2007 Fall Business Climate Survey Analysis

Bear Season

PA business climate worsens

By nearly a nine to one margin (42%-5%) Pennsylvania employers say the state’s economy got worse during the past six months. Looking ahead, 39% expect business conditions to continue to deteriorate; while 8% expect business conditions will improve. Results of the Lincoln Institute’s Fall 2007 Keystone Business Climate Survey also found strong support among the business community for constitutional limits on state government spending as well as support for a comprehensive plan to eliminate property taxes to fund public education.

The poll results continue a long trend of pessimistic attitudes on the status of the state’s economy. While the outlook was marginally brighter than that uncovered in Spring 2007 survey, it remains clear that business owners and top managers continue to lack confidence in Pennsylvania’s business climate. In addition to an overall negative perception of the state economy, employment levels also declined at 28% of the firms polled compared to the 19% that increased their number of employees. Fifty percent of the companies said employment levels remained about the same over the past six months.

These numbers reveal a more volatile labor market than that reported in the spring survey. In the spring, 59% of the companies reported hiring had remained stable during the preceding six months. The fall survey found more firms had increased the number of people they employ (15% in the spring, 20% in the fall), but also more had cut their workforce (23% in the spring, 28% in the fall.) More stability is predicted over the coming six moths as 67% of the firms expect employment levels to remain about the same, 15% expect to increase the number of people they employ and 18% expect to decrease their workforces.

More companies reported declining sales in the Fall 2007 Keystone Business Climate Survey than did in the Spring poll. Thirty-five percent reported decreased sales, up from 31% in the Spring. Twenty-Nine percent said sales at their company had increased over the preceding six month period, down by just 1% from the spring. Looking ahead, 39% expect sales to remain stable during the upcoming six month time frame, 32% expect sales to increase and 23% forecast declining sales.

Tax Issues

For years business owners and managers have cited taxes as one of the top factors driving their negative views of Pennsylvania’s business climate. Real estate or property taxes are usually cited as the most unfair of taxes. Against that backdrop the business leaders surveyed voiced strong support for property tax reform. Specifically, they were asked if they would favor or oppose a property tax reform measure that would eliminate all school district property taxes and replace the revenue by applying the state sales tax to a broader range of goods and services. Sixty-five percent support such property tax reform with 33% strongly in favor and 32% somewhat in favor. Thirty-three percent expressed their opposition to such a plan.

Spending, particularly over-spending, is seen as the factor causing taxation to be an excessive burden. Eighty-Four percent said they would support a constitutional amendment limiting state spending growth to the rate of inflation plus population growth, except in the event of an emergency. Of that number, 55% strong support such a state constitutional amendment, while 29% somewhat agree. A total of 15% are opposed to constitutional spending limits.

Other Issues

Transportation is a major issue affecting Pennsylvania’s business community. The Pennsylvania Turnpike is both a major freight and commuter route. Governor Ed Rendell has proposed selling or leasing the turnpike to a private company to raise revenue to pay for highway and bridge improvements across the Commonwealth. Sixty percent of the survey respondents said they oppose privatizing the turnpike with 36% voicing support for such a move.

The state is also trying to raise more transportation revenue by placing tolls on Interstate 80. Fifty-five percent of the business leaders polled said they oppose tolling I-80 –43% strongly so – while 42% supported tolling the highway.

Pennsylvania’s business leaders also voiced concern over the pace of legislative reforms in Harrisburg. Reform was touted as a major issue when the current session of the General Assembly convened in January. But 47% of the respondents said they are dissatisfied with the pace of reform compared to the 27% who said they are satisfied. A quarter of the respondents refused to answer the question.

As reported in the Spring Keystone Business Climate Survey, the recent increases in the state minimum wage are causing businesses to curtail their hiring of unskilled workers. Twenty-one percent said they have responded to the minimum wage hike by not hiring teenaged or unskilled workers. Fifteen percent said they are not hiring new employees; 7% have cancelled or postponed expansion plans; 5% have had to lay-off employees, and 2% have been forced to cut their hours of operations.

An issue affecting the business community now before the U.S. Congress involves a move by labor unions to eliminate secret ballots (and make each employee’s vote public) in instances where employees are voting to unionize. This so-called “card check” measure drew the most intense response from the business community in the survey as 74% stated their opposition – 66% said they are strongly opposed to such a change.

Job Approval Ratings

Governor Ed Rendell continues to be the most unpopular statewide elected officials within the ranks of Pennsylvania’s business community. Seventy-one percent hold a negative view of his job performance while 21% approve of the job he is doing. Disapproval of the job being done by U.S. Senator Robert P. Casey, Jr. increased from the Spring survey which was conducted shortly after he took office. Fifty-five percent hold a negative view of Senator Casey’s job performance compared to the 15% who hold a positive opinion of him. U.S. Senator Arlen Specter’s rating improved significantly from the Spring survey. His negative rating fell from 59% in the Spring to 50% in the Fall poll. Senator Specter’s positive job approval rating increased from 26% in the Spring to 34% in the Fall survey.

Mirroring national trends, President George W. Bush – who had a one time received the highest job approval ratings in the Keystone Business Climate Survey – has seen his numbers fall to a record low.  Identical numbers of 43% approve, and 43% disapprove of his job performance. Federal Reserve Board Chairman Ben Bernake also has seen his job approval rating fall. He dropped from a 47% positive job approval rating in the Spring survey to a 43% positive rating in the fall poll. The Fed head’s disapproval rating climbed from 10% in the spring to 12% in the Fall.

Both the Federal and the state legislative branches continue to be held in low esteem by the Pennsylvania business community. Sixty-five percent disapprove of the job being done by the Pennsylvania House of Representatives compared to 19% who approve; 62% say the state Senate is doing a bad job while 19% give senators a positive review. Those numbers look glowing compared to business views of Congress. Eighty percent disapprove of the job performance of the Nancy Pelosi-lead U.S. House of Representatives while 10% approve. Seventy-six percent are disappointed with the job being done by the U.S. Senate with 12% expressing their approval.

Methodology

The Lincoln Institute’s Fall 2007 Keystone Business Climate Survey was conduced electronically from September 21, 2007 through October 12, 2007. A total of 146 Pennsylvania business leaders, 58% of whom are business owners, 21% a CEO/COO/CFO, and 12% local managers completed the poll.