As I have written in the past, Maryland is viewed (fairly or unfairly) as having a poor or less than friendly business climate.  Some have suggested that Maryland’s motto is “If You Can Dream It, We Can Tax It” which is not exactly a ringing endorsement for a business friendly state.   First what determines the business climate and is someone or some entity measuring the business climate?

According the International Economic Development Council (IEDC), the essence of a business climate is “how states state, regional and local policies, relationships and local communities support business development.”   What are some of the major factors associated with a business climate according to IEDC?

Major Factors

1. Business and income tax levels
Business and income tax levels allow prospective businesses to gauge their investments when seeking places to expand or incorporate. According to the Tax Foundation’s 2011 State Business Tax Climate Index (8th Edition), “States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth.”

2. Workforce availability
This factor does not necessarily need to focus on the amount of able body individuals a state currently has but rather the skill level of those within the state. Maryland’s accessibility and continued efforts to support technology driven education will continue to make us a viable contender with other surrounding metro areas. The Kauffman Foundation (New Economy Index) commented on the technology driven workforce stating, “…(states with) a solid innovation infrastructure that fosters and supports technological innovation, and many(of the highly ranked states) have a good quality of life coupled with high levels of domestic and foreign immigration of highly skilled knowledge workers.”

3.  Energy costs
A hotbed issue right now, rising energy costs not only are seen harboring our monthly electric bills but also at the gas pumps. Continually rising energy costs are added into the final cost of a product, often assisting in the loss of possible consumers. Maryland currently is ranked in the Small Business and Entrepreneurship (SBE) Energy Cost Index (2010) as being one of the highest energy cost states along with New Jersey (rank 44), Washington, D.C. (rank 42), and Delaware (rank 38) overall.

4.  Market size
The Kentucky Cabinet for Economic Development’s 2008 Kentucky Business Climate report
referred to this factor as “market access.” The more accessible the state can be to either employees via public transportation, or business imports we will continue to see a growth in those that wish to invest in developing within Maryland borders. Factors such as roadway miles, number of airports, and waterway access are just a few factors that attract new business to states.

5. Cost of living
Cost of living plays a crucial role in exhibiting key trends that will decide if a state has a “good” business climate. States with lower costs of living allow residents to feel the significant increase in their purchasing power as opposed to those states that have high costs of living, per IECD’s key findings.

Other Contributing Factors

  • Quality of life
  • Environmental regulation
  • Permitting, licensing, and various reporting regulations
  • Real estate costs and availability
  • Infrastructure
  • Access to financing and capital
  • Incentive
  • Quality of services

How Does Maryland Measure Up?

Factor Indication Rating/Rate
Business Tax Levels State Business Tax Climate Index 4.25 (Rank 44)
Workforce Availability New Economy Index 3rd (MA ranked 1, NJ-4, DE-6, PA-22)
Income Tax Levels (State) Comptroller of Maryland MD 2.00-6.25%
DE 2.2-6.95%
PA 3.07%
VA 2.0-5.75%
D.C. 4.0-8.5%
Energy Costs SBE Council Energy Cost Index 39 (tied with Maine, DE-38)
Cost of Living MERIC Composite Cost of Living 44 (VA-24, PA-32, DE-35, DC-50)

So it would seem that Maryland faces some challenges to its business climate, but at least our state motto is not Massachusetts’ motto “Our Taxes Are Lower than Sweden’s (For Most Tax Brackets)”.