New York State Business Climate Study, Nov. 2001

Their National Perspective
Respondents were asked to offer their perceptions on the National Business Climate. Eighty four percent, up from 68 percent in May, believe business conditions are worse today than one year ago. Fourteen percent compared to 29 percent in May believe the business climate is the same with only 3 percent perceiving a healthier climate. These general perceptions were held regardless of business region or size.

As these business people look to the future the majority, 51 percent believe that it holds a mixture of both good times and bad. This was a similar finding to data collected in May. However a much larger proportion (34% cf. 14%) today feel that they are facing bad financial times. Only 13 percent believe that the financial conditions in the US will improve in the next 12 months, compared to 35 percent who held that belief in May. Once again, regardless of size or region, these were commonly held perceptions.

Business owners seem to be bracing for continuing bad news, with 74 percent believing more unfavorable changes are coming compared to 61 percent who said that six months ago. Only four percent, compared to 10 percent in May, predict more favorable changes. A slight majority (47%) believe that interest rates will remain steady while 45 percent believe that interest rates will, once again decrease. In May, 32 percent predicted interest rates would stay the same, and 62 percent said they would go down.

Their Voice: The Impact on Their Businesses of the September 11 Attacks
Two-thirds of the respondents (236 of 351) said the events of September 11th had a negative effect on their businesses.

"Business dropped off to zero," one said. Another said, "Business has seized," and yet another reported, "Business stopped for two weeks and is still not back." "Lost approximately $1 million in revenue," a respondent reported. One wrote, "Prior to 9/11, I did not think business could bet much worse, but obviously, I was wrong. I think this tragic event had a greater psychological effect on New York State than on other parts of the country." Another said, "I don't believe the economic slowdown was the result of the Sept. 11th events. However, I do believe that Sept. 11th accelerated the slowdown." Yet another said, "Everyone is very nervous, hesitant and confused. Business was down before 9/11. This has made it tougher to do business."

Respondents cited drops of 30 to 50 percent in their sales. One reported it "killed volume nationally for us in all but three of our 15 markets." While some said they were starting to see business pick up again, they are concerned that consumers are reluctant to make large purchases. Car dealers noted that zero percent financing offered by major auto makers stimulated sales, but many were concerned that it was an artificial boost, and that the sales they made this quarter with the attractive financing were, in effect, "robbing future business."

In the immediate aftermath of the World Trade Center attacks, some experienced logistical problems. They had difficulty getting products and people into and out of New York City.

Many are seeing slowdowns in ordering, which will have long-term effects on their businesses. "Less orders. More cancellations. Slower pay," one said, highlighting a problem others reported as well: Their customers are slower to pay their bills and their receivables are increasing as a result. Some see sources of credit drying up. "Money is not available for small business to borrow. 'Start-ups' are not being tried. Public not risking money in savings. Do not want to incur debt," one respondent said.

Others are concerned about the long-term costs they may have to bear as a result of the attacks. One said, "The attack of September 11 has had an adverse effect on my business. The cost of doing business in my industry has gone up noticeably as a result of security in New York City office buildings. We expect our insurance costs to go up dramatically." Others expressed concern that worker's compensation costs would skyrocket as a result of the deaths and injuries suffered in the attacks.

Many respondents fear the effects on the state budget and the diversion of state resources to New York City to assist with the clean-up and rebuilding efforts. "We are concerned about the future since we do a large amount of New York State public construction. The events downstate don't bode well for upstate and statewide spending in general with lower-than-anticipated tax revenues and major requirements for funding New York City repairs," one said. "Much of our work is with school and municipal facilities. At this time we have been informed... that most capital improvement projects will be cut," another said. One respondent predicted a positive effect: "New York State Department of Transportation may be spending more in road construction in Region 10 (Long Island)... than in Region 11 (New York City). Roads are already very congested due to new security measures and restrictions now in effect."

One-third of the respondents said they suffered little or no negative impact, or actually saw an upswing in business after the September 11th attacks because of the nature of their businesses. "I own a grocery store. Business has increased 10 percent because a lot of people are not going out to eat," one said. Another grocery store owner reported the same thing: "We have not noticed any difference as we are a supermarket. Customers are buying more ... to store away such as water, batteries, canned food and drugs." Another respondent reported a significant increase in sales, due in part to hobby and craft-related products, indicating that people are opting to stay home and pursue hobbies rather than going out. A screen-printing business saw an upswing due to orders for patriotic items and give-aways for fund-raising events.

Their Voice: What Should New York State Do to Speed Recovery?
Taxes were the largest single issue on the minds of respondents. Sixty-one percent (165 of 269 respondents) suggested cutting them, eliminating them, or using tax credits or incentives to spur business growth in New York State.

"Cut property and income tax. New York has the worst tax burden in the country. My operations in Pennsylvania and Ohio are much more profitable because of the tax differential. I will be expanding there, not in New York," said one respondent. "Find ways to reduce state spending so that state taxes, NY fuel taxes and energy costs could be more competitive with other states. Find ways to reduce workers' compensation to be more competitive with other states," another said. "Taxes! Too many (all different types) and too high," responded another.

