A simple 1-2 punch to give working Mainers a raise

Increasing Maine’s earned income tax credit and raising the state’s minimum wage would go a long way toward making work pay for Maine’s families today and lay the foundation for a stronger economy tomorrow, according to new report from the Center on Budget and Policy Priorities.

With wages for the typical Maine worker still well below pre-recession levels and no signs of growth in sight, lawmakers should act immediately when they arrive in Augusta in January to deliver a 1-2 punch that will give Maine workers a much-needed raise.

Punch 1: Raise Maine’s minimum wage

Minimum wage EITC 9-5-2014Maine’s minimum wage is $7.50—25 cents higher than the federal minimum but still lower than it was forty years ago, after adjusting for the purchasing power of the dollar. The outgoing legislature passed a bill to increase it incrementally to $9 per hour by 2015 but failed to override Governor LePage’s veto. Next year, Maine lawmakers should follow President Obama’s proposal and raise the state’s minimum wage to $10.10 an hour and index it to rise with inflation. No man or woman who works full-time should live in poverty, and this increase in the minimum wage would ensure that full-time workers earn at least $20,000 per year instead of the $15,000 guaranteed by the current $7.50 minimum.

Don’t believe the baseless argument from minimum wage opponents who claim that only teenagers make the minimum wage so they’d be the only ones getting a raise. Research at the national level has shown that the vast majority of those who would benefit are over age 20. The majority of them are women, and over two-fifths have at least some college education. In fact, a minimum wage increase would actually raise wages for the entire bottom fifth of the wage distribution.

Punch 2: Increase Maine’s earned income tax credit and make it refundable

The federal earned income tax credit increases take-home income for working families all across the US and helps lift millions of kids out of poverty. It also promotes work since it’s only available to men and women—mostly parents—who work. While Maine is one of 25 states that has its own version of the credit in its state tax code, ours is one of the smallest in the nation. It only amounts to 5% of the federal EITC and more importantly it is not refundable.

According to Maine Revenue Services, Maine’s EITC will provide a total of $937,000 in tax relief to 18,000 low- and moderate-income Mainers this year. That’s about $52, on average, for the families that benefit from it. Contrast that with the 100,000 Maine families who benefit from the refundable federal EITC, and receive an average annual benefit of more than $1,800.

By doubling Maine’s EITC and making it refundable, 100,000 working families in Maine would get an average tax benefit (tax cut or refundable credit) of $180 per year. For most of those families, that would be larger than the tax credit they received Governor LePage’s 2011 tax cut, and at much lower cost to the state budget and other taxpayers. Doubling the EITC and making it refundable would reduce income tax revenue by about $17 million per year (1.2%). Compare that with the $178 million (11%) cost of the 2011 income tax cut, the benefits of which flowed mostly to Maine taxpayers with more than $86,000 in annual income.

The Minimum Wage and EITC are Complementary

CBPP’s new report thoroughly explains why the EITC and minimum wage are complementary policies that work well together, so go read their analysis to get the whole story. But the basic gist is that because EITC and the minimum wage  reach slightly different but overlapping populations of low-income working men and women, they help spread the cost of making work pay for low-income families among employers, taxpayers, and consumers. They also provide benefits at different times: the EITC is a lump-sum annual benefit while the minimum wage affects every paycheck. And since both put money in pockets of those who will spend it to feed, house, clothe, and otherwise support themselves and their families, all of us will benefit as Maine’s economy expands and the children who benefit grow up to live productive lives.

Increasing and improving both the state’s minimum wage and EITC: a 1-2 punch that will be a winning combination for Maine’s working families.

LePage’s Erroneous Bonds Policy Seriously Threatens Maine Hospital Finances

Last week, the (Lewiston) Sun Journal reported that the LePage Administration’s anti-bonding policies are forcing MaineGeneral Medical Center to pay $42 million more in interest on loans than is necessary on the construction of their new hospital in Augusta. That’s $1.4 million in avoidable interest payments annually for 30 years.

