Small businesses are a major source of economic innovation and private sector jobs but their relative paucity of resources makes them especially vulnerable to business regulations, argues Steven Lanza.
In a short research paper published this month in The Connecticut Economy, the University of Connecticut economist concludes that the Nutmeg State places more constraints than many states on its small businesses. Lanza asks: If small-employer growth is the goal, how much regulation is too much? What could Connecticut stand to gain by easing its regulatory burden and making itself more business-friendly?
In 2006, Connecticut had 1,700 fewer small businesses than it had a decade earlier, despite the state enjoying an economy pumping on all cylinders at that point. That 2.2 percent decline put the state third from last nationally after West Virginia and Ohio, with the average state enjoying a 10 percent gain in its small-business sector.
Lanza concludes that Connecticut has the eighth most-onerous business regulations of the 50 states, based on more than 200 public policies among states analyzed by researchers at SUNY Buffalo and Texas State University and published by George Mason University.
On the plus side, in the Northeast only New Hampshire cracked the top half nationally, with Connecticut one slot ahead of Massachusetts and New York, New Jersey and Rhode Island occupying the bottom three rungs.
Robert Weisz, owner of Rye Brook, N.Y.-based RPW Group Inc., is one developer with experience in both Fairfield County and Westchester County, N.Y. In a September roundtable with the Fairfield County Business Journal, Weisz said the regulatory environment is moving in the right direction.
“The reason why is ”¦ desperation,” Weisz said. “All these towns have the same issues ”“ they have budgets that have tremendous deficits. ”¦ The message is clear: less government is better, not more government. Let”™s get government out of the way.”
Like most of New England, Connecticut has fairly exacting labor standards, Lanza noted. It has a relatively high minimum wage, a prevailing wage law and mandatory workers”™ compensation. And, like most states in the populous Northeast, Connecticut has fairly rigorous land-use standards marked by a significant state (versus local) role in land-use planning.
Still, government regulation need not be a drag on business activity, he argued. Lanza said that if Connecticut”™s regulatory environment had more closely mirrored that of North Carolina, Virginia and other states closer to the median regulatory burden, it might have boosted its small-business growth as much as 2 percent over the 10-year period ending in 2006.
Enter Gov. Dannel P. Malloy. Since Malloy took office and hiked taxes mostly across the board this year, the state has seen a 2.2 percent increase in businesses registering with the Connecticut Secretary of State”™s office through July, the most recent date for which figures are available. In addition, business shutdowns were down fully 14 percent from a year earlier. If higher taxes and select new regulations such as paid sick leave are dampening growth, they are not pushing business formation into negative territory.
Malloy is convening a special session of the Connecticut General Assembly in October in an attempt to improve the state”™s small-business climate ”“ presumably to include an easing of regulations and not taxes.
“In the extreme, government regulations can yield a bewildering knot of red tape that can stymie even the most enterprising of business people,” Lanza wrote. “Boosting small-business loans could help ”¦ Lowering taxes also could promote small-business growth, though the obvious risk is that it would limit the provision of public goods and services essential for business formation.”
