High Costs of Doing Business in N.Y. Trounce Advantages, Says Report on State’s Business Climate

December 31, 2004

The cost of doing business in New York State is substantially higher than in most other states because employers here must pay more for employee benefits, workers compoensation, energy, taxes and other costs, according to a new “Just The Facts” data compilation by The Public Policy Institute.

One business-climate comparison included in the new installment shows that the burden of these high costs clearly outweighs New York’s advantages, such as technology and labor force, in terms of the state’s overall competitiveness.

The overall average cost of electricity in New York is second-highest in the country, after Hawaii’s. Commercial users of electricity in the Empire State pay an average 43 percent more than businesses elsewhere in the country, while industrial prices here are 19 percent higher than average.

Natural gas, another important source of energy for businesses, is also expensive in New York. Average industrial prices for natural gas are 37 percent above the national average, Just The Facts shows.

Average employer costs for work-based health insurance in New York are second-highest in the country at $6,671 per year, according to Just The Facts. The total average premium, including employees’ costs, is third-highest in the nation.

The average cost of a workers’ compensation case in New York was third-highest in the nation, some 80 percent higher than the median figure for all states, the new report shows. Most neighboring and competing states, including others that are highly unionized such as New Jersey and Michigan, had much lower workers’ comp costs.

New York’s unemployment-insurance tax structure is the worst in the nation, according to a Tax Foundation index included in Just The Facts. The rating reflects the nation’s highest minimum UI tax rate for employers that have not laid off any workers, relatively high maximum tax rates, and a complex experience-rating system.

Overall business costs in New York, including those for labor, energy and taxes, are ninth-highest in the country, Just The Facts shows. While labor costs on average are slightly lower in New York than most other states, high energy and tax costs more than make up that difference, according to the Relative Cost of Doing Business Index compiled by Economy.com and included in Just The Facts.

The report includes three other ratings of business-climate competitiveness, each of which includes a number of factors:

* New York’s business tax climate is among the least favorable in the country, based on elements including the overall burden, complexity and cost of compliance. States such as Massachusetts, Michigan and Pennsylvania have much better tax systems for employers, according to a Tax Foundation index cited by the Institute.

* The State Competitiveness Index includes relative strengths in technology and labor force along with government fiscal policy, legal/regulatory systems, infrastructure and finance. By this measure, New York ranks 31st in competitiveness among the 50 states — well behind states such as Massachusetts, Virginia and California, but ahead of Florida, Ohio and Illinois.

* New York ranks last among the states on the U.S. Economic Freedom Index, which includes measures of fiscal burdens, size of government, welfare spending and other elements.

The Institute, the research affiliate of The Business Council of New York State, published the latest installment of Just The Facts: Key Economic and Social Indicators for New York State, available at www.ppinys.org/reports/jtf.htm. The report includes 32 tables comparing the cost of major business expenses, along with other indicators, in New York and the other 49 states.

Just The Facts also includes previously available data including the latest Census Bureau comparisons of taxes and spending, and recent employment trends, in all the states. Those tables show that combined state and local taxes in New York are the highest in the country, and that the Empire State lags most others in keeping and creating jobs.

Links to all data in the updated Just the Facts are available at www.ppinys.org/reports/jtf.htm

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