MHHEFAThe legislature created the Maine Health and Higher Education Facilities Authority (MHHEFA) to allow entities like hospitals, nursing homes, public colleges, and other eligible nonprofits access to low-interest bonds. For 25 years, nonprofits have been able to join a pool under the MHHEFA that garners them lower interest rates saving money on medical costs, elder care, tuition rates, and other community services.

For more than three years, Governor LePage has refused to authorize the sale of the nonprofit bonds asserting that voters should approve them and that, if the institutions default, the state’s credit rating will be impacted.

By law, the state is not liable for repayment of these nonprofit bonds. However, if the institutions default, the state would have a moral obligation to repay them, thus they are frequently called “moral obligation” bonds. But Robert Lenna, who conceived of the idea for MHHEFA, calls concerns about an impact on the state’s credit rating “nonsense” and points to safeguards that protect the state, including healthy reserve accounts maintained for just this purpose.

The governor’s professed deference to voters is a sham. He has twice refused to authorize bonds that the voters did approve.  And earlier this year, he proposed his own moral obligation bond for a $100 million renovation to the Windham prison through bonds issued by the Maine Governmental Facilities Authority (MGFA), without regard for voter approval. MGFA is an entity almost identical to MHHEFA, for use by the courts and other state agencies.

Hospitals in Maine today are struggling. The Maine Hospital Association (MHA) reports that an all-time high two-thirds of its 38 member hospitals are implementing layoffs and pay freezes to address financial shortfalls. Hospitals in Augusta, Ellsworth, Brunswick, Bridgton, Rumford, and Calais, have recently announced layoffs.  In March this year, the Eastern Maine Medical Center in Bangor reported a $7 million budget shortfall. And Maine’s biggest hospital, Maine Medical Center, cut 225 jobs due to a $13.4 million operating deficit in August 2013. The hospitals cite fewer patients, lower Medicaid and Medicare reimbursements, and higher charitable care costs as factors contributing to their financial woes, but they also say Maine’s failure to expand Medicaid under the Affordable Care Act has made lay-offs necessary.

Maine needs healthy hospitals and the jobs they provide our communities. We need state policies that bolster our hospitals, not ones that cost them more money and force lay-offs of hardworking Maine people. Governor LePage’s refusal to allow hospitals access to low-interest MHHEFA bonds is weakening our hospitals’ finances, undermining Maine’s economy, and will unnecessarily raise health care costs for all of us.

State Income Tax Revenue Falls as Bill for 2011 Income Tax Cuts Comes Due

Four years after Maine Revenue Services (MRS) and the Legislature’s nonpartisan fiscal office put a $166 million price tag on Governor LePage’s income tax cut, an enormous decline in FY 2014 state income tax revenue appears to be validating their estimates. State income tax revenue through the first 10 months of fiscal year 2014 is $109 million—or 8.9%— lower than it was last year, according to the State Controller’s latest revenue report for the all-important month of April. This revenue drop-off is the result of two factors: the state income tax cut passed by Maine lawmakers in 2011, and an artificially large increase in personal income and tax revenue in 2012, driven by high-income taxpayers anticipating inevitable federal tax increases in 2013.


Anticipated Federal Tax Increases in 2013 Pushed Up 2012 Revenues

High-income taxpayers in Maine and across the nation shifted income from 2013 into 2012 in anticipation of the “fiscal cliff”—a series of automatic federal tax increases and spending cuts scheduled to automatically take effect at the end of the year. This shift drove large increases in state income tax revenues all across the nation in Fiscal Year 2013, which ended June 30th 2013. In Maine, total personal income tax revenue in Maine increased by nearly $90 million (6.2%) in FY 2013, but that only ranked 34th among the 43 states that collect personal income taxes, and 31st on a per capita basis, according to MECEP analysis of Census Bureau data on state tax collections.

Congress passed the American Taxpayer Relief Act (ATRA) on January 1st 2013 to deal with the fiscal cliff. Although ATRA increased taxes compared to 2012, it prevented much larger tax increases had Congress failed to act.

