Are start-up costs choking Maine businesses?
That’s the question posed by the conservative think-tank Maine Heritage Policy Center after releasing a series of reports this week on job creation in Maine.
The reports find that the state created just over 40,000 jobs from 1993-2007. “While the good news is that job growth has been positive, the bad news is that this is the 10th-worst level of job creation in the country,” MHPC said in a news release today.
The reports, which draw from data on 161,000 Maine businesses between 1993 and 2007, address shifts in the number of jobs from three areas: businesses growing or shrinking; businesses leaving or moving to Maine; and new businesses starting up or folding in the state.
During the time period analyzed, new start-ups created 29,755 jobs a year, but 30,359 were lost from closures, resulting in an average loss of 604. Over the entire period, Maine lost more than 9,000 jobs, ranking it 30th in the nation for job creation/loss to the birth and death of establishments.
“Right now we have a job crisis on our hands,” says Scott Moody, chief economist of MPHC and author of the reports. Maine’s unemployment rate in May was 8 percent, down slightly from the previous month, and decidedly better than the national rate of 9.7 percent. “In order to grow Maine’s economy, it’s going to have to come from the start-up,” he said.
Moody says tax and regulatory compliance costs may be hindering start-ups from flourishing. Though the state offers tax breaks for new businesses, the hassle of getting permits and filing papers can be a burden on entrepreneurs, says Moody. “Even when you don’t owe taxes, you still have to file a ton of paperwork, he said. “That paperwork is a distraction from running your business.”
“Start-ups really shouldn’t have to deal with the same tax issues as a major corporation,” he said.
MHPC plans to hold a series of round-table discussions with Maine business owners in an effort to find out what’s keeping businesses from getting off the ground.
Charlie Colgan, former Maine state economist and chair of the Community Planning and Development Program at the Muskie School at the University of Southern Maine, was skeptical of early efforts to draw a link between high taxes and start-ups failing.
“As a piece of inferential statistics, it’s pretty weak,” he said.
Colgan also said the report on business migration proves little about Maine’s business climate. Over the 15-year period, Maine lost more than 1,000 jobs from businesses leaving, ranking it 31st in the country, according to the MHPC.
“The thing that stood out from that one is how little of an effect business migration has,” Colgan said. “A thousand jobs over 14 years — whether it was plus or minus — is basically rounding error.”
Historically, said Colgan, “companies moving around don’t account for very much in the net changes in jobs.”
The study on births and deaths of businesses finds that Maine shed 9,057 jobs from 1993-2007, a trend cited in the report as “worrisome.” But the report on relative growth of businesses shows 44,864 new jobs were created through expansion of existing businesses over the same period.
“The good news is we are seeing job growth among existing businesses,” said Moody. “If you’re an existing business in Maine, you can hang on.”
While recent reports have signaled a rebound for Maine’s economy, the rate of foreclosures in the state is expected to stay high — at least until the fall — according to a recent report by the Maine Bureau of Consumer Credit Protection.
According to the quarterly report presented June 10 to the Maine Legislature, more than 20,000 Maine homeowners have defaulted on their mortgages in the past year.
The BCCP estimates that “while the pace of foreclosures in Maine will not increase dramatically, the state will continue to maintain the current rate at least through the fall and winter months of 2010.”
Sagadahoc County has the highest default rate, with an estimated 13.44 percent of homeowners having received a default notice in the last 12 months. Piscataquis County comes in second at 9.81 percent, and Oxford Country third with 8.84 percent.
But according to data by RealtyTrac, a company that tracks national foreclosure rates, Maine is doing relatively well — the state is ranked 46th in foreclosures. According to the report, California leads the country in foreclosures, accounting for more than 22 percent of the national total in May. Maine’s foreclosure rate dropped 18.15 percent from last year, according to the report.
“If actual foreclosures are slowing down, it’s possible part of the reason is the various approaches put in place by the legislature are having an impact,” said Will Lund, superintendent of the BCCP, referring to the act passed by the Legislature last year that provides mediation services to homeowners and requires lenders to give notice before foreclosing on a home.
Lund says the current wave of foreclosures differs from those that immediately followed the subprime mortgage crisis that began in 2007. During that crisis, people who couldn’t afford payments were given loans anyway. Since housing prices kept rising, they could always refinance to keep their homes.
“The true rate of default was hidden,” Lund said. “As long as the value of the consumer’s home continued to increase, consumers who defaulted on the mortgage could always refinance. We saw refinances take place three, four, five times” on the same home.
But the subprime crisis spurred the greatest economic downturn since the Great Depression, leading to widespread unemployment. Maine’s unemployment rate currently stands at 8.9 percent. This lack of jobs is currently driving this second wave of foreclosures, says Lund.
Now that the housing bubble has popped, home prices are lower, and lenders are less likely to refinance a loan if the homeowner can’t afford it, Lund says.
“The bad news is that these are folks who really would otherwise be able to make their payments, if the economy had not reached the current state,” Lund said. “The good news is that these are folks who are accustomed to making an income — they are motivated because they were in it for the long run, in the first place, and the economy is improving. If eligible homeowners can be put into loan modification programs, if the economy can continue to improve.”
The BCCP has scheduled several workshops over the next few months to advise homeowners worried about being foreclosed upon:
ORONO — President Barack Obama’s top energy official toured a University of Maine center focused on developing technologies to harness offshore wind energy and called it “truly impressive” and a “vanguard of technical development.”
The center is “part of the leadership Maine has shown,” said Secretary of Energy Steven Chu. “I’ve been impressed with everything that has been happening in Maine.”
The visit came less than a week after Maine voters approved a $26.5 million bond that will in part be used to advance the work at the center, which is known as the Advanced Structures and Composites Center, or AEWC. Gov. John Baldacci, who attended the tour along with U.S. Sen. Susan Collins and Reps. Mike Michaud and Chellie Pingree, said approval of the bond was indication that Mainers are behind the work going on at UMaine.
The university is leading a private-public partnership of businesses and nonprofit organizations known as the DeepCwind Consortium that is developing technology to build wind farms in the ocean off the Maine coast. Collins, speaking to reporters after the tour, said the work would ultimately lead to 15,000 new green energy jobs and would help meet the Department of Energy’s goal of generating 20 percent of the nation’s power from wind by 2030.
That goal, Collins said, is “a goal Maine is positioned to help the country meet.”
The group was led by UMaine professor Habib Dagher through a number booths set up detailing the technologies the university and its parters are developing. Chu, a 1997 winner of the Nobel Prize in Physics, asked many technical questions.