Vermont Business Magazine and The Arno Group, LLC partnered to take a pulse of the Vermont business community. On February 10, 2010, we sent a survey to 3,100 businesses throughout Vermont and received 254 responses.
The survey is made up of thirty-seven questions. Some of the questions try to quantify what factors drive Vermont businesses to be here and succeed and as well which business factors frustrate cause pain to businesses in Vermont. We did not ask about every possible business factor, but instead listed a sample of issues which confront businesses everywhere, such as health care, labor costs and taxes. In addition, we asked questions aiming to quantify how much pain certain factor costs cause businesses and how much that pain would need to be reduced to make the pain go away. We review that data below.
In addition to the analytical questions we asked open ended questions to give respondents a chance to voice an opinion rather than respond to lists of options. We include a discussion of the subjective observations as well.
Of course a survey of this type is no more than a gut check. The sample is large enough to be meaningful but is not statistically valid based on a random sample. In other words the data is real and should be given consideration but is not the last word on the issues confronting Vermont s business development policies.
There are a number of ways to describe who responded to the survey. One slice is based on reported revenues. Two-hundred thirty-seven respondents answered the question about their revenue and the respondents are predominantly small businesses:
Another slice is to look at the types of businesses responding to the survey (216 responses). Over fifty percent of the respondents are in professional services or manufacturing:
Another cut at the data shows the number of people employed by the respondents (243 responses). The vast majority of respondents employ twenty people or less:
Finally, the survey respondents are almost exclusively businesses based in Vermont (95.9%) and their answers to the survey questions show the draw of Vermont to business leaders.
We designed the survey to be provocative we wanted to generate some discussion about why a business is in Vermont and if anyone had a magic wand, what they would want to change. We hope the report provokes discussion leading to action to strengthen the economic basis required to allow Vermont to thrive.
Vermont Businesses Operate Worldwide
Although the survey respondents are almost all Vermont based businesses, Vermont businesses do compete worldwide (although predominantly compete in Vermont and the Northeast). A small but significant percentage of businesses in Vermont work worldwide or in particular markets worldwide. We asked respondents to rank the importance of markets to them on a scale of 1 7, where 1 is not important and a 7 is critically important (243 responses):
Why Are Businesses in Vermont?
We asked respondents to rank reasons their businesses are in Vermont. Using 100 available points, respondents were asked to spread those points among a number of business factors. Far and away the most critical factors driving businesses to want to stay in Vermont are our quality of life and family/personal connections to Vermont (218 responses):
While there was a general consensus, there was not unanimity that Vermont s quality of life is a huge draw for business. What many respondents love about Vermont makes it hard for some businesses to recruit: the rural, cold-weather climate cuts against what some demographics are looking for in a place to live.
Some concerns we heard include:
If I had to do it over again, I wouldn t found a company in Vermont ¦too little growth, too little technology, too few major corporations, too much winter.
Very hard to do business in Vermont in our opinion. ¦Harsh climate and high cost of living and lower income scale makes finding long term employees difficult.
Quality of life doesn t mean much if you are working most of the time or don t have the money to enjoy Life. Besides, there are a lot of places that have as good or better quality of life than here.
Other respondents pointed out the value of Vermont s quality of life to business:
My cousins [sic.] run a construction company near Boston, and the issues they have with unions, traffic, theft and a long drive to come up hunting, fishing, or skiing reinforce the reasons I live in Derby, VT.
I have found that support services are minimal, and I have been hindered by issues relating to regulations and support services. Quality of life remains the reason that I continue to have a manufacturing location here in Vermont.
We also asked the converse question: what factors would make you consider moving a business outside of Vermont? We again asked respondents to divvy up 100 possible points and received 158 responses.
Availability of skilled workers (14%), lack of necessary infrastructure (13.7%), current economic conditions (22.2%) and proximity to markets (18.6%) were important factors. The critical factor however driving businesses to consider leaving Vermont are taxes (32.5%):
Taxes and Business
Based upon the survey results, Vermont businesses feel strongly they do not get value for the taxes they pay. We asked respondents whether they agree or disagree that their business receives fair value for the taxes paid to the state. We asked them to do this on a scale of 1 7. A 1 equals completely disagree and a 7 equals completely agree. Over half of the respondents answered with a 1 or a 2 . (202 responses):
The essay responses regarding taxes and fees are illuminating. Of the ten respondents self-identifying annual revenues between $10 and $50 million, two left comments suggesting that that taxes were an increasing factor, and would be a reason we might leave. Additional responses included:
Taxes are what might drive my business away.
