September 10, 2010
Phil Scott highlights need to address cost of doing business in Vermont
Montpelier, Vt. – Lt. Governor candidate Phil Scott expressed his concerns about a new study released by the University of Connecticut. The study, which gained the attention of the Vermont press and policymakers this week, found Vermont to be the most expensive state in the country for manufacturers to operate. According to the study, a dollar’s worth of manufactured goods costs 95.9 cents to produce in Vermont, which is substantially higher than the national average of 83.3 cents.
For Scott, this study serves as an important reminder of what state leaders need to work on in order to improve Vermont’s business climate. “We’re all talking about ways to grow the economy and create jobs, and the manufacturing sector provides a lot of opportunities to do that,” Scott said. “These are highly skilled, high-paying jobs, and manufactured goods also jumpstart other sectors of the economy, such as packaging, retail and distribution.”
“Clearly, our high costs of doing business don’t leave much left for a business to grow – as little as 4 cents for every dollar for manufacturers,” he continued. “So it’s no surprise that we’ve seen prominent manufacturers decide to take their production operations elsewhere,” he said, citing the departures of Burton Snowboards and Suss Microtec as just two examples.
“So the question all of us in state government have to ask is, what can we do – specifically – to lower the costs of labor, materials, and other factors? One obvious answer to that is reducing the tax burden for businesses,” Scott said.
This past spring, Scott, who represents Washington County in the Vermont State Senate, worked with fellow Senator Bobby Starr (D-Essex/Orleans) to protect an important tax deduction for Vermont manufacturers. The Federal Domestic Production Deduction, which passes through to a business’s Vermont state taxes, was in danger of being cut back during this legislative session. This would have increased the tax burden for Vermont manufacturers, farmers, and other businesses. Senators Scott and Starr were instrumental in leading the fight that ultimately saved the deduction.
“Something else that I believe is a huge impediment to business growth in Vermont is the permitting process,” Scott continued. “The intention of our permit system is to encourage responsible development that respects the environment. But the process is so burdensome, what it’s actually done is to discourage all development. I want to simplify the process and make it more accessible to businesses, and I believe my leadership experience and my ability to work with members of all parties puts me in a strong position to accomplish these goals.”
About Phil Scott
Phil Scott, a 5-term state Senator representing Washington County, is a Republican candidate for Lieutenant Governor. He has been endorsed by the National Rifle Association, the Vermont Vehicle and Automotive Distributors Association, and the Associated General Contractors of Vermont, as well as over a dozen members of the state legislature. He also earned editorial endorsements from the St. Albans Messenger, Manchester Journal, and Addison Independent.
Scott owns Dubois Construction in Middlesex, and is one of the founders of the Wheels for Warmth program, which accepts donations of used winter tires for resale to low-income Vermonters, with proceeds benefiting heating fuel assistance efforts. Scott is also an avid sportsman and a well-known racecar driver on the American-Canadian Tour and at Barre’s Thunder Road.
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Like Brian Dubie, Senator Scott is calling for tax reductions to make Vermont more competitive. But it appears that their prescription is based on a flawed diagnosis.
There are two problems here. First, as I noted in a reply to Mr. Dubie’s press release, the UConn study fails to account for the very significant differences in the products manufactured in each state (the author’s noted this and cautioned readers about it). This means the study is not an apples-to-apples comparison. Moreover, it’s not the cost of inputs that really matter, it’s the value added (which they did not measure).
Second – and perhaps more importantly – the authors did not look at the data on changes in manufacturing jobs to determine whether the rankings are a good predictor of outcomes. Here are the figures for Northeast states and the three states found to have the lowest unit costs for manufacturing (#1 ranking is the most expensive and #50 is the cheapest).
ranking and % of mfg. jobs lost `00 – `10
1 -34.2% Vermont
2 -35.6% New Hampshire
3 -42.8% Rhode Island
23 -33.8% Maine
28 -36.8% Massachusetts
43 -28.7% Connecticut
46 -37.9% New York
48 -35.7% Virginia
49 -43.1% North Carolina
50 -27.6% Oregon
Source: Bureau of Labor Statistics, CES (SA)
According to the UConn study, Vermont is a terrible place for manufacturers. But every state shown has lost a huge percentage of manufacturing jobs. And Vermont’s losses are less than most of the other states shown, including two of the states reported as having the cheapest unit costs.
Therefore, it is clear that the rankings are not a useful predictor of manufacturing jobs. Moreover, it is well known that manufacturing job losses are not the result of interstate moves but from moves overseas for cheap labor (having nothing to do with state taxes).
Thus, Mr. Scott has joined those who (like Mr. Dubie) prefer sound bites to careful analysis and who play the tax cut card regardless of what the data tell us.
I’m running for State Auditor and this is how I approach research and analysis.