Studies on the ease of doing business are fairly common and have largely focused on the regulatory environment at the state or federal level—and have even ranked countries against each other internationally. These studies are typically broad in terms of what they consider when determining how business-friendly a state or country is, sometimes even evaluating factors over which policymakers have little immediate control, such as available talent pools or larger economic trends. Also, recommendations for reform are often absent from the analysis, leaving officials in the dark on how to practically address any shortcomings the report reveals.
Nonetheless, these studies are critical in that they allow leaders at all levels of government—federal, state, and municipal—to better understand how their jurisdiction’s regulatory landscape compares to its peers. This report seeks to contribute to existing research by narrowing in on regulations at the local level that make it costly, time-consuming, and complicated to start a business.
In preparing the research for this report, we reviewed several foundational studies on business friendliness to ensure that our research is complementary rather than duplicative, and we build on that prior work to provide crucial information that city officials need in order to reform their local regulations. Here, we highlight three prior studies.
Arizona State University’s Center for the Study of Economic Liberty’s annual Doing Business North America study measures a large sample of 130 cities in the United States, Canada, and Mexico based on six broad criteria: business start-up rules, employment laws, the cost of getting electricity, taxes, land and space use, and insolvency resolution. These criteria produce comparable statistics, allowing the report’s authors to rank each city against the others on a scale of business friendliness. 1
The report’s ranking system allows officials to easily see how their city stacks up to its peers. It also includes analysis of different kinds of regulations—not just those related to starting a business—so that officials understand their city’s friendliness score in a broader context.
The Thumbtack Annual Small Business Friendliness Survey measures entrepreneur attitudes on a number of issues, including government websites, licensing requirements, and training programs. Based on entrepreneur opinions, each city surveyed receives a grade from “F” to “A+” on each topic, shedding light on entrepreneurs’ perspectives concerning various aspects of a city’s small-business environment. 2
City officials can use the Thumbtack report to understand how entrepreneurs perceive their cities’ business friendliness—as well as how those sentiments compare to attitudes in other cities.
The Kauffman Foundation’s 2017 Index of Startup Activity: Metropolitan Area and City Trends analyzes a city’s measurable outputs, like how many new startups are being created, and assigns cities an objective composite score derived from raw data. The analysis provides an insightful look at how cities are performing based on the numbers. 3
For officials, this kind of data-driven approach is key to not only understanding overall trends on how their city fares on certain key metrics, but also in terms of making comparisons between cities based on quantitative analysis of important data.
This study benefits from these pivotal studies and contributes a novel way to assess cities’ business friendliness. We home in on regulations and processes at the city level, review city codes and agency practices, and share the experiences of entrepreneurs like Sara, in order to provide policymakers with focused recommendations for reform. This study:
Combines objective criteria to measure regulatory burdens with entrepreneurs’ personal experiences.
This report captures the complexity of regulatory requirements by looking at objective criteria such as the number of license categories in a given city, the number and magnitude of various license and permitting fees, and the user-friendliness of cities’ websites. It also shares entrepreneurs’ personal experiences navigating these regulatory mazes and highlights notable roadblocks such as requirements that target specific kinds of entrepreneurs or unclear communication from city officials.
Analyzes specific regulations for five common business types to understand in what ways rules create burdens for entrepreneurs—and how those burdens add up.
Different business types often trigger different regulatory requirements, and regulations that apply to all businesses in a city may disparately impact certain entrepreneurs. While our five hypothetical businesses do not capture all of the regulatory variation in each city, they highlight how a diverse group of businesses may experience regulatory burdens.
Provides in-depth analysis of each studied city’s business start-up regulations, as well as customized reform recommendations that city officials can implement right away.
While ranking cities can be helpful, it does at times require simplifying the criteria measured in each city so that the results can be standardized and easily compared. Because we avoid ranking the 20 cities studied in this report, we are able to include different kinds of regulatory burdens in our analysis to capture more deeply what it is like to start a business in each city. Our approach also allows us to highlight strengths and explore areas of improvement in each city, instead of suggesting that any one city is consistently better or worse across every policy.
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