The State s excessive sales tax structure has hit us badly and significantly (taxing product moving within our facilities) in the past year.
Taxes are high, but are offset by other factors.
A small business respondent, with revenue less than 100K wrote: Unless you are connected, no business in their right mind should locate in Vermont. Their [sic.] is either unavailable or outdated infrastructure, taxes are high, the cost of housing is high compared to wages, the permitting process is time consuming and costly, and we have little idea of from where our electricity is going to come or how much it is going to cost 6 years from now. These are the things that scare off businesses.
¦support small business by lowering taxes.
Taxes are a problem for expanding in Vermont
Vermont cannot use small businesses as a financing vehicle for outrageously costly benefits for poor quality workers.
We have found that other states are much easier to operate a business in, due to a higher population and lower tax burden.
Vermont is on an unsustainable path with taxes and spending. It is hard to convince employees to move here and stay here due to the tax burden. [I]t is a lifestyle choice but that only goes so far ¦
I m here because this is home. However, with the change in the capital gain taxes, I will do everything I can not to sell my business as a Vermont resident.
The corollary question asked how much pain taxes cause, with a 7 equaling extreme pain. Over thirty percent of respondents ranked the pain cause by taxes as a 6 or a 7 (205 responses):
To reduce this pain taxes would have to come down significantly, measured as a percentage of annual revenues (186 responses):
Although the majority of respondents say they would not consider leaving Vermont because of the issue of taxes, a quarter of businesses scored this answer between a 5 and a 7 . This is a very high response rate compared to other factors (206 respondents):
As you can see from the data and the narrative responses above, this is an emotional issue pulling at people dedicated to Vermont who see a crisis looming. We do not read this data to mean the Vermont business community is against Vermont s approach to government and the services it provides in fact there is data and anecdotal responses showing Vermont s approach to government and how it functions as a state is a big part of why businesses are in Vermont. The data shows, however, a disconnect between our approach to Government and having the economic base to afford to be the society we are.
Health Care Costs
The only other issue triggering as strong a pain response to the survey is the issue of health care costs (210 responses):
Fewer businesses, however, would consider leaving because of the burden of health care costs than would because of tax burden (213 responses):
The comments on the issue of health care costs were diverse:
Health care costs (health insurance) is devastating, though moving to another state is not an solution.
I would like to see taxes increased to pay for universal health care coverage of the single payer variety. I cannot easily recruit and hire people because managing health care policies and costs would become a full time job. If we had universal health care, my tiny business would have a huge leg up, and could come much closer to a level playing field with the big guys ¦.
Without improvement in broadband infrastructure, skyrocketing healthcare costs, we are seriously considering relocation.
Both the owners and employees of our company are quite happy in Vermont. Our taxes are slightly higher than in other states but our health care premiums are considerably lower while having access to much better health care providers.
We take from this data general concern about health care cost but a strong sense it is not an issue where moving will help.
Impact of Labor Costs
Unlike Health Care and Taxes, labor costs are not a major irritant to Vermont businesses. Over fifty percent of respondents ranked the pain felt by labor costs as a 3 or less on a scale of 7 (205 responses):
Well over half also would feel the pain go away if costs went down 10% or less (168 responses):
(One could conclude that if revenues went up by 10% or more the issue of labor costs for a majority of Vermont businesses would go away.)
The vast majority of respondents (88%) would not seriously consider leaving Vermont because of labor costs (scoring the question a 3 or less on a scale of 7) (210 respondents):
While labor costs did not factor largely into comments in the survey, access to skilled workers was a common theme. Respondents stating they have revenues of $5-10 million annually specified workforce as an issue under Question 26:
Finding skilled workers here or that will move here is our biggest challenge we require engineers, etc and they are currently living in more populous areas with more infrastructure and amenities. Unless people are outdoors people, they will not move here.
