so that you can be paid more.”
In compiling the index, Edwards said he and Cato Institute Research Associate David Kemp used as a starting point an annual “business friendliness” survey published by Thumbtack.com. It asked 5,000 small businesses nationwide to rank the “friendliness” of their state”™s business climate, including state and local regulations.
It employed additional data from such sources as the U.S. Small Business Administration, the U.S. Department of Labor and the Kauffman Entrepreneurial Research Group to come up with grades for each state.
And what grades they are. When it came to small-business views of regulations, Connecticut received a “D” for ease of starting a business and “F”s for labor and hiring laws and licensing laws; New York”™s grades in those same categories were respectively “D,” “D” and “D+.”
Edwards cited a 2016 report by New York City Comptroller Scott Stringer that found small businesses in the city were subject to more than 6,000 regulations, with 15 city agencies issuing 250 different licenses and permits.
Nearly a third of new businesses in the city reported waiting six months or longer to obtain needed approvals to open.
Restaurants have a particular rough go of it, Edwards said. “They have to pay the rent on a property while they wait to get the proper permits in place ”” sometimes that takes a year,” he said. “That”™s a barrier to business that really shouldn”™t be there.”
And while New York got a positive mark for legalizing recreational marijuana ”” the legislative jury is still out in Connecticut ”” Edwards said the resultant system could mirror the one that exists for restaurants seeking alcohol licenses.
“A lot of towns put a per-capita cap on how many restaurants can obtain alcohol licenses,” he said. “That pushes up the costs of getting a license, so that only the wealthy or a chain can get one. Or it”™s a situation where only those who can afford to do the most lobbying ”” or who pay bribes ”” get them, which is very unfair.”
The practice puts people with modest income, who do not have political connections, at a significant disadvantage, he continued. The issue is one that Connecticut lawmakers have tried to address with “social equity” amendments to the latest recreational marijuana legislation.
Edwards recommends a more liberal approach to such rules, especially as the post-Covid economy continues to evolve.
“It”™s something that a lot of state and local governments can do,” he said. “And it should be bipartisan. Speeding up the local building permitting process for brick-and-mortar stores and restaurants ”” it shouldn”™t take that much to accomplish.
“It”™s absurd how long it can take,” he continued. “Making it easier for entrepreneurs to start businesses helps the economy. Who doesn”™t want that?”
Who needs a job when Joe Biden’s handing out free money that he just printed?