State Income Tax Cuts Are Driving This Year’s Decline in Revenue

Meanwhile, on the same day that Congress passed ATRA, Maine’s historically large income tax cut began to take effect. Passed by Maine lawmakers in 2011, the tax cut Governor LePage proclaimed the “largest tax cut in Maine history” reduced Maine’s top income tax rate from 8.5% to 7.95%, collapsed the 4.5% and 7% brackets into one 6.5% bracket, and replaced the 2% bracket with a 0% bracket. MRS estimated the cost to the state to be $79 million in fiscal year 2013. Without the tax cut, Maine income tax revenue in FY 2013 would have increased by 11.7% instead of 6.2%, and Maine would have ranked 17th in per capita personal income tax revenue growth that year instead of 31st.

With state personal income tax revenue artificially inflated in FY 2013, a downward correction in FY 2014 was inevitable. Through the first half of FY 2014, nearly all states that levy personal income taxes are experiencing slower annual growth than the year before, and 11 states are on track to see an overall decline.

Maine’s current drop in personal income tax revenue is especially large thanks to the 2011 state personal income tax cut, estimated to cost $166 million this year. FY 2014 marks the first full year to gauge the impact of the tax cut on the state’s budget, and so far the original estimated cost from MRS and the Legislature’s nonpartisan fiscal office appears to be close to the mark: income tax revenue is about $28 million over the forecasted amount so far this year, but $14 million of that is due to the fact that the Property Tax Fairness Credit—a new income tax credit for low-income Mainers with high property tax bills—is turning out to cost much less than expected. The cause of the remaining $14 million of the surplus income tax revenue so far this year is tough to determine; it could be due to any number of factors and is small enough to be within the typical margin of error in an overall forecast of $1.4 billion in annual income tax revenue.

Tax Cuts Have Consequences

There is no sign that the income tax cuts enacted in 2011 are costing any less or more than was originally forecast. Tax cut advocates like to claim that Maine’s current procedures for forecasting the impact of tax cuts fail to account for taxpayers working harder and the economy improving when policymakers cut taxes. But in most cases, including the 2011 tax cut, there is little evidence of these “dynamic” supply-side effects, and to the extent they occur they are adequately accounted for in Maine’s current procedures for estimating the cost of proposed tax changes.

With large tax cuts, only one thing is certain: they reduce tax revenue and make it harder for us to make the public investments in education, workforce training, research, infrastructure, and the rest of the foundation required for a thriving 21st century economy that works for everyone.

Everything comes with a cost: the perilous (and unnecessary) fate of the Portland Free Clinic

Despite the historic opportunity offered by the federal funds available to expand Medicaid to cover Maine’s uninsured, millions of dollars earmarked for our state have been lost – more than $143 million since January 1 -repudiated in a din of partisan politics.  The governor vetoed majority votes in favor of Medicaid expansion five times.  But decisions have consequences – and one of the consequences might be the future of the Portland Free Clinic.

Operating on a shoestring annual budget of $110,000 for 21 years, the Portland Free Clinic has served the uninsured at no cost.  Medical providers donate more than 2,000 hours of their time each year.  The clinic serves the working poor.  Free Clinic patients earn too much to qualify for the existing Medicaid program, but too little to afford health insurance or participate in the Affordable Care Act Marketplace.   Now the clinic’s existence is threatened.  The unmet need for healthcare is outstripping the clinic’s ability to offer it.

It didn’t have to be this way.  Had Maine joined the rest of the New England states and accepted federal funds to expand Medicaid to cover the working poor, the Portland Free Clinic likely would not be in jeopardy.  69,500 people statewide would have coverage, and fewer would remain reliant on free care. Treating people costs money.  During the Medicaid debate in the legislature and the media, opponents dismissed the expansion as unnecessary, and some even advised the uninsured to sign up for hospital free care, as if this were a simple solution.  It’s not.  Pushing patients onto free care burdens hospitals and clinics with the costs of treating the uninsured.

