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The Honolulu Advertiser
Posted on: Saturday, August 13, 2005

It's expensive to do business here

By Dan Nakaso
Advertiser Staff Writer

LAERN MOREMilken Institute Cost-ofDoing-Business Index: www.milkeninstitute.org

Hawai'i once again ranks as the most expensive state in the nation when it comes to doing business, according to the 2005 Milken Institute Cost-of-Doing-Business Index.

The survey, which last year also ranked Hawai'i on top, looks at wage, electricity and real-estate costs and taxes. It found that the price of doing business in the Islands is 43 percent higher than the national average.

By comparison, the second-most-expensive state — New York — has business costs that are 30 percent higher; third-place Massachusetts' costs are 25 percent higher than the national average.

South Dakota had the lowest costs, at 28 percent below the national average.

While Hawai'i's electricity costs are more than double the national average, wages are 8 percent less.

"It's an expensive place to live," said Skip Rimer, director of communications for the Santa Monica, Calif.-based Milken Institute. "You have some of the highest costs, but some of the lowest wages. At 13 cents per kilowatt hour, your energy costs are pretty high. But your labor costs are 8 percent under the national average. That's the one thing that's under the national average. Everything else is over."

The 2004 and 2005 Milken surveys follow similar national rankings that find Hawai'i's business climate to be the worst, or among the worst, in the nation.

Last year:

  • The annual Small Business Survival Index by the Small Business Survival Committee in Washington, D.C., ranked Hawai'i 50th out of 50 states for its climate for small business and entrepreneurs.

  • A poll of 458 chief executives ranked Hawai'i as the fifth-least-attractive state for business — following California, New York, Massachusetts and Washington.

  • The Washington, D.C.-based Corporation for Enterprise Development gave Hawai'i "F" grades for business vitality and capacity for future development and a "B" grade for economic performance.

  • The Tax Foundation, also based in Washington, ranked Hawai'i dead last in its annual State Business Tax climate index.

  • The Washington, D.C.-based Small Business & Entrepreneurship Council placed Hawai'i's business climate 49th out of 50 states, citing the state's high personal income tax, capital gains tax, general excise tax, electricity rates and workers' compensation premiums.

    Jim Tollefson, president of the Chamber of Commerce of Hawai'i, said the Islands' geographic isolation, reliance on shipping, and high land costs work against the state in such national rankings.

    For Hawai'i's wages, Tollefson said, "one must remember that although wage costs are 8 percent below the national average, that does not include the other additional employment costs, such as one of the highest workers compensation costs in the United States and our prepaid health plan that no other state has. If those were factored into these other states, I think we would rank quite favorably."

    Alex McGehee, executive vice president of the nonprofit economic development group Enterprise Honolulu, acknowledged "that we do have significant challenges. We have a very high percentage of people working two, three jobs, so it's obvious that people aren't making enough with just one job and we know that."