Many suggested cutting taxes would give New York residents additional spending power that would boost the economy. "(Cut the) New York State income tax. Top rate should be cut to 6 percent. It's like giving a raise to every working New Yorker. This would put more money in the hands of consumers to boost their confidence to spend," said one. Another suggested lowering the sales tax from its present rate of up to 8 percent, depending upon locality, to a flat 5 percent statewide. One suggested eliminating all school taxes on businesses and industries. Another said the state should cut taxes, but not reduce its aid to cities and towns because those cuts compound the problems by leading to higher local property taxes.

Other solutions suggested by respondents fell within several broad categories, although none was as frequently mentioned as taxes. The categories include:

  • Regulatory relief. Many suggested that dealing with everything from environmental regulations to local zoning codes places an unwarranted burden on businesses, particularly small businesses that do not have staff or resources to deal with them.
  • On-time adoption of state budgets. Several respondents pointed out that failure to adopt a state budget on time results in delayed or cancelled projects by school districts, municipalities and other governmental agencies. Those delays and cancellations are harmful to businesses in New York State.
  • A "Buy New York First" policy. Several respondents said that they see business going to out-of-state companies when there are firms in New York that could provide the goods and services.
  • Continued emphasis on economic development, offering tax breaks and incentives to all businesses that are growing and expanding, not just new companies.
  • Lower energy costs.
  • Workers' compensation insurance reform.
  • Public works projects to keep people working.

New York State of Mind
Respondents were again asked to evaluate the economic policies of New York State specifically. Sixty seven percent, compared to 68 percent six months ago, believe that NY State government is doing a good (17%) or fair job (50%). The remaining respondents (33%) believe that state government is doing a poor job. While these totals do not differ significantly from the evaluations provided six months ago, what does differ is perceptions held by regional businesses. Twenty seven percent (up from 18 percent six months ago) of downstate businesses believe that state government is doing a good job compared to 12 percent of upstate businesses. Another 61 percent of downstate businesses compared to 46 percent of upstate businesses believe that NY State government is doing a fair job. Only 12 percent of downstate business people rate the state government as doing a poor job, compared to 41 percent upstate. This might be reflecting the strong support downstate New Yorkers feel toward leadership in the September 11 aftermath and the degree to which upstate business people feel that their resources are being drained to support the reconstruction of New York City.

Strong consensus exists within this sample (regardless of size or location of business) that unemployment will rise in the next 12 months. A resounding 74 percent of those sampled, compared to 59 percent six months ago, believe unemployment will rise. Twenty percent believe that employment will remain steady over in the next 12 months, down from 37 percent who held that belief six months ago.

Future Plans: Capital Expenditure
This survey was also interested in the future plans of business in New York State. When asked if they were planning to make any type of capital expenditure in the next 12 months, 51 percent had definite plans not to make these expenditures compared to 47 percent in May. Thirty-six percent had plans to move forward in this regard, compared to 43 percent in May. A larger proportion of businesses are undecided (14% compared to 10% six months ago).

Larger companies, those employing over 100 people, represented the majority of those investing into capital (59%) compared to small business. Only 27 percent of these operations were planning for this type of investment. Of the 128 (36%) companies who are planning capital purchases, the picture remains consistent with May responses. Fifty-nine percent plan to invest under $500,000 and 34 percent anticipate investing over half a million. Once again there was little variation based on region. However, as one would expect, smaller organizations represent the majority of organizations investing under $500,000 (75%) with larger corporation (58%) investing over $500,000 with a mean average of $2 million. The total sample plans on making $1.3 million investment in the next year compared to projection of $1.6 million six months ago.

Future Plans: Employment
Plans for human resource investment paints a similar picture. While projections are down from estimates provided six months ago, 43 percent (cf 52%) of NYS businesses either have definite plans (17%) or are probably going to hire additional employees (26%). Actually fewer business people have definite plans not to make additional investments in human resources than six months ago: 22 percent and 32% respectively. But what has increased is the uncertainty. Thirty five percent of those surveyed in the third quarter are unsure what their plans are compared to those 15 percent who were unsure in May 2001: a reflection of the times. On average approximate 15 new employees will be added to the work force per organization ranging from (on average) nine employees hired by firms with under 100 workers, and 26 employees (on average) hired by those larger firms.

Alternatively, when asked if they have plans to reduce their workforce, the majority of respondents are unsure what they will be doing (48%). This is a startling figure when compared to only 16 percent of respondents who were unsure about their plans for workforce reduction just six months ago. The good news is 22 percent have definite plans not to cut employees, while only eight percent say they will definitely cut employees. However, when we look at their responses six months ago, we found that 58 percent of responding business had no plans to cut their work rolls. Another 21 percent of those surveyed are considering the necessity of workforce reduction. On average 14 workers are to be released by our responding organizations. As expected, smaller firms employing under 100 people have fewer reductions (approximately 5 people per firm) compared to these larger firms who are planning on letting 33 people (on average) go.

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