Carl Graham Commentary: “Business Friendly Cities”

I see a lot of “comparison studies” in my line of work. Anyone who has a point to make can build a list of things they want to associate, gather a bunch of data, and spit out a ranking that highlights winners and losers complete with footnotes, methodology and, sometimes even, caveats. It all looks very scientific and objective; and in fact it may be both, or some, or neither of those things.

Still, I love that kind of stuff. If I were any more left brain I’d need an outrigger to keep from falling over. Numbers are good or at least, like Jessica Rabbit, when they’re bad it’s usually because they’re drawn that way.

I like to be able to tear the numbers down to objective data and rebuild them into actionable information. And I’d rather see a simple study with easily understood metrics, a clear message and distinct limitations than some monstrosity that measures everything and explains nothing; or worse yet that’s open to any explanation someone wants to concoct.

That simple approach is what we used in a city business climate comparison my organization recently published and that you may have heard about. It doesn’t measure everything, but what it does measure provides a pretty clear contrast based on some factors that we think are most important to potential job creators. What we found was limited but enlightening, and definitely actionable.

Our approach was to measure things for which objective data were readily available and easily compared: easy stuff like census, labor, and education statistics. We then grouped our data into three general categories – Economic Vitality, Business Tax Burden, and Community Allure – and applied all of those measures to Montana’s 25 largest cities and towns.

Obviously there are as many “best” places to do business or live as there are types of businesses and lifestyles. So our simple goal was to put ourselves in a generic job creator’s shoes and figure out the best places to set up shop based on the relative cost of doing business and measurable workforce and quality of life indicators. We didn’t try to answer industry-specific questions like transportation infrastructure or market demographics. Nor did we try to measure quality of life intangibles like scenic views or community friendliness because, well, they’re intangible. But we did provide a pretty useful first cut at examining how communities are more or less promising to potential job creators. And the results were interesting.

You can see the full list at our website, but a few observations are worth highlighting here along with potential explanations.

First, three of the top ten cities had more than 10,000 people – Bozeman, Billings and Great Falls – and three more of the top ten had fewer than 5,000 people – Polson, Glasgow, and Dillon. That’s a pretty even split, indicating that any community, regardless of size, can be attractive to our generic job creator. Sure, you’re not going to put a Costco in Dillon. But it looks like a nice place for a clothing, hardware, or sporting goods store to operate. Industry specifics aside, it doesn’t appear that size makes much of a difference in creating an inviting climate for people who want to start a business.

And in fact, the only one of our three indicator categories with a clear distinction based on city size was tax burden, with nine of the ten least onerous being in the low to mid-sized population range. Cities and counties have to collect revenues to provide services. But it appears that the costs of services outpace economies of scale as population grows, and smaller cities get the job done with a lower burden on those who provide the communities’ jobs.

The next interesting finding was that, depending how you define East versus West, there was an almost even split in the top ten rated cities geographically, from Polson to Sidney and Dillon to Glasgow. We’re going to keep our eyes on this one. Most people traditionally think of the western part of the state as the primary economic engine because of its larger population, relatively diverse economic base, proximity to larger markets, and abundant natural resources. That appears to be changing, though, with strong trends in agricultural prices and fossil fuel development in the East, combined with policies that result in more local, state and federal growth restrictions in the West.

It will be interesting to watch as we repeat this study in the coming years to see if a trend develops of business friendliness, economic development, and relative prosperity moving eastward. It’s far too soon to come to that conclusion, but as an unabashed proponent of reasonably regulated free markets you can be sure I’ll be watching for it.

So what are the actionable takeaways? Of the top ten cities overall, eight had relatively low business tax burdens, six had high job growth and income ratings, and five were rated highly for community allure. Part of that outcome is a result of how we weighted the various measures, but it seems reasonable to infer that potential job creators first try to control their taxes, then seek a stable and relatively affluent population to serve, and finally want an attractive place to draw and retain workers. It seems like an obvious conclusion on reflection, but my left brain likes that the numbers back it up.

Carl Graham writes on behalf of the Montana Policy Institute.

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