Hawaii improves as profitable venue for small businesses

THE ISSUE Hawaii's ranking for business-friendliness by a small-business advocacy group has improved from dead last to ninth from last since 2002.

A decade ago, Hawaii's climate for small business was ranked dead last by an entrepreneur advocacy group called the Small Business Survival Committee. Hawaii crawled out of the cellar six years ago, made it to 46th-friendliest two years ago, has achieved respectability by gaining four more notches in the latest rating and deserves further elevation in the next assessment.

The Small Business Survival Index is less than objective. It was shrugged off five years ago by then-Gov. Ben Cayetano as "very, very conservative." Indeed, Hawaii and other states are dinged a point for allowing union shops while right-to-work states are embraced as business-friendly.

Comparisons to past ratings also are questionable, especially in the category of workers comp premiums, where Hawaii made its biggest gain from previous indexes issued by the committee. Two years ago, Hawaii's premiums were ranked at third-costliest among states and the District of Columbia. In the 2007 index, Hawaii improved to 13th-costliest in workers comp, a significant improvement.

Or is it? In the 2005 index, the ranking by cost of workers comp premiums was based on a summary compiled by Oregon's Department of Consumer & Business Services, based on 2004 data. Hawaii's improved ranking this year is based on a survey released three months ago by the National Academy of Social Insurance -- based on data about workers comp benefits for 2004.

The small-business group's report does not explain why it assessed the cost of premiums in its 2005 rankings and benefits this year -- both based on 2004 data. (The change vaulted the District Columbia from ninth-most-expensive in 2005 to the cheapest in this year's rankings.)

That is not to imply that island businesses' cost of workers comp has remained stagnant. The Hawaii Department of Labor and Industrial Relations reported that the Oregon agency's survey a year ago showed that the cost of Hawaii premiums had fallen from third-highest to 15th-highest -- dropping from an average of $5.36 for every $100 of payroll for workers comp in 2003 to $4.49 for every $100 of payroll.

Hawaii's insurance commissioner agreed last month to allow a further reduction of 19.3 percent in the cost of workers comp. Although insurance companies are not required to reduce premiums, their trade organization had suggested a 16.8 percent reduction.

Small companies are not discouraged by the state's business-unfriendly reputation. The Small Business Administration's Hawaii District last year guaranteed more than $54.5 million in loans during the 2007 fiscal year -- a 35 percent increase over the previous year.

The ranking of Hawaii's business climate is not likely to soar to the top, as it will continue to be at or near the most expensive in important areas. The centrist Milken Institute in Los Angeles has entrenched Hawaii as the most expensive state to do business over the past three years, with the nation's highest taxes, electricity costs and industrial space costs.