We aren't going to relocate outside of Vermont. We have high employee turnover due to employees moving out of state as it's too expensive to be in VT. Therefore, skilled employees are increasingly difficult to hire.
For creative services business, labor costs are high but it s not appropriate to consider them a pain. It s simply an essential cost of doing business ¦.
Other respondents offered these general comments, two concerned about lack of qualified employees and one arguing Vermont is perfect for its business:
We have a very difficult time finding a skilled workforce in this area it is our biggest challenge.
We have difficulty finding qualified employees (engineers).
Smart skilled workers, great clients, great quality of life what s not to like?
Impact of Energy Costs
It is not surprising to find that energy costs are a concern to some respondents. Two interesting data points jump out, however. First, energy costs are not a major driver pushing consideration of relocation. Second, energy is expensive, and for some businesses it is a critical factor cost, but by and large energy costs do not cause much pain to Vermont businesses, relative to taxes. (208 responses):
There is strong correlation between the few people responding energy costs cause excruciating pain and a need for the costs (represented as a percentage of annual revenues) to come down significantly (10% or more). It seems unlikely under any energy plan for Vermont that we will see any, let alone a significant, reduction in base load electrical power cost or for that matter for any other subset of energy supply. Given this, the data raises the question whether the state should spend significant resources trying to reduce energy costs, especially given the vast majority of respondents will not seriously consider leaving Vermont based on energy costs (209 responses):
The comments are worth noting given the real pain some businesses feel from this factor cost of doing business in Vermont:
Utility prices and taxes are too high. Wages too low.
Cost of energy and taxes are a concern for keeping a business in Vermont.
There were positive comments about energy diversity and Vermont s green brand and image.
One small business respondent, less than $100,000 in revenue, commented: The fact that the state is a leader in green, clean and low carbon footprint is really important.
Through Green Mountain Power I can pay a small surcharge to have my electricity generated by renewables. This is a strong plus in my eyes...
We have affordable electric rates in Burlington, sourced largely with renewable energy ¦
There seems as well to be an understanding among business leaders that some costs are beyond policy-making control energy being a clear example and other issues are well within policy-making control: taxes.
Impact of IT and Telecom
Again, although there is frustration with IT and telecom services in some parts of Vermont and many businesses feel real pain from the lack of high-quality IT and/or telecom, there is not a significant amount of pain being felt by Vermont businesses because of poor IT or telecom services. On the other hand, telecommunications infrastructure came up in the survey s final comments and could become a credibility issue for policymakers.
High taxes, lack of rural broadband and cell coverage, along with the poor economy, are the major problems.
We have great internet access at our office. Our employees need much better access at home. Neither Fairpoint or Comcast deliver decent service, nor do they reach out far enough into the country.
The state MUST update its broadband internet coverage to bring it into the 21st century. I m tired of hearing our legislators talk, but see very little improvement across the state.
Internet access is too slow/expensive. Albatross, thanks Governer! [sic.].
Conclusions
Vermont s main sustainable competitive advantage is its quality of life. Although some businesses rightly point out it is not the easiest place to recruit to, our state is very attractive to a certain number of entrepreneurs and business owners. Business retention and loyalty to Vermont is driven by senior management, founder and owner commitment to community. Vermont is attractive to people interested in business and many businesses thrive here despite high factor costs of doing business.
While the factor costs identified in the survey create significant challenges, many respondents acknowledged that those costs, like health care, were not likely to be dramatically different in other places. Vermont taxes are the one factor costs which could drive businesses away. Although the survey did not address this question directly, there does not seem to be a don t spend attitude there is appreciation for what Vermont is as a society rather there is a strong recognition Vermont cannot be what it wants to be without significantly more value businesses being attracted to and kept in the state. The ability to recruit and retain skilled workers is also a concern.
Recruiting businesses to Vermont and retaining our homegrown enterprises will continue to be a challenge. Currently, the data show that unless a founder or the managers of a business have connections to Vermont or strong feeling to be in Vermont for personal, subjective reasons it is hard to make a business case to be here. Once the businesses are here, it is hard for some businesses to recruit the work force they need because of housing costs, long winters, and our rural environment. In large part, the factors which make it hard to recruit to Vermont would have to change too dramatically in order to moderate their impact. This is not likely (or necessarily desirable given Vermont s rural, village centered culture is such an attractor to business).
