Is Cheyenne Really Good for Small Businesses?

by Wyoming Liberty Group Staff

On May 10 Wyoming News Now reported:

According to Verizon, Cheyenne has been voted one of the best places nationwide to start a new business. Ranking in at #6, it is the only state capital to break the top 10.

Sounds good, doesn't it? We all want Cheyenne to be a good place to start a business – in fact, we all want Wyoming as a state to be a good place for entrepreneurs. Other states are eating our lunch, with Utah outgrowing us 14-to-1 and Idaho by 12-to-1. With Idaho currently doing a complete overhaul of its state regulations, we can expect their economy to sustain or even accelerate its growth rate.

Since the Wyoming economy is barely growing at all (0.3 percent last year) it is no wonder our state is losing middle-class families and is having difficulties attracting new businesses.

But what about Cheyenne specifically? Well, let us take a look at the total number of private-sector employees in Cheyenne over the past ten years, courtesy of the Bureau of Labor Statistics (BLS). The numbers are reported in their raw, monthly format, which includes seasonal variations (the "wave pattern"). Two trends emerge:

Figure 1

Source: Bureau of Labor Statistics

Let us keep these numbers in mind while we go back to the Wyoming News Now story about the Verizon small-business study. If it were true that Cheyenne did indeed provide such a favorable environment for small businesses, should we not see that in the BLS data? Yes, we should. So why aren't we?

To answer that question, we go back to the original article, published of course by Verizon, where we find a little bit more information about how they came to rank Cheyenne sixth-best for small businesses.

Except, they didn't. It is not at all the case that Cheyenne is "one of the best places nationwide" for small business start-ups. The actual study says that Cheyenne is one of the best in the category of cities with 50-75,000 residents. That is quite a different story, as it narrows down significantly the competition among which our state's capital has to perform. Somewhere along the line, Wyoming News Now lost sight of that little factoid.

Still, isn't it good to be ranked sixth even in such a narrow category? That depends on exactly how they did the ranking. A closer look at their variables is quite revealing. Here is the first one:

Education: Or, more precisely, higher education. The team analyzed the percentage of the population over 25 years old who have received a bachelor's degree or higher from an accredited university or college.

This is not a criterion for how easy it is to start a small business. It is, in fact, misleading. It suggests that any college degree is better than no college degree, but it does not take a BA to understand that a major in environmental ethics or art history is not quite as marketable as a professional electrician or welder certificate.

Furthermore, vocational careers are becoming increasingly lucrative, especially in comparison to over-indebted college-degree careers. The future of small businesses is increasingly going to offer well-paid careers without the need for student loans; the best advice to give a high-school student today is to first search for a vocational career and consider college only as a secondary option.

To this point: by focusing only on those with a bachelor's degree the Verizon study even excludes the large numbers in our workforce who have associates degrees from our community colleges.

Anyway. Back to the Verizon study and its next variable for assessing Cheyenne as a place for small businesses:

Travel time to work: More specifically, the average total travel time it takes working individuals 16 years and older (who do not work at home) to reach work from their residences every day. This takes into account the time spent carpooling, waiting for public transportation, and navigating traffic.

This is a strange variable to bring in. Cities in the narrow band of 50-75,000 residents usually do not require much travel time. Since Verizon does not give us any numbers or ideas about their quantitative methods, it is impossible to see whether or not this variable made any difference. However, a cursory map review of the cities on their top-ten list suggests that they are quite similar in geographic reach, making this variable irrelevant.

Income per capita: For this particular study, mo' money = mo' problems. To hit the small biz sweet spot, analysts took into account the average cumulative income of residents in each city. That number reflected the city's workforce being paid fairly and labor costs still being manageable for employers.

How did they evaluate if labor costs are "manageable"? How do you compare the cost of operating a plumbing business with a yarn retail shop? And what exactly does "workforce being paid fairly" have to do with the ease with which someone can start a small business? Either you can pay the market wage or better, and attract workers, or you can't pay them what others can pay (or tax-paid welfare pays) and you won't be able to hire and keep employees.

Lastly: who decides what it means to be "paid fairly"? Verizon? Employers? The city government?

Loans per capita: New businesses can rarely get up off the ground without a business loan. It's usually one of the first things checked off a startup's to-do list. With this in mind, how easy is it to get a loan in your city?

Here, we are getting closer to some kind of meaningful variable. For at least the past ten years Wyoming has ranked at the bottom in state comparisons over the supply of venture capital. Is Cheyenne a particularly successful exception? It would be interesting to see the data that Verizon used for this variable. Unfortunately, they don't even explain what data they looked at, let alone what it meant for individual city ranking.

Tax scores: Typically, lower taxes provide a better environment in which to establish a new business. The Tax Foundation's 2019 State Business Tax Climate Index was accessed and the tax-friendliness of each city was determined.

This is probably the worst source available for interstate tax-burden comparisons. I am not going to repeat my criticism of the Tax Foundation's poorly designed index. Let me instead note that Cheyenne is home to less than 12 percent of the private workforce in Wyoming, and responsible for an even smaller share of the state's GDP. Local taxes, fees and charges on businesses vary noticeably across the state, making a state-level comparison a rather bad idea.

In reality, Wyoming has the second-costliest government in the country, both as share of total personal income, and as share of private-sector GDP. Even if it were appropriate to use state-level comparisons to evaluate a city, Wyoming would still score very poorly.

The Verizon study also looked at the number of non-farm businesses and access to broadband. Since no data is released for either category, we cannot – again – get any idea of how they contribute to Cheyenne's ranking. If at all.

Which brings us back to the employment numbers reported in Figure 1. Our state capital has not seen any growth in its private-sector workforce over the past three years. We do have small businesses and aspiring entrepreneurs, all of whom deserve recognition and praise for their efforts. However, in public policy it is not the anecdotes that matter. We look at the longer term and the broader trends.

If Cheyenne were indeed doing well overall in attracting and retaining thriving small businesses, we should see growth in the private-sector workforce. We are not, which leads to one of two conclusions: either our city is not doing the right things to provide a favorable, sustainable business environment, or (probably the more likely conclusion) the Verizon study is pointless.