Low marks in study reinforce perception of anti-business climate

By Sean Hao
Advertiser Staff Writer

Hawai'i's rankings in the annual report released by the Washington, D.C.-based Corporation for Enterprise Development are lower than last year when the state received "D"s in three broad economic development categories.

The corporation, an advocate of economic opportunities for the poor, bases its 17th annual Development Report Card for the States on 68 measures ranging from an area's crime rate and air quality to its industrial diversity and record for creating new companies and jobs.

The measures are grouped under the major categories of economic performance, business vitality and capacity for future development.

This year, Hawai'i dropped to last among all 50 states in measured areas that include K-12 education spending, energy costs, long-term employment growth, involuntary part-time employment and average teacher salaries.

At the same time the state ranked favorably in the top 10 states for per capita energy consumption, release of toxic chemicals, unemployment, manufacturing investment and high school completion rates among other things.

Hawai'i's overall low marks reinforce the perception that it is far from a business-friendly state. Hawai'i has typically ranked near or at the bottom of similar studies.

Supporters of Republican Gov. Linda Lingle said it's too soon for the report card to reflect the effectiveness of her policies, which have rolled out since she took office in December 2002.

Ted Liu, director for the state Department of Business, Economic Development and Tourism, acknowledged Hawai'i probably deserves low marks in many of the economic development categories analyzed, including patents received, royalty income generated and amount of venture capital attracted by local companies. However, Liu said the report ignores recent signs of strong job and income growth.

"Overall, I find the perspectives that we get from all of these scorecards to be helpful," he said. "Franky, if you analyze them all, we still don't look very good."

Under the broad categories of economic performance, business vitality and capacity for future development, only 12 states had lower scores for economic performance than Hawai'i.

Two states — Wyoming and South Dakota — had lower scores for business vitality. Only Mississippi had a lower score for its development capacity, which includes factors such as human and financial resources. On the upper end of the grading, three states — Massachusetts, Minnesota and Virginia — received straight "A"s.

The Corporation for Enterprise Development said the report shows overall that states are stressed by higher unemployment, lower-wage jobs, slower pay growth and declining employer-provided health coverage.

The data used in the study was the latest available when the report was compiled, said Lillian Woo, senior program manager for the corporation.

But in some cases, more recent data suggests Hawai'i is doing better than its grades suggest. For example, the report card ranks Hawai'i 42nd in short-term employment growth based on 2001 to 2002 annual employment gains reported by the Bureau of Labor Statistics.

However, a more recent report by the Federal Deposit Insurance Corp. found that nonfarm payroll growth in Hawai'i grew 2.2 percent in the second quarter compared with the same period last year, the best expansion rate among all states.

And driven by a relatively stable tourism industry and robust construction sector, personal income in Hawai'i rose by 5.5 percent in the first quarter compared with the same period a year ago, according to U.S. Bureau of Economic Analysis released last month.

State Sen. Sam Slom, R-8th (Wai'alae Iki, Hawai'i Kai), who is also president of Small Business Hawai'i, said there's no arguing with the conclusions of the report.

"There's no question that we still have issues to be dealt with," including high taxes, healthcare and workers compensation costs as well as burdensome regulations, he said. "This is one of those things we've been saying for years."

Slom said the state is making some progress in business friendliness. He pointed to a cut in fees for electronic filing of business registrations made by the Department of Commerce and Consumer Affairs in April.

In addition, Lingle signed a bill this year that removes healthcare insurers HMSA and Kaiser Permanente from the Prepaid Health Care Advisory Council. Their presence on the council, which recommends or rejects efforts by Mainland healthcare providers to enter the Hawai'i market, had been criticized as preventing competition for healthcare coverage.

The governor also directed agencies to cooperate with a board charged with reviewing the impact of new and existing regulations on small businesses. The board was largely ignored by state agencies in the past.

"It would be next year before we would start to see some improvement, I think" in the state's grades, Slom said. "I see progress and I think we're going to see more."

In fact, in this year's report card's grading system, Hawai'i accumulated 36 points under the Corporation for Enterprise Development's performance measures, just one point shy of a "C" grade.

"If you are seeing job growth, then next year you should see your scores improve," Woo said.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.