“When we talk to our members, the regulatory environment usually rises to the top of their list of concerns,” said J.D. Chesloff, executive director of the Massachusetts Business Roundtable (MBR), which represents the Commonwealth’s largest employers. “They often refer to it as ‘the cost of doing government.’”
The same sentiment is echoed by many of the small and medium-sized companies doing business here, according to Chris Geehern, executive vice president for marketing at Associated Industries of Massachusetts (AIM). “The administrative burdens of both state and federal business regulations are substantial, and the financial load falls disproportionately on smaller companies,” he said.
There are signs that those business voices are now being heard, at least on the state level.
A comprehensive review of all executive branch regulations, initiated by the Baker administration last spring, will be formally completed by the end of March, said Administration & Finance Undersecretary Rachel Madden. The goal is to make Massachusetts a more efficient and competitive place to live and work and to drive economic growth.
“We are nine months into the official review and our various Secretariats have held more than 120 listening sessions across the Commonwealth,” said Madden. “While each regulation will be formally reviewed by March 31, 2016, we look forward to continuing the conversation about state regulations with businesses, local officials and individuals in the months and years to come.
“Reviewing state regulations is something we believe should be done on an ongoing basis,” she added.
Chesloff said national surveys conducted by publications such as CEO and CFO magazines consistently rate Massachusetts very low on the basis of regulation and taxation.
“Businesses today operate in a global economy, where companies have opportunities to expand in other states or other countries,” Chesloff added. “That is why it is so refreshing to see the Commonwealth’s business and political leaderships coming together and agreeing that Massachusetts needs a tax and regulatory environment that is competitive in order to ensure a stable local economy that can grow jobs and promote prosperity for all.”
Seeking ‘Smart Partnerships’
MBR and AIM both have been encouraging regulators and employers to adopt “smart partnerships” to ensure that government-business interactions solve problems instead of propping up bureaucracies.
“The regulatory environment can be complex and confusing,” noted Chesloff. “Our position is not anti-regulation, but rather one that seeks to address our members’ desire for an even, consistent, predictable regulatory environment.”
From the perspective of MBR’s larger employers, the two biggest regulatory concerns in Massachusetts revolve around revenue taxation and the environment.
The regulations surrounding combined revenue reporting, as promulgated by state law in 2008, are a concern, said Chesloff. In particular, there is some confusion around what businesses feel is a broader interpretation of the “water’s edge” tax implications than what may have been intended by the legislation. The water’s edge provision excludes the income multinational companies book to foreign affiliates when calculating their taxable income. Many businesses feel that the methods regulators use to determine the portion of income that can be excluded under the water’s edge provision aren’t always consistent with the original spirit of the legislation.
Many firms have the same concern in the environmental arena, feeling that regulations are more stringent than lawmakers intended when they were conceived. AIM, for example, on behalf of its base of small- to medium-sized businesses, has spoken out against a state proposal to regulate carbon emissions because it would likely increase what are already some of the highest costs in the nation for electricity and heating fuels.
Among the Commonwealth’s financial institutions, the greater concern is with federal regulations, especially those imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created an additional regulatory infrastructure to oversee the already highly regulated financial industry.
AIM’s smaller-business members have their own regulatory concerns, according to Geehern.
One is the earned sick time law that came into effect last July. The new law affects businesses differently depending on their number of employees, but a common regulatory obligation is that employers file periodic reports that document their compliance with the law, which mandates that companies establish sick time policies.
“The issues for many of our smaller members revolve around the complexities of the regulations and the additional costs associated with completing all the paperwork to document compliance. The administrative burdens are substantial,” said Geehern.
The provisions of the federal Affordable Care Act are no less complex and no less burdensome.
“There are multiple ways an employer might run afoul of this law and face substantial penalties,” said Geehern. Those penalties also extend to non-compliance with the reporting requirements of the law, which, like the Commonwealth’s earned sick time regulations, places additional administrative burdens on businesses.
New federal rules on overtime are also a concern. Changes to overtime regulations would expand the number of workers that are eligible for overtime compensation. The Department of Labor will announce the specifics of the new rules this coming July. When the regulations will go into effect is unknown, but “the potential effects on employers – especially in the retail sector – could be huge,” said Geehern.
On the positive side, just last month, President Obama signed an omnibus tax and spending package in which certain business taxes were delayed. Among them were taxes on medical devices and so-called “Cadillac” health care plans, both provisions of the Affordable Care Act. Whether these provisions will eventually be repealed is an open question, but for the short term, the delays should be helpful to many Massachusetts employers.
The medical device industry is a significant part of the Massachusetts economy. Analysts are concerned that additional taxation could slow down the industry and threaten its competitiveness across the global stage.
Delay of the mandated tax on high-benefit health care plans will be helpful to many companies because the cost of health care in Massachusetts is significantly higher than in most other states.
“We believe the Cadillac health care tax would be especially punitive for Massachusetts companies,” said Geehern.
Intensive national lobbying efforts to repeal both of these provisions of the Affordable Care Act are ongoing.