For decades, NH was a state with high in-migration, a high percentage of high-tech workers, low unemployment, relatively low housing prices and high private sector job growth. These enviable qualities helped us recover from previous recessions faster and in better shape than other states. But, oh, how times have changed.
The Great Recession was unlike previous recessions and this time NH is struggling to recover like never before-and doing a worse job than other states. Whether the public and private sectors can work together to address this new reality head on will determine if NH's economy will move forward or sputter in this weak recovery.
That was the crux of a lively discussion in September when Business NH Magazine gathered seven economic and policy experts to discuss the state of NH's economy and what should be done to stimulate growth.
While there was disagreement about the impact of housing (whether it was a leading indicator of economic woes or a secondary one following jobs), participants agree the lack of incentive to recruit new businesses from other states, aging infrastructure and a changing demographic all challenge the state's economy moving forward.
Where We Stand
Between 1992 and 2002, private sector job growth in NH neared 30 percent. Between 2003 and 2011, private sector job growth was less than 1 percent, dropping NH from the top of the pack nationally to the middle, according to research by Brian Gottlob of PolEcon Research in Dover.
And while NH ranked seventh nationally for lowest unemployment with a rate of 5.7 percent in August, that was actually a slight increase0.2 percentage pointsfrom August 2011. By comparison, the national unemployment rate fell during that same period to 8.1 percent.
Roundtable participants say the types of jobs in NH are also changing. The top manufacturing employers each used to employ thousands of people. All except BAE Systems in Nashua now employ 1,000 or fewer while Walmart and Market Basket keep growing and are two of the three overall top employers with 8,000 and 9,000 employees respectively.
New Hampshire has lost the highest proportion of manufacturing jobs to China than any other state, roughly one in five jobs, says Russell Thibeault, owner of Applied Economic Research in Laconia. Between July 2011 and July 2012, NH lost 1,200 manufacturing jobs. New Hampshire had a competitive advantage, but that competitive advantage has shifted toward other states, such as North Carolina and Texas, and to other countries. Digital used to be the largest employer in New Hampshire, now it's Walmart. I think the perception of this is really lagging from reality, Thibeault says.
Other indicators are also troubling. Between 1990 and 2009, the percentage of 20- to 29-year-olds in NH decreased from 16.4 percent of the population to 13.8 percent and the percentage of 30- to 39-year-olds dropped from 18.3 percent to 13 percent.The workforce challenges presented by that demographic shift are further exacerbated by reduced in-migration, a historical source of high-skilled workers. We got so dependent on in-migration that we didn't invest in our own, says Ross Gittell, forecast manager for the New England Economic Partnership and chancellor of the Community College System of NH, of the underfunding of education. In fact, NH has seen net out-migration for the first time in 20 years, according to the NH Center for Public Policy Studies.
All those factors are adding up to a grim future. Compared to previous recessions, New Hampshire is not coming out of this stronger. We're lagging the national average and in fact we're lagging other New England states, Gittell says. This is different than our past, which has people concerned as to why that is the case.
What is the NH Advantage?
The NH Advantage traditionally refers primarily to our lack of an income or sales tax, but also to high ratings for quality of life and less government regulation. The question is, are these factors still true and will they help NH's economy grow?
Neil Niman, who chairs the economics department at the University of NH's Whittemore School of Business and Economics in Durham, is skeptical. I think to a certain extent our tax policies have affected where we are at now, Niman says, noting that when real estate started getting expensive elsewhere, people moved to NH to get a good deal, even with relatively high property taxes. But as prices rose in NH, those good deals evaporated. At the same time, young workers found rents high, pushing them to seek employment in other states.
Once it reaches a point where it's barely affordable for the people who work for these companies in this state to live here because they can't afford the taxes, it becomes problematic. Now there are companies sitting here going, I can't find qualified people to work for me and I can't afford to pay the salaries to recruit them, so maybe I should think about moving out of state, Niman says. In that sense, I think we've reached a point where our current tax structure is creating significant problems for business.
That assessment didn't sit right with Steve Norton, executive director of the NH Center for Public Policy Studies in Concord. I've been hearing these arguments for 20 years and [they] never rung true for me, he says. Norton's organization has been working on an index to measure NH's strengths and Norton has been surprised by the results. We do really well with these things that we think we're doing poorly, he says, giving examples of new entrepreneurial starts and patents. We get killed on costs, just killed.Those include the cost of electricity (42nd for low energy costs in the nation), higher health care costs and the housing price-to-income ratio (which is among the highest 20 percent nationally).