In states using federal funds to expand Medicaid, hospitals and clinics are getting significant relief from the burden of uncompensated care, and it’s shoring up their bottom lines.  Ultimately, this normalizes rates for everyone – the privately insured no longer have to pay more to cover the costs of treating those who cannot pay.  Publicly traded hospitals report significant decreases in uncompensated care, and community health clinics are also benefitting.  Community health clinics mainly serve the low-income and working poor: this leaves them vulnerable to higher caseloads when more and more patients are uninsured.  2.9 million previously uninsured community health clinic patients are now covered in expansion states.  These patients will generate an estimated $2.1 billion in new revenue this year.

Maine’s 18 community health clinics serve 181,000 Mainers, including 26,000 who are uninsured.  A study by the George Washington University School of Public Health estimates that if Maine had expanded Medicaid this session, 21,000 patients would have gained coverage, resulting in $5 million in new revenue distributed among the clinics. Only 4,000 patients would remain uninsured and reliant on free or reduced care.

The Portland Free Clinic has done an admirable job serving its clients and fills a critical role for Cumberland County.  Now its future looks tenuous.  Had policymakers expanded Medicaid to cover the uninsured, the story probably would have a much different ending.

What you should know about the Cutler property tax relief plan

Today, Eliot Cutler released a plan for providing property tax relief to Maine residents. The center piece is a dramatic increase in Maine’s homestead exemption program, elimination of revenue sharing as we know it, and a new approach to channeling revenue collected by the state to towns and cities.

The basic premise is that Mainers increasingly feel the bite of property tax increases and that our current three pronged approach to mitigating these increases – a modest homestead exemption, revenue sharing, and a program that provides targeted relief for low- and moderate-income Mainers – is no longer working.

What the Culter plan fails to acknowledge is that the primary reason these traditional approaches are falling short is because, with the exception of the homestead exemption, these programs have been gutted to pay for the 2011 income and estate tax cuts passed by the LePage administration and his legislative allies and to shore up critical services in the wake of a revenue collapse brought on by the Great Recession. Reforming a system that is inadequately funded to begin with amounts to little more than rearranging the deck chairs on a sinking ship.

This leads to my second concern with the Cutler plan. Rather than acknowledge why the current system is failing more and more Mainers, the proposal opts instead to address existing revenue shortfalls by increasing sales taxes in a variety of ways. Contrary to Cutler’s claim that Maine’s most regressive tax is the property tax, analysis (see p. 27) by Maine Revenue Services confirms that sales and excise taxes on consumers are the most regressive taxes. If tax fairness is truly a high priority then we should be looking instead to the income and estate tax and/or to closing the door on ineffective tax loopholes as a primary source of funding. If sales taxes are going to be increased or expanded to services, then those changes must be accompanied by an aggressive tax credit to offset the impact on low- and moderate-income residents. LD 1496, the sweeping tax reform proposal designed by Senator Woodbury last year, included such a credit.

I am further troubled that the only mention of the most targeted and effective way to provide property tax relief – the Property Tax Fairness Credit – is as a source of revenue to pay for the plan. While it is true that an expanded homestead exemption means that fewer people will claim the Property Tax Fairness Credit (PTFC) resulting in a savings for the program, we should use any additional revenue to bolster the existing PTFC for those who need it most. This includes renters who get little if any relief from the expanded homestead exemption and may face even higher rents if their landlords see property tax increases and pass on those costs to their tenants. It also includes families who lost more than two thirds of the property tax relief they received previously under the old Circuit Breaker program before it was eliminated and converted to the PTFC.

The Cutler plan puts some important ideas on the table that merit further consideration. Expanding the homestead exemption makes a lot of sense as a way to shift some of our tax burden to seasonal homeowners and encourage residency. The argument that the current revenue sharing program does little to export taxes or ensure that the wealthiest among us are paying their fair share is a sound one. However, the plan’s design does not consistently reflect Cutler’s expressed concern for tax fairness across income groups and for economically vulnerable groups of Mainers. We can grow Maine’s economy and secure adequate revenue to make the kinds of investments in Maine’s people and communities that will help us do so. The Cutler plan is a thoughtful and detailed starting point for conversation on how best to do this. This is a conversation we look forward to engaging in over the coming weeks and months.

