Hawai'i continues to retain its reputation as being unfriendly to small businesses with the release of a report that ranked the state's business climate as the seventh worst in the nation.

The Small Business & Entrepreneurship Council released its annual "Small Business Survival Index" yesterday and placed Hawai'i 44th on the list. The Washington, D.C.-based council is a nonprofit small-business advocacy group that ranks states according to taxes, regulations, spending and other governmental policies that affect small businesses.

Although Hawai'i was still in the bottom tier of the ranking, the state did improve from the previous two years. Last year the council ranked Hawai'i 46, while the state was ranked second worst among the 50 states in 2004.

The council did not explain why Hawai'i was ranked so low, but it said the index was based on 29 government-imposed or government-related costs that affect small businesses and entrepreneurs.

Local small-business advocates and owners had mixed reactions to the newest ranking.

Tim Lyons, executive vice president of the Hawai'i Business League, said the state no longer should be in the bottom 10, as government has taken steps to help small businesses.

"There have been numerous examples over the last few years of government getting more business friendly," Lyons said.

Lyons said the state government seems to be reaching out to small businesses more than it has in previous years. He said a recent example was a call he got from the Department of Taxation, which asked him if small businesses wanted the new general excise tax rules explained.

"Granted they weren't asking me to change the law, but rules can oftentimes be far more complicated and difficult to work with than even the law itself," he said. "I don't think I ever had the Department of Taxation under any administration come to me before they published rules and say, 'What do you think?' I think that was very refreshing."

State Sen. Sam Slom, president of Small Business Hawai'i, agreed that the business climate has improved over the past few years, but said the state has a long way to go before it is considered a business-friendly place.

Slom said small-business owners here face a high tax burden, costly mandated benefits and "hostile regulations," such as the new smoking law that takes affect Nov. 16.

"We send mixed signals to local businesses and certainly to outside businesses and investors," Slom said. "Gov. (Linda) Lingle four years ago when she was first elected said the 'Open for Business' sign is on. Well, it's on, but unfortunately businesses are still taxed and regulated and mandated at higher levels than they are in most other areas."

Cliff Garcia, owner of Tropical Lamp & Shade Co. on Queen Street, said the low ranking is an accurate reflection of the government's attitude toward small businesses. Garcia is one of 25 business owners on a two-block stretch of Queen Street who will be hit with nearly $3 million in assessments when the state widens that portion of the street next year.

Garcia's share is $90,000.

"We don't feel that we should be charged for these assessments, because it will benefit the general public," Garcia said. "It's all for the big developers and (the state is) hitting all of the small-business people and trying to get us out of here. The old-time businesses can't afford to exist."

This is the 11th year that the Small Business & Entrepreneurship Council has put together the ranking. Holding the top spot for the third straight year was South Dakota, followed this year by Nevada, Wyoming, Alabama and Washington. Listed below Hawai'i were New York, Minnesota, Maine, Rhode Island, California and New Jersey.

Reach Curtis Lum at culum@honoluluadvertiser.com.