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Firm commissions survey by UMass Dartmouth Center for Policy Analysis of business leaders in Southeastern Massachusetts; report released today identifies challenges but renewed optimism

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04.06.2011

Taxes, healthcare, and energy costs are the major policy issues for business leaders in Southeastern Massachusetts according to the Business Confidence and Policy Priorities Survey commissioned by the law firm of Nutter McClennen & Fish LLP. The survey of 163 business leaders in Southeastern Massachusetts conducted by the Center for Policy Analysis at UMass Dartmouth assesses the opinions and perspectives of Southeastern Massachusetts business leaders on a variety of issues relating to the state of the regional economy, the financial prospects of individual businesses, and the policy issues of greatest significance to their continued growth. Respondents to the survey represent a broad spectrum of businesses in terms of local area, number of employees, years in business, industry type, annual gross revenues, and legal form of business organization.

The major public policy issues identified by business leaders were healthcare costs, taxes, and energy costs. According to Dr. Clyde W. Barrow, Director of the Center for Policy Analysis, “These results are particularly significant because the issues surfaced from unprompted open-end questions, rather than prompted responses to a menu of items. It indicates that these issues are top concerns for many regional business leaders on a day-to-day basis. It is also significant that these concerns are general business issues that affect most of the region’s businesses, rather than items peculiar to particular boutique industries.”

While business leaders reported continued difficulties operating in a near recessionary economic climate, many businesses met or exceeded their expectations for the previous year; 39 percent of respondents report that their businesses achieved performance goals for the previous twelve month period and 19 percent exceeded expectations, although expectations may have been lower in light of the difficult economic climate. Conversely, 42 percent of respondents report that their businesses did not meet performance goals for the previous year.

Businesses that performed below expectations cited continued uncertainty about the economic future (27%), higher operating costs (15%), and domestic sales shortfalls (13%) as the primary factors in the failure to meet expectations. However, many of these factors are explained by higher energy costs, the closing of business tax loopholes, and increased healthcare costs in the state, along with continued weakness in consumer confidence and consumer demand, which stem from unemployment, falling home prices, and stagnant incomes. Not surprisingly, these factors have made the region’s businesses reluctant to invest in new expansion.

In terms of the overall business climate, a majority of respondents rate business activity in their local area as moderate (59%), weak (26%), or very weak (6%), with only 9 percent rating business activity as very strong (2%) or strong (7%) in Southeastern Massachusetts. Similarly, 62 percent of respondents feel that business activity in their local area is not improving at the current time. Despite these challenges, respondents are somewhat optimistic that the regional business climate will improve in the coming year and predict some measure of business growth in Southeastern Massachusetts over the next twelve month. Specifically, 33 percent believe that regional business conditions will improve over the next 12 months, although more than half of respondents (55%) believe that business conditions will remain the same in the coming year.

Furthermore, only 38 percent of the respondents plan to increase employment over the next 12 months, although among businesses that plan to increase employment more than half (51%) expect that new employees will be added to their payrolls as opposed to hiring temporary or contract employees (18%). In addition, 52 percent of the respondents plan to make new capital expenditures in 2011.

In terms of the factors most affecting business expansion and new investment, respondents cite the general economic climate as a primary concern: 47 percent strongly agree, and 34 percent somewhat agree that “current economic conditions are keeping my business from expanding.” To a lesser degree, respondents indicate that other factors are having a negative impact on decisions to expand business in the region, as follows:

  • Higher payroll costs have affected my ability to remain competitive (22% strongly agree/48% somewhat agree),
  • The cost of health insurance has prevented my business from hiring new employees (22% strongly agree/43% somewhat agree),
  • Higher costs (taxes and fees) have postponed my business investments (20% strongly agree/30% somewhat agree),
  • Lack of a skilled/educated workforce has negatively impacted my business (15% strongly agree/25% somewhat agree), and
  • Rising energy costs are slowing my business growth (14% strongly agree/39% somewhat agree).
“It is important that we have current and robust data and analysis of the factors that are contributing to or limiting economic expansion in Southeastern Massachusetts and the major long-term issues impacting the economic development of the region,” said Michael Scott, a partner with Nutter McClennen & Fish LLP and manager of Nutter’s Cape Cod office. “This survey provides a basis for working together to address the major concerns affecting the prospects for future economic growth.”

