Survey: Best and worst of doing business in Vermont

A statewide survey conducted for Vermont Business Magazine by a Stowe-based consulting firm identifies tax rates as the number one factor that could cause companies to leave Vermont. Conversely, there was consensus among survey respondents that Vermont's quality of life acts as a powerful incentive for businesses to settle and stay here.
WATCH Video clip from WCAX of Arno Group's Dan Smith and VBM's Tim McQuiston discussing some of the survey's findings with anchor Kristin Kelly.
The Arno Group asked more than 3,000 Vermont businesses in February to complete a 37-question survey. The consultants received 254 responses, largely from companies with fewer than 20 employees. Manufacturers and professional service providers accounted for more than half the respondents.
Because those answering the questions are not necessarily representative of the Vermont business community as a whole, a sampling of this sort has no statistical validity, the Arno Group acknowledges. The survey amounts to no more than a gut check, says the report accompanying the results, but nevertheless should be given consideration.
A couple of factors sometimes cited as major problems for Vermont businesses drew only a limited number of complaints from those taking part in the survey. Less than half the respondents ranked the pain they feel from labor costs as a three or higher on a scale of seven. Energy costs may also not be a source of acute pain for many Vermont companies, the survey suggests.
Through Green Mountain Power, wrote one respondent quoted anonymously in the report, I can pay a small surcharge to have my electricity generated by renewables. This is a strong plus in my eyes. Another wrote: We have affordable electric rates in Burlington, sourced largely with renewable energy.
The data gathered through the survey 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, the report states.
In addition to taxes - identified by nearly a third of respondents as a factor that could lead businesses to move out of Vermont - a significant share of those surveyed cited current economic conditions, remoteness from markets, limited availability of skilled workers, and poor infrastructure as deficiencies that might drive a company to relocate to some other state.
Vermont's tax rates do have a negative effect on decisions about where to base a business, says Olivier Garret, chief executive officer of Casey Research. His Stowe-based investment-advice firm is a totally portable business that could be any place at all, Garret notes. Every time we discuss the future of the business, the talk turns to taxes.
Vermont's tax burden could represent a reason why at least two firms in the $10 million -$50 million annual revenue range might leave the state, the Arno report says, citing comments from survey respondents. The state's comparatively heavy tax burden was mentioned in this comment on the survey questionnaire:
"We have found that other states are much easier to operate a business in, due to a higher population and lower tax burden.
Another survey participant added, "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 ¦
Methods of calculating states' comparative tax rates differ on the basis of who's doing the calculating. Some rankings may reflect ideological inclinations and are thus controversial. One seemingly impartial finding, by the US Census Bureau, indicates that in 2005 Vermonters paid the highest per capita amount of taxes in the nation: $3,600. Hawaii ranked second, with a $3,478 per capital tax payment, while South Dakotans paid $1,430 per capita, putting their state in 50th place in the Census Bureau table, which was last revised in December of last year.
Whatever the relative tax burden borne by Vermont businesses, most of those taking part in the Arno Group survey said they would not consider leaving the state because of the issue of taxes.
The cut that the state takes from a business' proceeds may be harder to bear during a recession when companies are seeking all possible cost savings, suggests Lisa Ventriss, director of the Vermont Business Roundtable. Even in better times, many of her group's 100 members regard taxes as a challenging issue, Ventriss says.
The survey results indicate that, Vermont businesses feel strongly they do not get value for the taxes they pay, the Arno Group states. The report's authors caution, however, that they do not interpret the survey's findings on taxes to mean the Vermont business community is against Vermont's approach to government and the services it provides. In fact, the report adds, survey data and anecdotal comments suggest that the values motivating state spending represent a big part of why businesses are in Vermont.
At the same time, the survey results imply that there is a disconnect between Vermont's social commitments and the economic base needed to finance those commitments.
Vermont's imbalance between what it wants to achieve as a society and its means to achieve its goals is approaching a tipping point, the Arno Group declares.
Tax rates might be more instructively viewed as an important component of Vermont's generally lagging competitiveness, Casey Research CEO Garret proposes. Many of the manufacturing firms that leave the state are headed for offshore destinations, Garret notes.
They leave for reasons of overall competitiveness, he says. Garret adds that if he were starting a business now, he probably would not choose Vermont as its home. I'm not even sure I would choose the United States, says Garret, who moved to the US from his native France in 1983.
Ventriss affirms that taxes are part of a broader concern shared by many Vermont Business Roundtable members. The CEOs worry that state policymakers may not have a good understanding of what it takes to run a business, she says.
Garret points out, however, that administrators in this small state are very approachable. He identifies this ease of access as a huge advantage, especially for small businesses. It's possible, Garret notes, for a business person to get problems resolved at the governor's level.
Ventriss says not many Roundtable members regard lack of proximity to major markets as a serious concern, even though it was identified as such by close to 20 percent of the respondents to the Arno Group survey. But she and Garret agree with the survey's suggestion that difficulty in recruiting and retaining skilled workers does constitute a significant problem for Vermont businesses. It was cited by 14 percent of respondents as a factor that could force a company to relocate.
The challenge of luring talent to a very small state with very limited resources can be particularly frustrating when you're a fast-growing business, Garret observes. He points out, however, that Casey Research was recently able to persuade a Microsoft vice president to join the Stowe firm. The promise of greater compensation and the prospect of a higher quality of life were sufficient for this executive to agree to move to Vermont from the West Coast, Garret says.
In his view, the biggest competitive advantage Vermont has over other states is that you can still have an incredible quality of life for yourself and your family. That's not available in many places other than Vermont.
Casey Research itself is headquartered in Vermont because two of its three partners have strong ties to the state, Garret notes.
They and their spouses want to be here.
But other features inherent to Vermont may militate against its vaunted quality of life, the Arno Group's findings suggest.
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, the report observes.
One respondent is quoted as saying:
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. Another critic cites too much winter, while a third says 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 as here.
A different perspective is offered by the commentator who noted that his cousins, who run a construction company near Boston, face issues related to unions, traffic, theft and a long drive to come up hunting, fishing or skiing. It's because of those hassles that I live in Derby, Vt., this respondent wrote.
Although lack of necessary infrastructure is seen by 13.7 percent of those surveyed as a major disincentive to doing business in Vermont, the telecom and IT components of Vermont's infrastructure are not a source of significant pain for Vermont businesses, the Arno Group report finds.
Complaints about current economic conditions, as well as those related to the cost of health care, may not be specific to Vermont, the report suggests. Many respondents did acknowledge that health care costs were not likely to be dramatically different in other places, the authors note.
And a couple of respondents either endorse the state's health care system or want Montpelier to play an even larger role in financing health care.
Both the owners and employees of our company are quite happy in Vermont, one respondent says. 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.
Another business person argued: 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 ¦.
Arno Group Partner David Rocchio said, "The survey suggests to me businesses are in Vermont because of the state's culture and societal structure and landscape. What is needed is more businesses which can thrive in Vermont despite some high factor costs. My view is to attract such businesses in a sustained and meaningful way will take new approaches to economic development and lots of analysis to identify which business subsectors can and would thrive here despite the high factor costs.
In its conclusions section, the report suggests that successful businesses would be 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.
Kevin Kelley is a freelance writer from Burlington. The full report is available at www.vermontbiz.com http://www.vermontbiz.com/news/may/vbmarno-vermont-business-pulse-poll