Focusing on factor costs is not necessarily the right approach to increase the quality and number of high value employers in Vermont. In fact, focusing on reducing most of the factor costs IT, telecom, labor, housing costs will have no material impact on whether these costs cause businesses pain. These costs are not driving a significant exodus of businesses from Vermont.
A corollary issue is energy costs. There is real pain associated with the high cost of energy, but based on survey responses, in order to effectively ameliorate that pain would require an unrealistic reduction in energy costs. It seems fair to say, under any energy planning scenario we are aware of, Vermont will not see the base load cost of power reduced for several years if not decades. It seems therefore encouraging businesses to move to or stay in Vermont with a promise of cheap energy (or strong reduction of any other factor cost aside of taxes) would be (a) unlikely to be fulfilled and (b) not worth the effort because the result will not be sufficient to reduce the pain.
Of course there are many businesses where these costs may well drive them away or cause them to close. Doing something for these businesses can have a specific impact on an important employer s ability to stay in Vermont. The state cannot therefore ignore these issues. It is however important to keep in mind focusing primarily on reducing factor costs to businesses will not drive a successful business climate in Vermont.
The one critical and perceived discretionary issue confronting Vermont businesses is taxes.
Many respondents point out the disconnect between the desire to provide meaningful services (and many of these respondents point out they supported Vermont s initiatives) and the lack of revenue to pay for the initiatives. Vermont must confront the desire to be able to provide services in a manner that reflects its values, and the very real pain caused to small businesses, which are in large part responsible for the state having any capacity to take on interesting initiatives and provide essential services. Vermont s imbalance between what it wants to achieve as a society and its means to achieve its goals is approaching a tipping point.
In short, Vermont s competitive advantage in recruiting businesses, it seems, is in fact the appeal of its rural nature, small communities and quality of life to those with the interest, capacity and drive to create new businesses or build existing ones. These factors are what attracts people to the state and keeps them here.
This raises the following question: How does Vermont dig deeper to identify the high-value businesses for which there is less concern about local factor costs, including high taxes, and which will find a true competitive advantage to being in Vermont?
It is not lost on the respondent businesses that Vermont does not presently have the economic base required to sustain the type of state it wants to be. The data points to a need to redefine how Vermont approaches attracting businesses, which brings us back to the question raised above: What can be done to attract high-value businesses where there is no concern about factor costs but a true competitive advantage to being in Vermont?
We wrote in VBM in the issue about an approach to economic development which identifies the sectors and subsectors that could thrive in Vermont as Vermont is, not by making Vermont replicate North Carolina s research triangle or suburban Denver or sprawling, smog-clogged Shanghai, to pick on three random examples of many possible candidates. It seems fair to say if Vermont s quality of life is what attracts good businesses to Vermont, changing Vermont in any way to take away from that quality of life the society we have inherited and are now responsible for nurturing would eliminate our competitive advantage.
By figuring out what sectors or sub-sectors can truly thrive here as we are and then driving many of our guarded resources (education programs, housing policy, tax incentives and loan programs, etc.) to support those sectors, we can build a sustainable economy which is rooted in the values that make this a place people want to live, work and raise families.
There is irony in the idea that it took over 100 years of hardscrabble poverty and self-sustainment, generations working away on rocky hill farms and in river mills, to make this such a terrific place in which to live. It is also true that the population remains low and Vermont faces troubling demographics because it continues to be hardscrabble it is remote and cold and dark for much of the year. Vermont s efforts should focus on achieving successful communities through cultivating and attracting businesses for which factor costs are less of a concern, enterprises so suited to Vermont that their success and growth will allow the state to share the tax burden across a broader base, and recruit and train the right workers with the right skills for the enterprises that can thrive in this environment. An inquiry focused on identifying those enterprises will help avoid the alternative: a Vermont that no longer provides the kind of quality of life that mitigates all the other reasons not to be here.