In addition to state and local commercial/industrial property tax rates, respondents rated a well-developed broadband infrastructure, a good lending and credit environment and ease of permitting and regulatory procedures as major factors in the success of their business.

EARNINGS AND COST


Respondents were also asked to rate the cost that most affects business profitability in their company. Respondents cite employee health insurance as the cost that most affects business profitability, which is nearly twice the percentage of the next closest response:
  • Employee health insurance (71%)
  • Energy, including gasoline and electricity (37%)
  • Other Employee mandates (e.g., worker’s compensation & unemployment insurance) (37%)
  • Employee wages and salaries (36%)
  • State taxes (34%)
  • Facilities costs (rent, mortgage, maintenance, repair) (29%)
  • Local taxes (28%)
  • Goods, supplies and materials (27%)
The top strategies that respondents plan to utilize in adjusting to these costs include:
  • Absorbing costs with lower earnings or profits (37%)
  • Freezing or cutting employee wages or benefits (26%)
  • Laying off some employees or not filling existing vacancies (25%)
  • Cutting, eliminating, or delaying capital investment (23%)
  • Raising selling prices (21%)
  • Reducing total volume of energy used through conservation measures (17%)
  • Don't Know (9%)
  • Nothing (7%)

REGIONAL POLICY ISSUES

Respondents to the survey were also asked to provide their perspectives on various regional policy issues. Results include:
  • Quality of commuter rail service: Sixty three percent of respondents (63%) rate the quality of commuter rail service from their local area to Boston as good (38%) or excellent (25%).
  • Condition of Route 3 and Route 24: Thirty-three percent of respondents indicate that Route 3 does not meet the needs of their business and 28 percent of respondents feel that Route 24 does not meet the needs of their business.
  • New Route 44 connector: Twenty-nine percent of respondents believe that the new Route 44 connector will spur business growth in Bristol County, while 4 percent disagree, 23 percent are not sure and 44 percent do not know.
  • Proposed extension of commuter rail to New Bedford and Fall River: Sixty-one percent of respondents support the proposed extension of commuter rail to New Bedford and Fall River, while 14 percent are opposed and 25 percent are not sure.
  • Impact of the redevelopment of the South Weymouth Naval Air Station: Fifty-five percent of respondents believe that the redevelopment of the South Weymouth Naval Air Station will have a positive impact on the Southeastern Massachusetts economy, while 2 percent disagree, 17 percent feel it will not affect the economy either way, and 26 percent do not know.
  • Quality of hospitals: Thirty-one percent of respondents rate the quality of their local hospitals as excellent, while 48 percent rate the quality of their local hospitals as good, 20 percent rate them as fair and, 1 percent rate them as poor.
  • Quality of local area’s Broadband Infrastructure: Seven percent of respondents rate the quality of their local area’s broadband infrastructure as excellent, while 68 percent rate the quality of their area’s broadband as good, 20 percent rate it as fair, and 5 percent rate it as poor.
  • Impact of resort casinos: Nearly two-thirds of respondents (65%) believe that a casino in Southeastern Massachusetts will benefit that region’s economy, while 22 percent believe it will hurt the region’s economy, and 13 percent believe it will neither benefit nor hurt the regional economy. Respondents believe that resort casinos in Boston or Western Massachusetts will have smaller positive impacts on the Southeastern Massachusetts economy.
  • Quality of the local public K-12 schools: Ten percent of respondents (10%) rate the quality of the local public K-12 schools as excellent, while 40 percent rate the schools as good, 38 percent rate them as average, and 12 percent rate them as poor.
  • Overall importance of higher education institutions to the region’s economic vitality: Respondents rate the importance of the region’s higher education institutions as very important to the vitality of the regional economy, with respondents rating the importance of each an average of 3.8 or higher on a 1 to 5 scale of importance:
  • UMass Dartmouth (4.3 mean on 1 to 5 scale)
  • Bridgewater State University (4.2 mean on 1 to 5 scale)
  • Bristol Community College (4.0 mean on 1 to 5 scale)
  • Massasoit Community College (3.8 mean on 1 to 5 scale)




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