Good news, bad news

Maine state government ranked above average for its sound budgeting practices in a report released yesterday by the Center for Budget and Policy Priorities. But, while Maine is better than many states at fiscal planning, there’s more we can do, especially around evaluating tax breaks for lucrative out-of-state corporations.

The good news: On a scale of 10, Maine ranked 7 for doing prudent things like producing an independent forecast of state revenues, generating regular budget status reports, having nonpartisan staff review and analyze the budget and other spending bills, and providing for well-designed rainy day funds.

The bad news: Maine does not sufficiently scrutinize its business tax expenditures, things like tax credits, deductions, and exemptions that reduce state revenue.[1] Maine spends more than $11 million a year to give income tax credits or exemptions to companies that buy business equipment, that locate and create jobs in certain designated Pine Tree zones, that perform research on new technology, and whose income falls under foreign jurisdictions (tax havens). These tax giveaways cost Maine’s taxpayers money just like spending for schools or road construction. Yet they receive little or no scrutiny.

As one former legislator and member of the Appropriations Committee Lisa Miller said recently, legislators pour over every part of the state budget with a fine-toothed comb to find savings but conduct virtually no oversight of the millions in revenue lost to tax expenditures.

According to the Center,

The more that states spend on tax expenditures, the less they have for direct spending programs, or for reductions in tax rates. This trade-off should be made explicit in order for a state to plan wisely for the future. Yet often it is not.

What’s more, policymakers have largely ignored a report from Maine’s Tax Expenditures Review Task Force. The task force, created at the behest of the legislature in 2013, examined the revenues the state forgoes by sanctioning tax subsidies. They recommended establishing an ongoing, independent review process to evaluate the effectiveness of tax expenditure programs, placing caps and other limitations on some programs, and eliminating some programs.

While Maine spends millions to benefit corporations more Mainers are suffering from homelessness and hunger. The least our leaders could do is periodically review whether these tax break programs are delivering on their promises to boost Maine’s economy or simply taking resources away from other high priorities.

[1] According to the report other things Maine could do to improve its fiscal health are: produce spending forecasts of what state programs will cost into the future, analyze the budget impact of spending bills beyond the current two-year budget, improve pension oversight, and show state budgeters (in the budget document) estimates of what it will cost to deliver the same quantity and quality of services to residents it is delivering currently so that they can better understand how changes to that budget would affect public services.

Question 3 – Maine’s aged bridges need repair

You know the old line, “In Maine, driving is better in the winter because the potholes get filled with snow.” Mainers have always grumbled about road conditions.

It turns out we have something to complain about. Only it’s our bridges. Maine ranks 9th in the country for the worst bridge conditions. Of our 2,408 bridges, 356 or nearly 15% have structural defects.

When Mainers go the polls on November 5, they can vote to approve Question 3, $100 million in bonds for transportation improvements including $27 million to repair and replace defective bridges across the state.

Many of the most serious problems are in Maine’s most rural areas. Piscataquis County has the most deficient bridges (24%) with Washington (21.6%), Knox (21.3%), Hancock (206.6%), and Oxford (20.6%) counties following close behind. To learn which bridges near you are in need of repair, visit Transportation for America’s web site.

Percent of Deficient Bridges in Maine by County

Source: Transportation for America, The State of our Nation’s Bridges, 2013

Maine’s bridges are aging.  The average Maine bridge is 50 years old. The average deficient bridge is 69 years old. In 10 years, one out of four of our nation’s bridges will be 65 years or older. Every year that passes, these deteriorating spans become more costly to repair.

The good news is that Maine has improved its bridge condition standing since 2011, reducing our inventory of deficient bridges by 33. The bad news is, we have a long way to go.

