Forbes ranks state as no buddy to businesses

Forbes magazine's first-ever list of Best States for Business, released Wednesday, leaves one nagging question: Where would Pennsylvania have ranked without the Lehigh Valley?

Pennsylvania placed 41st, one notch behind Alabama, in the magazine's list of business-friendly states. The state performed poorly in most of the six categories studied by Forbes, which included economic climate, business costs and quality of life. Virginia, with top 10 finishes in each category, ranked first.

The magazine, which has ranked business-friendly metro areas for eight years, said its state list looks at many of the same measures, from cost of living and crime rates to job growth and population trends. The new list also gauges statewide measures such as business tax incentives. The categories are given different weights in calculating the overall ranking.

Forbes relied on help from several economic and real-estate research groups, including Moody's Economy.com of West Chester, Chester County.

Pennsylvania's lackluster ranking may reflect economic and population trends statewide -- although the state Department of Community and Economic Development disagrees.

"We definitely don't think it's accurate or that it represents how well the state is doing," department spokesman Neil Weaver said Wednesday.

Without question, Forbes' ranking does not reflect the growth of the Valley. Over the past five years, this region has added jobs at six times the rate of the entire state, posted some of the Valley's biggest one-year population booms ever and amassed a growing list of economic development wins involving major companies.

When a large, diverse state gets shoehorned into a one-size-fits-all ranking formula, the stronger areas sometimes wash out, local officials said.

"I would submit that Pennsylvania is actually many different regions, with different education levels, different growth rates and different attractiveness as far as creating new jobs," said Bob Wendt, director of research at Lehigh Valley Economic Development Corp.

By Forbes' reckoning, Pennsylvania ranked in the bottom one-third of all states in three of the six main categories -- business costs, labor and growth prospects. It narrowly escaped the bottom third in regulatory environment and economic climate.

Each of those categories is made up of several contributing factors. For example, Forbes' business-costs ranking measures cost of labor, energy and taxes, while its labor ranking includes statewide educational attainment and projected population growth.

Marta Gabriel, chief operating officer of the Greater Lehigh Valley Chamber of Commerce, said Pennsylvania's corporate tax structure is "definitely a concern" among local businesses and a likely contributor to the state's low ranking.

According to the state Department of Revenue, Pennsylvania's corporate net income tax of 9.99 percent is the second-highest in the country and the highest among surrounding states. Gov. Ed Rendell and Republican challenger Lynn Swann have both announced plans to cut that tax if elected.

"We're disappointed in the ranking, but we're probably not surprised," Gabriel said.

Quality of life was the only category in which Pennsylvania shone, ranking No. 12. That area included ratings for schools, health, crime, cost of living and poverty rates, according to the magazine.

Lower Macungie and Forks townships rank as the two fastest-growing municipalities in the state since 2000. Allentown and Bethlehem were the only two of Pennsylvania's 10 largest cities to add residents between 2000 and last year. And Lehigh and Northampton counties gained about 9,300 residents last year, or about 25 people a day, according to the U.S. Census Bureau. All those people need places to work.

The Valley lost iconic Bethlehem Steel Corp. to a takeover in 2003. But this area remains home to two Fortune 500 companies, Air Products and Chemicals of Trexlertown and PPL Corp. of Allentown. The Valley boasts more Fortune 500 companies than 16 states, including 10 that beat it on Forbes' list.

Also, a growing number of companies are moving to the Valley or expanding here. Most cite the region's quality of life, affordability, strong labor force and state and local tax incentives -- some of the same areas given low ratings in the Forbes survey.

A few examples of local growth:

Olympus America moved its headquarters and more than 500 jobs from Long Island to Upper Saucon this year. The company, the North American subsidiary of Japanese imaging giant Olympus, may bring an additional 100 or so jobs if it builds a warehouse in this area.

Business information company D&B Corp. chose to keep 750 employees in the Valley earlier this year, instead of moving them to its home state of New Jersey. Those workers will move from Bethlehem's Martin Tower to a new office building in Upper Saucon.

Light-control company Lutron Electronics Co., headquartered in Upper Saucon, said this month it will add 500 employees here over the next five years.

The region's work force reached 348,000 jobs in June, another in a series of record highs, according to the state Department of Labor.

"It's safe to say that the Lehigh Valley's economic performance is significantly above the average for the state of Pennsylvania," said Wendt, the former chief economist at Bethlehem Steel.

If it's any consolation to the Valley, companies are not likely to use the Forbes list as a guide for growth. Every business does its own market research and bases decisions on its own needs, officials said.

"I don't think there's a company you would want to have here that bases their decisions on a magazine article," Wendt said.