Norton says this data is concerning, but panicking would likely lead legislators toward higher business taxes and other policies that would only make things worse, and not address the core issues of why costs are high. New Hampshire has relatively high corporate tax rates, but a comparatively low tax burden. It's costs that present the big challenges, Norton says.
Gittell finds Norton's analysis simplistic. To compete in a global marketplace and attract global companies to NH, the state needs people with specific skills, namely STEM degrees (Science, Technology, Engineering and Math) and Gittell says those numbers are low despite the state's overall high education attainment.
Then there's the state's overlooked advantage. Charlie Arlinghaus, president of the Josiah Bartlett Center for Public Policy, says people considering moving to NH ask economic development professionals about taxes first. Hidden in that discussion is something we don't talk about a lot, Arlinghaus says.One of our advantages is a degree of certainty about New Hampshire. One of the things people like, if you're a business, you really don't think you'll wake up tomorrow and that something weird will happen some random shift in the way we do business. When Democrats took over in 2006, about as dramatic a change as you could have, Arlinghaus says the policy shifts were still not that dramatic.
But is stability always good? We've become increasingly reliant, based on our lack of flexibility, on the Business Profits Tax and Business Enterprise Tax, so we are discouraging companies from investing and earning profits and gaining employees, Gittell says. We have this stability but at what point do you say what costs are we paying for this stability?'
Housing and Jobs
While both jobs and housing are critical to NH's economic development, experts did not agree on which has the biggest influence on the state's economy moving forward.
Gittell says the demographic shift is related to housing problems, as people who can't sell the house they are in can't move to NH, even if they want to. Usually the housing market leads the recovery, but now it's lagging, he says. So New Hampshire, because of that, has a demographic stagnation.
That may be the case, but Thibeault of Applied Economic Research says the bigger problem is jobs, not housing. I think housing is not a leading indicator, but a following indicator right now. For once conventional wisdom has some merit that it's all about jobs. We lag in terms of job growth and job quality. It's a double whammy, Thibeault says.
Michael Tasto, head of the economics department at Southern NH University in Manchester, says NH is faring better than the rest of the country when it comes to housing. As our housing market recovers, I'm curious if that perhaps may be our leap ahead, he says.
Past housing trends, though, could hinder future economic growth, says Lisa Shapiro, chief economist at Gallagher, Callahan and Gartrell in Concord. She says there are people who may not be able to move to NH now because they are locked in a house they can't sell, and NH didn't build the housing people needed when it could. We panicked. We built 55-plus housing because no one wanted affordable housing and nobody developed downtowns, Shapiro says. Nobody built housing workers could afford.
And depending on the kinds of jobs NH produces, recruiting people is more challenging. I don't think we'll attract people to move here for middle skill jobs, Shapiro says. Between July of 2011 and 2012, the state gained 1,500 jobs in the hospitality field, but lost 3,800 in education and health and 200 in professional and business services.
Making the Case for NH
Roundtable participants say the state and local businesses need to make a better case for NH as a business destination-including looking at how the state operates.
New Hampshire has not traditionally offered tax incentives to recruit businesses, but instead relies on its high quality of life and access to a skilled labor force as driver. Tasto of Southern NH University says it's time for targeted incentives. Thibeault points out that other states like North Carolina have done this effectively. Thibeault also suggests state leaders look to Pease Tradeport in Portsmouth as a model and identify large tracts of land, like areas near Manchester-Boston Regional Airport, that could become business parks.
Such developments could help address a problem Gittell raises: Businesses want to co-locate manufacturing and engineering facilities nearby to better translate research into product and profits.
Where NH is particularly challenged-the state of road and bridge infrastructure-Norton questions where the political will or money will come from to make big investments. This need is particularly noticeable in Berlin, he says, pointing to a lack of broadband and worse, housing that no one wants to live in.
Arlinghaus says NH would be better off lowering business taxes than looking for ways to invest millions in infrastructure. And while NH was known for its ease of doing business, he says there is a perception on the part of businesses that the state regulations are getting more complicated and burdensome.
Looking ahead, participants see the economy improving, though at a much slower rate than NH is used to, and say the state must adjust to this new economic reality. I think the economy is going to turn around, Arlinghaus says. Most of these economic indicators are coming back, jobs is not one of them, but it will be. It will just be slow. This worries Norton, who says after years of declining productivity, NH needs a big turn around. Demographics are working to our disadvantage here, he says.