Is Massachusetts at a Turning Point – 10 Data Points That Give Me Pause
Massachusetts tops the charts in many studies. Best public education system, great quality of life and its highly educated population come to mind. More recently, there have been several statistics that may provide early warnings that the Bay State may be facing some headwinds. Any one of these stats by itself is not cause for alarm. Rather, it is the totality of them that is a red flag for me. The following data points bear watching and indicate the need to adopt new economic growth strategies.
1. The legislature’s languid approach to economic development, as evidenced by the delay in passing an economic development bill, indicates to investors, entrepreneurs and others considering Massachusetts as a business situs that economic vitality is not a top priority.
2. Even if the legislature does pass an economic development plan, it may not be what is necessary to spur growth. The plan doubles down on past strategies targeted to specific industries – such as a $1billion investment in life sciences – while subsidizing the growth in new ones, such as clean energy, but does not reduce costs borne by every business in the commonwealth, such as health care, energy and unemployment insurance.
3. Massachusetts is losing ground relative to other states in its attractiveness to business. In one year, according to CNBC’s ranking of top business states, Massachusetts nosedived from 15 to 38, the biggest drop of any state.
4. The exodus of talent and wealth in 2021 and 2022 as documented by the IRS is likely to continue. In an uptick from last year, two-thirds of certified public accountants surveyed by MassCPAs have at least one client who has already established domicile outside Massachusetts in the last 12 months and many more high-income clients are considering moving from Massachusetts in the next year. This has increased by 8 percentage points in just one calendar year, from 82 percent of individuals surveyed in 2023 to 90 percent this year. A recent Greater Boston Chamber of Commerce survey found that a quarter of 20-30-year-olds are planning to locate elsewhere over the next five years. While these results translate to declining tax revenue, they also mean the loss of many business owners, investors and entrepreneurs.
5. The number of business start-ups in Massachusetts is sluggish relative to other states. According to the US Chamber of Commerce, Massachusetts ranks 47th in terms of new businesses per capita.
6. Of the 25 largest employers in Massachusetts according to the Boston Business Journal, 13 are non-profits in healthcare or higher education. This is problematic for a few reasons. First, these sectors are highly reliant on public funds. Secondly, it indicates that for-profit employers that are sensitive to the cost of business are not thriving here. The TJX Companies, RTX (Raytheon), State Street and Fidelity Investments are the for-profit businesses on the list, and all have benefitted from tax incentives. Rounding out the top 25 are grocery stores, the owner of a professional sports team and utilities – all of which need to be close to their customer base. The next tier includes several pharmaceutical companies that have also benefited from state largesse. This list begs the question – where have all the manufacturers gone?
7. The Massachusetts unemployment rate is creeping upward, though still better than the national average. How will the influx of immigrants impact this number? Will the influx of people meet the job needs of employers or put additional pressure on the state’s social safety net?
8.The latest Associated Industries of Massachusetts Business Confidence Index declined. While still at 51 on a scale of 1 to 100, it is inching towards negative territory.
9. The crown jewels of the Massachusetts economy – healthcare, higher education and biotechnology – are facing headwinds. Healthcare providers are consolidating, causing higher prices and less access. Enrollment in private higher education institutions has declined over the past decade and will likely continue to do so given demographic trends. Public colleges and universities are seeing a small uptick after a decade of decline due primarily to the new program making community college free. The biotechnology sector is undergoing some belt tightening in light of federal price controls as evidence by the slew of recent layoffs, the glut of lab space and the decline in VC investments.
10. The long-term impacts of the income surtax, a/k/a the millionaires tax, have not been realized and could be negative. According to the Annual Comprehensive Financial Report for FY2023, the latest report available, Massachusetts experienced a $2.048 billion decline in year-over-year capital gains tax revenue collections at a time of healthy stock market returns, higher real estate values and growing wealth accumulation. While there was a surge in capital gains tax revenue in FY2024, was it commensurate with the growth in the capital and real estate markets? And do those capital gains tax revenue collections dissipate over the next few years as affected taxpayers react to the change?
