Hawai'i continues to have one of the worst small business climates in the nation, although the state has shown some improvement over the past three years, according to a report by the Small Business & Entrepreneurship Council.

The annual "Small Business Survival Index 2007" was released yesterday and ranked Hawai'i 42nd. In 2004, the state was ranked 49th, and has made a steady climb since then to 46th in 2005 and 44th last year.

Still, the council considers Hawai'i as one of the 10 worst states to do business. Ranking lower than Hawai'i were Vermont, Massachusetts, Minnesota, New York, Maine, Rhode Island, California, New Jersey and the District of Columbia.

Topping the list was South Dakota, followed by Nevada, Wyoming, Washington and Florida.

Tim Lyons, executive director of the Hawai'i Business League, said he disagreed with the state's bottom 10 ranking because businesses in general are doing well. He said he didn't believe that there were 41 states with better economies than Hawai'i.

"Some of our business people go to their various conventions on the Mainland and talk to their counterparts and a lot of those guys are singing the blues," Lyons said. "Their business has dried up, they have nothing going on and it's time to clean up the warehouse. Our guys are saying, 'Shoot, I can't even find my warehouse.' "

Lyons said small businesses aren't as overly regulated as they were in the past.

He said the major complaint he hears is the shortage of workers and operational problems.

He said part of the credit for the decrease in "oppressive" regulations should go to the Small Business Regulatory Review Board, which evaluates rules that could affect small businesses before they are implemented.

"There's been a number of regulations that have gone to the board that have either been toned down or sent back for more work before they even hit small business," Lyons said. "That board has been very, very effective."

The Small Business & Entrepreneurship Council is a Washington, D.C.-based nonprofit advocacy group that ranks states according to taxes, regulations, spending and other governmental policies that affect small businesses.

The council said Hawai'i "suffers" from high tax rates, minimum wage, utility costs, workers compensation costs, crime rate, and a poor rating on eminent domain legislation.

But the report said businesses here benefited from low property taxes, no corporate alternative minimum or individual tax, no estate tax, a relatively low corporate capital gains tax rate, and a low number of health insurance mandates.

Reach Curtis Lum at culum@honoluluadvertiser.com.