State Rank among 50 states 2013 % deficient Total bridges Deficient bridges 2013 Deficient Bridges 2011  Change in deficient bridges over 2011 Percent change in deficient bridge total Average daily traffic on deficient bridges
Maine 9 14.8 2,408 356 389 -33 -8.5% better 924,423

Source: Transportation for America, The State of our Nation’s Bridges, 2013

Our bridges are our lifeline to national and international markets. Billions of dollars in goods are trucked over these deficient bridges every year. Almost 1 million people cross them every day.

The Maine Department of Transportation routinely monitors bridge conditions. It is not likely that a bridge will collapse. MDOT will close it before that happens, as experience shows with the Bucksport bridge in 2006. But without funding for ongoing repairs, Maine’s aged bridges will continue to deteriorate. At best the department will impose weight limits; at worse it will close unsafe bridges,  causing delays and costly, inconvient detours for commuters, truckers, emergency responders, and school buses.


Maine needs sound, safe bridges, along with roads, rail lines, and cargo and airports to sustain its economy. Spending on transportation projects will also create jobs, boost the local and state economies, and enhance Maine commerce. Voting yes on Question 3 is an investment in Maine’s future.

When small is mighty BIG!

IFA poster 10-18-2013Robert Reich is short, four feet, eleven inches to be precise. I mention his height because the former labor secretary and current professor at the University of California Berkeley makes it an integral part of the presentation in his thought provoking new documentary, Inequality for All, currently showing at Railroad Square Cinema in Waterville.

When Reich speaks about the ever-widening income gap in America between the uber-rich and the rest of us, he towers over his subject matter and rivets the attention of his audience.

Yes, the film is filled with powerful data. A few examples:

  • The richest 400 Americans have more wealth than the bottom 150 million Americans combined.
  • In 1970, the top 1% of earners took home 9% of the nation’s total income. Today, they take in approximately 23%.
  • In 1978, the typical male American worker earned $48,302 while a male in the top 1% earned $393,682. In 2010, the typical American male earned $33,731 while a male in the top 1% earned $1,101,089.
  • Out of 141 countries, the U.S. has the 4th highest degree of wealth inequality in the world, trailing only Russia, Ukraine, and Lebanon.

But the heart of the film is the people who tell Reich what income inequality means to them and their families, ranging from a wealthy CEO who disdains the “job creator” myth to working men and women struggling from day to day, often one paycheck, one illness, one emergency away from catastrophe.

I was in the audience on Tuesday when MECEP hosted a panel discussion following a screening. When the film ended and the applause died down, the audience took charge. The questions and comments clearly demonstrated that Reich had struck a nerve with virtually every person in the theater.

As John DeFore writes in his Washington Post review:

“Jacob Kornbluth’s ‘Inequality for All’ listens intently as former Labor Secretary Robert Reich recounts the history of America’s rich/poor divide and argues that the status quo is destroying our nation . . . Judging from the pit left in a viewer’s stomach, it does the job pretty well.”

MECEP has already scheduled two additional showings followed with discussion by a panel and the audience. On Tuesday, October 29, we will be at Reel Pizza Cinerama in Bar Harbor for a 5:30 p.m. screening, click here for details and to purchase tickets in advance. On Thursday, November 7, we will be at the Lincoln Theater in Damariscotta for a special 3:00 p.m. program, click here for details.

We are also working with theaters and organizations across the state to schedule more screenings and discussions as we roll out our forthcoming State of Working Maine 2013. This new report addresses many of the issues Professor Reich discusses from a distinctly Maine perspective. Watch our website, Facebook page, and Twitter posts for future showings at a theater near you. Find out for yourself why small can be mighty big!

Congressional Fiscal Shenanigans: O. Henry or Stanley Kubrick?

After weeks of gamesmanship, a minority in Congress succeeded in shutting down the federal government at midnight.  The full impact here in Maine is still uncertain.

