High costs are a fact of life for companies based in New York, Alaska and Hawaii, states that perennially land at or near the top of cost-of-doing-business rankings. No one feels those costs more than business owners in the largest cities in those states. Indeed, among North American cities, Honolulu, Anchorage and New York City rank first, second and fourth, respectively (San Jose, Calif., is third), for the highest cost of doing business in the 2008 edition of Competitive Alternatives, KPMG's guide to international business locations. The guide compares business costs in more than 100 cities in 10 countries throughout North America, Europe and the Asia Pacific region.
Recognizing what resident businesses are up against, each of the three cities offers business owners a variety of enticements, financial and otherwise, to put (or keep) their companies there. Here's a look at some of those perks, plus some suggestions from key small-business advocates in each city for how entrepreneurs can reduce their cost burden.
Sam Slom (Rep.), the Hawaii state senator who helms Small Business Hawaii, a Honolulu-based advocacy group, attributes the city's high cost of doing business to a combination of taxes ("there's a myriad"), employer mandates (the most burdensome in the U.S., he says) and regulations. Add that to property values that are "extremely high," and it's no wonder, he says, that Hawaiians have been "watching capital over-fly the state" while also enduring a recent surge in business defections and closures. The good news, says Slom, is that there are plenty of untapped markets on the island of Oahu, plus an array of sources to help entrepreneurs gain and maintain a foothold there.
Incentives: Thanks to Act 215, qualified high-tech ventures can access a range of tax credits to recoup up to 100 percent of their cash investments over five years. Credits are available on investments of up to $2 million per year and are targeted at businesses involved in astronomy, biotechnology, computer software, non-fossil-fuel energy, performing arts, sensor and optic technologies and ocean sciences.
Enterprise Honolulu: Honolulu's enterprise zone (EZ) program offers tax breaks and other benefits to existing and startup businesses in eight sectors: astronomy/space sciences; diversified agriculture; film and digital media; information and communication technologies; life sciences; sustainable technologies; defense and dual-use technologies; and ocean resources and marine sciences. Qualifying businesses get a package of tax exemptions for as many as seven consecutive years, plus waivers on permitting fees.
Foreign Trade Zone: Honolulu sits in Foreign Trade Zone #9, a federally authorized duty-free zone that's legally outside U.S. customs territory. Besides avoiding duties, companies operating there have access to various other perks.
Resource-rich Alaska is a haven for the tax-averse. "The tax burden here is incredibly low," points out Stacy Schubert, president of the Anchorage Chamber of Commerce. There's no state sales tax and no city sales tax in Anchorage, notes Jason Dineen, state director of the Alaska Small Business Development Center network. The city also exempts some types of economic development property from taxation.
Besides a lighter tax burden, small businesses in Anchorage can tap into a vast pool of funding opportunities, incentives and other forms of assistance. Here's an overview:
- State product preference programs give special consideration to qualifying Alaska manufacturers that submit bids or proposals for state contracts. To qualify, vendors and products must be on the state's product preference list.
- Loans and other forms of assistance are available to small businesses in specific industries such as avionics and fishing. The Division of Investments manages the programs.
- The Alaska Industrial Development and Export Authority guarantees up to 80 percent of project financing, refinancing and working capital loans to small and mid-sized businesses, up to $1 million.
- Women-owned businesses in Anchorage can access loans of up to $10,000 via a micro-loan program sponsored by the Anchorage YWCA. Meanwhile, Anchorage Chamber of Commerce's PowerLink program provides women business owners with a year of no-cost business consulting services.
Resources: The nonprofit Anchorage Economic Development Corp.is not only a great information source for small businesses, it also will prepare incentive proposals for them. The Alaska Office of Economic Development's Small Business Assistance Center is an expansive information source, as is the state Dept. of Community and Economic Development.
New York City
Amid deep budget deficits, rampant job loss and corporate carnage, don't expect much in the way of big-ticket tax handouts from New York City, says Robert Walsh, the city's Commissioner of Small Business Services. "Mayor [Michael] Bloomberg has said it before, that New York is not a cheap place to do business. And we are not going see a lot of new tax breaks here, for business and otherwise, because we have a major budget deficit."
That doesn't mean the city is neglecting the needs of small business, however. Quite the opposite, says Walsh, who points to a range of new initiatives as an indication New York is focused on finding creative ways to help entrepreneurs, even in the current mood of fiscal austerity. Here are several:
- Cutting bureaucratic red tape with Business Express, a new online portal within the city's website designed to provide startups and existing businesses with one-stop permitting and licensing, plus industry-specific information on startup requirements. "What businesspeople and entrepreneurs are telling me," Walsh says, "is that [the site] is saving them a remarkable amount of time, money and aggravation." Launched in the fall of 2008, the site aims to streamline bureaucratic processes for specific industries, including food services, arts/entertainment/recreation, health care, retail, services and wholesale trade, with plans to add sectors through 2009 and beyond. NYC Business Solutions also offers information and assistance to small businesses, including access to government contracts, incentives, financing and strategic guidance.
- At SBS, the agency Walsh oversees, the Training Grant Fund provides a 50 percent reimbursement to help small businesses cover the cost of employee training and retraining.
- People who are out of work or seeking a career change can access Career Link. For the entrepreneurially inclined, there's a link at the top of the page to "starting a business."
- New tax breaks may not be in the offing, but there are plenty on the books already to benefit small businesses. From relocation rent abatement incentives to wage tax credits for businesses in enterprise zones, they're listed on the NYC Business Solutions site.
While this guide is limited to the cities with the highest costs of doing business, entrepreneurs in other cities should keep in mind that programs similar to these exist across the country. From small towns to big cities, local politicians are excited to attract small businesses--and they often implement the sorts of tax cuts and programs to achieve that goal.
David Port is a freelancer based in Denver who writes on small business, and financial and energy issues.