Small Business Owners Say Washington’s Business Climate is Getting Worse

July 22, 2014

According to small business owners, Washington State’s already difficult business climate is getting worse.

The third annual Thumbtack.com Small Business Friendliness Survey asked more than 12,000 small business owners across the nation to rank state and city friendliness to their business across various categories, such as the cost of hiring a new employee, tax burden, regulations, and licensing requirements. 

According to the survey, business owners in Washington this year graded the state a lackluster C for “overall friendliness” to small business.  They awarded a dismal D+ grade for the state’s restrictive regulations, with the lowest grades for regulations related to labor and employment (D), environmental (D) and zoning (F).  In fact, small business owners in Washington awarded the state a grade higher than a C in only two categories—“ease of starting a business” (A-) and “training & networking programs” (A).  Were it not for these two saving graces, the state’s overall grade would have been a solid D. 

Last year the state performed slightly better, earning a B- for “overall friendliness;” small business owners gave Washington a D for labor and employment, C for environmental and a D+ for zoning.  Given last year’s grades were better than this year’s, small business owners clearly believe the state is not making Washington a friendlier place to do business.

According to this year’s survey report, “Washington’s regulations were some of the worst in the land,” earning the state “one of the worst grades in the country [D+] for its regulations.” 

Meanwhile, small businesses in Texas, Utah and Idaho have rated their states in the top five in every Thumbtack.com Small Business Friendliness Survey.  In those three states, this year Texas again received straight A’s, while Idaho and Utah both received A’s in every category except one (not coincidentally, these three states consistently rank among the highest in the annual Rich States, Poor States study).  Interestingly, it is the two categories in which Washington earned its only high grades that Idaho and Utah received their lowest grades; Idaho earned a B+ in “ease of hiring” and Utah earned a B+ in “training & networking programs.” 

Highlighting the importance of a state’s regulatory system, business owners participating in the survey said a state’s regulatory burden and ease of compliance with those regulations was a more important factor than tax rates in determining a state’s overall friendliness to small businesses.

Washington’s regulatory burden is increasingly identified as the major obstacle to business growth.  An annual survey by Chief Executive Group of 650 CEOs consistently ranks Washington among the worst states to do business because of the state’s “regulatory snares for business.”   Similarly Forbes’ annual ranking of states routinely gives Washington’s regulatory climate low marks, as does the Mercatus Center at George Mason University.

Even government agencies are acknowledging the problem.  Recently the Department of Commerce, State Auditor, Department of Revenue and Washington Economic Development Commission (WEDC) released separate reports detailing the morass of regulations employers must know, understand and comply with in order to legally do business in our state; each of those reports recommended the state provide regulatory relief in order to retain and attract businesses.  The WEDC’s strongly worded conclusion:

“Washington’s overly burdensome regulatory system must be addressed as a top economic development priority.”

The Chief Economist of Thumbtack noted that fostering a business climate friendly to small businesses is “more important than ever, and Washington still has a ways to go to get that right.”

Unfortunately, legislation sponsored during the Legislative Session earlier this year indicates Washington has an even longer way to go.  The business community faced legislative proposals to increase the state’s minimum wage (already the highest of any state in the nation), mandate paid sick and paid vacation leave (only one state mandates paid sick leave and no state mandates paid vacation), and force large employers to provide health coverage to virtually every employee, (going far beyond the requirements of the federal Affordable Care Act).

The good news is none of these bills passed, and the over-regulation of businesses is finally on some policymakers’ radar.  The bad news is many of these bills will reemerge in the 2015 Legislative Session as some lawmakers work to make Washington even less friendly for small business.