We do know that on the cusp of peak leaf-peeping season, Acadia National Park will close and businesses on Mount Desert and throughout the surrounding area will feel the pain. Chris Fogg, executive director of the Bar Harbor Chamber of Commerce told the Portland Press Herald that 70 percent of local businesses have already reported losses of 10-20 percent when the park delayed opening the Loop Road for a month in the spring due to congressionally mandated sequester budget cuts.

“I think we are all hoping they will come to their senses and make a deal because the impact on our communities would be pretty significant,” he said.

The prevailing signs suggest that eventually they will. As President Obama put it last night, “One faction of one party in one house of Congress in one branch of government doesn’t get to shut down the entire government.”

The polls suggest that the government shutdown could be the tea party’s equivalent of “The Ransom of Red Chief,” O. Henry’s story, about two bumbling desperadoes who kidnap the child of a wealthy businessman and demand a hefty sum for his return. The scheme totally backfires when the kid turns out to be a menace, terrorizing his captors. The father replies to their ransom demand with his own ultimatum that they pay him to take his son back. Realizing they’ve made a huge mistake, the scoundrels eventually release the boy and beat a hasty retreat.

Sadly, such grandstanding has become standard operating procedure in Congress. And an even more dangerous threat looms on the horizon: if Congress fails to extend the nation’s debt ceiling before October 17, the federal government will default on its bills.

“Even if it’s a brief failure, it would forever be a signal to the market that you can’t trust the United States government to make its payment when it’s due,” Millan Mulraine, the director of United States research and strategy at TD Securities told The New York Times. “That would shake the foundations of the global financial system.”

Should the political theater carry over to the debt ceiling debate, the stakes will be much higher and the potential outcome more devastating. A better analogy for that eventuality won’t be O. Henry. It would be more like Stanley Kubrick. His classic Cold War black comedy, “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb,” is about how the deluded actions of political extremist General Jack D. Ripper trigger a “doomsday device” that destroys civilization.

It’s time for the radicals in Congress to end the government shutdown and take their fingers off the switch that could lead to an international economic meltdown.

Beware the Bogus Business Ranking Redux

In December 2011, I wrote the blog post below in response to Forbes magazine’s “Best States for Business” list of that year. Now, for the fourth year in a row, Maine again ranks at the bottom of the magazine’s ranking. While the Maine media is engaged in a feeding frenzy to assign blame, they once again fail to grasp the real issue with the Forbes model: it is a flawed, inaccurate, biased, and misleading assessment of a state’s true business climate.

Beware the Bogus Business Ranking (December 12, 2011)

Forbes magazine is out with its latest “Best States for Business” rankings. Maine’s ranking, 50th, will grab headlines and provide fodder for further assaults on Maine’s environment, workers, and public investments.

BEWARE – these business rankings generate more heat than light when it comes to measuring a state’s real capacity for economic growth.  As a foundation for policymaking they are extremely flawed.

To appreciate the problems associated with one-size fits all rankings, look no further than results from five of the most widely cited business climate indices (including Forbes).   Thirty-four states can claim to be in the top ten for business climate in at least one of the rankings and forty-two states rank among the bottom ten.  This variation is a result of the inherent biases associated with each ranking.

review of the Forbes methodology makes clear their bias against taxes, labor, and states whose economies aren’t centered around large companies or capital flows.

A better business measure for Maine would recognize that people drive economic growth whether they are innovative entrepreneurs or highly skilled workers.  In the long-run states that put people first and maintain a balance of policies that support better quality jobs, better quality workers, and a better quality of life have the greatest prospect for broadly shared prosperity.

The Corporation for Enterprise Development used to produce a report card that was particularly instructive (note the absence of a “gotcha” ranking system).  Closer to home, the Maine Development Foundation in conjunction with the Maine Economic Growth Council produces an annual Measures of Growth report that presents a more balanced set of indicators reflecting our priorities here in Maine.  It was not created to sell magazines or support a particular political agenda.  We would do well to dust off the Measures of Growth report and remind ourselves of what matters here in Maine when future business rankings hit the news stand.