October 13, 2010
When voters in 37 states select their governors next month, the overriding issue will be, of course, the economy.
A recent CBS News poll found that 54% of adults think the economy and jobs are the most important problem the U.S. is facing today. Health care ranked a distant second, with 7% of the tally. Almost every state experienced decreased output, a loss of jobs and budget shortfalls during the economic downturn. Nationwide employment has declined by 7 million jobs over the past two years while gross domestic product growth has been sluggish this year after a 2.6% drop in 2009. No state has emerged unscathed.
But some areas are doing better than others, and for many of them, it isn’t an accident. Who’s doing the best job when it comes to fostering growth? Utah, according to our fifth annual look at the Best States for Business. The Beehive State captured the top spot in our rankings for the first time, after a four-year run by Virginia at the head of the list.
Utah’s economy has expanded 3.5% annually over the past five years, faster than any other state except North Dakota. This is three-and-a-half times faster than the U.S. as a whole. Total employment in the U.S. has shrunk over the past five years, but in Utah it increased 1.5% annually, fourth-best in the nation. Household incomes have surged 5% annually, which is tops in the country and twice as fast as the national average.
“We have a fiscally conservative government where we are trying to keep government off your backs and out of your wallet. We want the free market do what it does best,” says Utah Gov. Gary Herbert, a Republican running for a full term this year after taking over the job in August 2009, when then Gov. Jon Huntsman was appointed U.S. ambassador to China.
Utah lowered its corporate tax rate from 7% to 5% in 2008, to the delight of businesses. The rate is now one of the lowest in the country. The regulatory climate is also pro-business, with the Pacific Research Institute rating Utah second-best in the regulatory component of its U.S. Economic Freedom Index. “We want to make sure we don’t have any nonsensical regulations that inhibit the private sector from expanding and having a profitable bottom line,” says Hebert.
Other factors the state have going for it include energy costs 35% below the national average; an educated labor force, with 90% of residents holding a high school diploma (and 29% a college degree); a great quality of life with low poverty rates; a healthy populous; and ample recreational opportunities. Utah boasts a triple-A debt rating from Moody’s, S&P and Fitch. Earlier this year Forbes crowned Utah the country’s most fiscally fit state government.
Companies across the country are taking notice. Goldman Sachs keeps expanding its operations in Utah, and its Salt Lake City office is now the company’s second-largest in North America. Adobe announced plans in August to build a new campus in Utah that will create 1,000 new jobs there, building on its $1.8 billion purchase of Orem-based Web analytic firm Omniture last year. Oracle and eBay are both building massive data centers outside Salt Lake City.
Our Best States ranking measures six vital categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We factor in 33 points of data to determine the ranks in the six main areas. Business costs, which include labor, energy and taxes, are weighted the most heavily. We relied on 10 data sources, with research firm Moody’s Economy.com as the most-utilized resource.
Our former No. 1-ranked state, Virginia, falls to No. 2 this year. Virginia still boasts a very favorable business climate, with an educated labor supply and solid economic growth. But Virginia’s business costs (namely labor and energy) have crept up, which allowed Utah to leapfrog it. Rounding out the top five are No. 3 North Carolina, No. 4 Colorado and fifth-ranked Washington.
The Northeast isn’t dead yet, judging by our rankings, despite high business costs and crippling budget deficits. New York, New Jersey and Massachusetts all rank among the priciest states when it comes to labor, taxes and energy costs. Yet each state moved up the rankings this year, thanks to improving current economic climates and growth prospects relative to the rest of the country, compared with last year.
Massachusetts made the biggest move of any state this year, climbing from No. 34 to No. 16. Business costs in the Bay State are highest in the country: 22% above the national average. But venture capital continues to pour into the state, looking to take advantage of the bright minds at elite universities in and around Boston and Cambridge. VCs invested $2.9 billion in Massachusetts companies last year, second only to California. The state enjoys the highest college attainment rate in the country, with 38% of adults possessing a degree.
Bringing up the rear this year is Maine, which replaced No. 49 Rhode Island at the bottom of our rankings. Growth prospects in Maine have deteriorated relative to the rest of the country. Job growth is expected to increase 1.3% annually over the next five years–one of the worst forecasts in the country. The state has endured a rash of business closings the past three years as well.
Mainers head to the polls next month to choose a new governor. The state’s current chief, democrat John Baldacci, is off the hook though; thanks to term limits, Baldacci cannot seek reelection.