Business Climate

Business climate indicates how states, regional and local policies, relationships and local communities support business development. Ultimately, a good business climate allows businesses to conduct their affairs with minimal interference while accessing quality high inputs and customers at low costs. While no business climate is perfect for every kind of company, certain attributes of the regional or local economy allow investors to find fewer risks and higher returns when compared to other places.

Key factors used in the measure of business climate include:

  • Business and income tax levels
  • Workforce availability
  • Energy costs
  • Market size
  • Quality of services
  • Cost of living
  • Quality of life
  • Environmental regulation
  • Permitting, licensing, and various reporting regulations
  • Real estate costs and availability
  • Infrastructure
  • Access to financing and capital
  • Incentive

 Trends in Business Climate

Businesses relocate or expand in places with business climates favorable to their industry. States and localities targeting specific sectors fine-tune their regulations, policies and other site location factors to create a business climate favorable to a specific industry or group of industries. Key trends include:

  • The pervasive need for an available skilled workforce has spurred workforce development initiatives, with a particular emphasis on training in new technologies.
  • De-regulation of utilities has allowed businesses to purchase lower cost energy.
  • Localities now offer incentives, such as tax breaks, to businesses that are expanding locally not just those that are relocating to the area for the first time.
  • Income tax is kept as low as possible because many skilled workers demand high net pay and prefer working and living where they have maximum purchasing power.
  • Local governments create one-stop centers to streamline the process for obtaining business permits when beginning or expanding operations.
  • Public and private sector investment initiatives in telecommunications infrastructure ensure that high speed, high bandwidth communications are available for business.
  • To encourage the growth of e-commerce, the Internet Tax Freedom Act signed in 1998 imposed a three-year moratorium on new state and local taxes for online transactions and sales.
  • Localities focus resources on improving arts, culture and other the quality of life factors to attract and retain skilled workers that businesses seek.
  • Development of affordable housing attracts and retain key workers who may other wise be priced out of the local housing market in a growing economy.