The U.S. Chamber of Commerce Foundation’s 2014 Regulatory Climate Index assesses five areas of business regulation that a typical small business encounters in order to open and operate in 10 major cities across the United States. These five areas of business regulation, based on the World Bank’s Doing Business project, include Starting a Business, Dealing with Construction Permits, Registering Property, Paying Taxes, and Enforcing Contracts that reflect the business cycle of a business entity.
The Index compiles actual data of three factors— number of procedures, time, and costs—in each area of business regulation to evaluate regulatory efficiencies across cities. Data for the report were obtained through a review of city laws, official publications and websites, and commercial service providers. The data were then verified by city officials, professionals, and practitioners. The results act as a barometer for the overall business environment and point to areas where reform is needed.
- There are sizable variations in the design, practice, and costs to fulfill basic regulatory requirements. Geographical and historical influences seem to account for much of this variance. Nevertheless, the basic regulatory steps for opening and operating a business remain relatively similar across the cities measured. In recent years, these places have begun to adopt smarter business regulations and to streamline bureaucracies; however, the scope for improving their business environments remains significant.
- Among the 10 cities in the Regulatory Climate Index, the most efficient cities across all 5 areas of business regulation are Dallas and St. Louis. The cities of Raleigh, Boston, Atlanta, and Detroit have moderate levels of regulatory efficiency. Chicago, Los Angeles, San Francisco, and New York City have the least efficient regulatory environments.
- Every city measured has its own clear strengths and weaknesses. For example, Los Angeles and San Francisco have the best practices for opening a business, yet both cities have the highest requirements and costs to obtain construction permits. St. Louis has the best practice for the registration of properties but scores below average in Enforcing Contracts. Chicago ranks highly for Enforcing Contracts while ranking lower for Starting a Business.
- All cities provide small businesses with information and materials to comply with their regulations. Yet the websites and publications are often disorganized, missing information, or unclear to third parties. Few cities provide detailed information on the procedures, expected waiting time, and administrative costs for construction permits. Overall, no city provided comprehensive information for each of the business regulation areas.
Business Regulation Areas
Starting a Business
Across the cities measured, creating a formal business entity to provide professional services is relatively simple and inexpensive. It could take as few as four procedures and $70 in the best performing city, whereas it would cost around $150 in other cities. In the best case scenario, a business can be operating in less than a week. Overall, the number of procedures, waiting time, and costs for administrative compliance do not vary significantly across eight of the cities.
Dealing with Construction Permits
The process of obtaining construction permits varies substantially, as it is mostly driven by the differences in zoning approval processes, environmental reviews, and building permit reviews. Regulation costs on average 1% of the construction total and requires 3 months to complete a set of 15 standard procedures. These figures are for pre- and post-construction phases for small commercial buildings.
Real estate transfer taxes and other fees can significantly increase the costs of commercial building transactions and differ greatly across cities. The administrative requirements for registering property in the sale of a commercial building ranges between four and seven standard procedures and from 0.5% to 1.0% of the transaction cost to transfer and record the title. Procedures and time for administrative compliance for registering properties do not vary significantly.
Paying taxes across cities varies on the number of payments and tax amounts based on state and local tax rates, including corporate, employment, and sales taxes. Cities also impose local taxes, such as business license taxes, that increase the overall cost of doing business. While Dallas has no corporate income tax, the city of Chicago has a tax rate of 9.5%. Employment taxes also vary across cities, from 1.0% to 2.7% in Atlanta, Dallas, Detroit, and Raleigh to 4.1% to 4.5% in New York City and Chicago.
There are significant differences in the waiting time for procedural steps in Enforcing Contracts, ranging from 141 days in Chicago to 511 days in New York City. There are not substantial variations in the number of procedures and administrative costs. Although insignificant to litigation costs, time and fees required by courts provide an indicator to gauge the challenges to maintain and protect the business integrity levels in different cities.
The ease of doing business in America’s cities will help determine the future of America’s economic growth. With this Index, cities can learn from what other cities are doing to create a regulatory environment friendly to businesses of all sizes and stages of development.
The success of these places depends on improving existing regulatory processes, simplifying the licensing procedures, and easing the barriers to entry for entrepre- neurs—further unleashing the promise of entrepreneurship and free enterprise for American cities.