Which state in America has the worst climate for business and new investment? Is it green-leaning California? Perhaps Oregon?
No, it’s Alaska.
Alaska is the least business-friendly state in America, according to an annual CNBC ranking of states in a variety of business-related categories.
The 49th state scored alarmingly low in almost all of the 40 different measures of competitiveness the business network used to rank all 50 states. The state’s highest score came in quality of life, but still only ranked 26th in that category.
Some of the categories ranked in the study were the cost of doing business, workforce, quality of life, economy, transportation and infrastructure, technology and innovation, education, business friendliness, access to capital, and cost of living.
With 85 percent of Alaska cut off from a road system, lack of infrastructure was cited as one of state’s biggest impediments, said Scott Cohn, a CNBC business analyst and reporter who heads up the annual study. Cohn discussed results of the study at an Alaska State Chamber of Commerce luncheon in Anchorage earlier this winter.
Cohn acknowledged that Alaska is truly different, given its harsh climate, challenging terrain, enormous size and critical infrastructure needs. He also noted the high costs many communities off the road system face, given their reliance on air freight and barge service.
But the quality of roadways and other modes of transportation were what determined a state’s rank in the transportation category, not necessarily the quantity. Alaska scored a mere 10 points in the category, coming in last out of a possible 300 points.
The cost of doing business certainly hurt Alaska’s rating in the overall CNBC rankings. While the tax burden on individual Alaskans is low, Cohn noted high corporate taxes, real estate costs and workers compensation rates place Alaska at a competitive disadvantage with other states. Texas, which ranked as the most business-friendly state, has no corporate income tax.
With regard to the all-important regulatory climate, Alaska had the 47th worst in the nation – a red flag for companies considering investing in resource-extraction projects. Coming into play here are the myriad federal environmental laws, regulations, and legal hurdles companies face in accessing and developing natural resources, including minerals, oil and gas, timber and fish.
Alaska’s miserable ranking in the CNBC report is a wake up call to policy makers to improve our regulatory climate and work for a concise, streamlined and predictable permitting process. Major progress in this area would go a long way toward improving Alaska’s overall ranking and attracting new business to our state.
Another giant step in the right direction would be for Alaska to enact equitable and predictable tax and royalty policies that enhance the state’s competitiveness across all industries, especially in the oil and gas sector, where meaningful reform of the oil production tax system is needed. Taxes on the oil industry account for nearly nine out of every ten dollars in revenue the state collects, but North Slope production is steadily declining and is now at one-third of its 1988 peak. Reform that reduces the tax burden on all oil and gas exploration and development activities and encourages new investment and production would be good for industry and its support businesses. Of course, new production would benefit the state and local communities too, leading to more jobs across the economy and additional revenues for vital public services.
Progress was made earlier this year when the legislature reduced an overly burdensome cruise ship head tax. As a result of excessive taxes and unfair regulations that arose from the 2006 ballot initiative, the cruise ship industry withdrew a number of ships to more competitive locations, leaving Alaska with 140,000 fewer cruise ship visitors. The ripple effects impacted both large and small businesses across the state, resulting in hundreds of job losses. But the legislature and the governor worked together to make Alaska a more inviting place for the cruise industry to operate and subsequently help businesses throughout the state that depend on cruise passengers for their incomes. The industry is now responding in a positive way and more cruise ships are likely to sail to Alaska in coming years.
This type of cooperation is needed in other sectors, including oil and gas, where exploration drilling has plummeted. For example, 2010 was the first in 45 years that ConocoPhillips did not drill an exploration well on the Slope – nor is one planned for this winter.
With regard to transportation, considering the vastness of Alaska, the state’s current transportation infrastructure is inadequate. Our infrastructure requires continued planning, upgrades and investment to assure Alaskans are provided with essential services and to capture new development opportunities.
RDC supports a state funded transportation program that is adequately funded, provides continuity between administrations and addresses all modes of transportation. We need to work for strategic location of our transportation corridors as linking Alaska’s current and future mines to the road system would facilitate future development and expansion of the economy, especially in rural areas.
RDC will be working together with its sister organizations, the Alaska Legislature and Governor Parnell in the upcoming session to make Alaska a more attractive place for private sector investment, jobs and economic growth. Together we can pull Alaska out of the basement. Due to some factors outside of our control, Alaska may never take top honors in the CNBC business rankings and other similar reports, but we should strive to be the state that shows the greatest improvement from year to year.
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