Doing Business On The Cheap

Costs vary widely among U.S. cities

Local governments often try to lure companies with boasts of low taxes, inexpensive energy, cheap labor, or some other advantage. Which ones are really most--and least--attractive when all these factors are tossed into the hopper?

Regional Financial Associates Inc. (RFA) forecasters in West Chester, Pa., have come up with an improved index that tracks relative costs of doing business in American cities. The most important ingredient in the mix is unit labor costs, which make up two-thirds of the index. The remaining one-third comes more or less equally from energy costs, office rents, and state and local taxes.

The most-expensive list contains the usual suspects: Top ranking goes to New York--40% pricier than the national average. Also high in cost are Honolulu, San Francisco, and Washington. These four averaged only 0.3% job growth in the past year.

Less predictable are the 10 cheapest metro areas (table). New Orleans and Syracuse, N.Y., benefit from low labor costs. Boise, Idaho, and Spokane, Wash., have cheap power. Provo, Utah, offers office rents half the national average.

But as RFA notes, "low business costs do not guarantee exceptional economic growth." For example, cheap labor in Buffalo has not helped attract enough factory jobs to replace the ones that were lost. And New Orleans has still not recovered from the shakeout in the energy industry, despite its very low business costs.

Low taxes alone don't assure growth. St. Louis has a state and local tax burden 44% below average. But this does not offset consolidation in defense and health care, two big local industries.

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