Like most of the country, Washington is facing economic tough times. And we can expect the current downturn to strike deeper and last longer here than in most other states. That’s because Washington has one of the most unfriendly business climates in the nation. Each year 22 percent of our businesses fail. Small businesses are especially vulnerable to bad economic conditions. In a time when every penny can mean the difference between making payroll and filing for bankruptcy, elected officials must assess honestly how their policies may be hindering small businesses.

Small businesses provide the economic backbone of our communities. Their owners are not in far-off cities or exclusive gated enclaves. They live down the street, in our own neighborhoods and towns. The more than 200,000 small firms in Washington make up over 95 percent of all businesses in the state and provide nearly 60 percent of private sector jobs.

Washington Policy Center is working to identify the obstacles that stand in the way of small business success. We recently completed a statewide survey and held roundtable discussions in 14 cities to find out from business owners themselves the toughest challenges they face. Our new study, “The Small Business Climate in Washington State,” reports our findings. Small business owners identified three structural problems that must be corrected before we can improve the business climate. They are:

l Regulatory uncertainty: State administrative rules exceed 34,000 pages and stack up over five feet high. Every business owner is required to locate, understand and fully implement every section that applies to his or her business. A small business owner in Cle Elum said, “My biggest problem with all the rules and regulations is knowing if you are in compliance or not.” The cost is staggering. Federal regulations alone cost nearly $7,000 per employee per year. Most of the cost is passed on to consumers in the form of higher prices.

l Government accountability: Small business owners expressed strong doubt about state agencies faithfully following the intent of the legislature. They cited the state’s harsh new ergonomics regulations, Growth Management restrictions and the Sound Transit light rail plan as examples of how they feel government agencies vastly exceed their legal authority. One small business owner in Vancouver said, “The number one issue is the increased number of rules that are written without legislative oversight!”

l Anti-business climate: Small business owners pointed to the anti-business attitude of many agency employees as a significant cause of the state’s poor business climate. They said government managers often seem to treat small businesses more like an enemy than an ally. Most business owners said they want to comply with regulations and laws, but navigating the sea of official red tape is nearly impossible. A nursery owner in Wenatchee told us, “Washington has become one of, if not the most unfriendly towards farmers and small business in the U.S.” When businesses owners do ask for help, they sometimes end up with an audit or a fine instead.

Overall, we found there is a lack of trust between small businesses and government, built up by years of adversarial interaction. “The government makes more money from my business than I do,” observed one small business owner in Kennewick. The state-imposed barriers to business success have grown substantially, squeezing many smaller firms, particularly minority businesses, out of the market. We also found the high tax and regulatory burden is contributing to a growing underground economy.

On a positive note, there is a broad sense of optimism among small business owners. Despite many confusing and costly government regulations, many entrepreneurs we spoke with still expressed hope in their ability to succeed. The pride and determination of small business owners is admirable. So isn’t it time our government leaders thought about making it easier, instead of harder, to start and maintain a successful business in Washington?

Montague is a policy analyst with the non-profit Washington Policy Center.