2013 Best and Worst States for Business

Chief Executive Magazine
www.chiefexecutive.net
By JP Donlon

In its ninth annual survey of CEO opinion about the best and worst states in which to do business, 736 CEOs—the highest response on record—rendered their verdict. Business leaders were asked to grade states with which they are familiar on a variety of competitive metrics that CEOs themselves regard as critical. These include: 1) taxation and regulation; 2) quality of workforce; and 3) living environment. The tax and regulatory grade includes a measure of how CEOs grade a state’s attitude toward business, a key indicator. 

In the minds of most leaders, a state’s friendliness is closely aligned with its tax and regulatory regime. Similarly, workforce quality also measures the perceived cooperativeness of workers with management, as well as the people’s general work ethic and education attainment. The living environment metric measures the perceived quality of education and public health facilities, as well as the affordability and quality of real estate, the transportation system and related environmental factors.
 
For the ninth consecutive year, the Lone Star state continues to rank first, with the Golden State continuing to rank dead last. Florida, North Carolina, Tennessee and Indiana place second through fifth respectively—unchanged from last year’s ranking—while Arizona elbows its way into sixth place, up from 10th place in 2012. Virginia and South Carolina follow, with Nevada moving into a solid ninth place up from 12th in 2012. The most dramatic ranking change was scored by Ohio, which moved up 13 places, and by Delaware, which dropped 13 places. Louisiana, Wisconsin, Kansas, Montana and Minnesota also advanced in the rankings since 2012.
 
Simply put, “a good state is one that understands the private sector pays for the public sector and makes it easy for the private sector to conduct business and grow,”remarks David N. Willis, CEO of CRW Parts, a Baltimore wholesale distribution firm. “California, New York and Illinois have high costs of living, high taxes and high regulation,” says Mark Larsen, CEO of Maxxcap Group, a mid-size financial services firm. Additionally, each of these states makes it difficult, and often worse, than other places to do business. By contrast, “states like Texas and Ohio are consistently trying to help us grow our business and are listening to the leaders of companies to help solve problems,” says Toledo-based Impact Products CEO Terry Neal.
 
More and more states are getting the pro-growth message. Wisconsin governor Scott Walker’s position is typical of this new thinking. “I’ve never seen a store get more customers by raising its prices, but I’ve seen customers knock down doors when they cut prices,” he says. News that Michigan became the nation’s 24th right-to-work (RTW) state sent a message and a warning to other states. [See "Is Right to Work the Right Move?"] When neighboring Indiana became a RTW state, Caterpillar announced that it would move its London, Ontario plant to Muncie. 

The federal government may be a tax reform wasteland but the states are out there competing with gloves off. Nine states, including top-ranked places like Texas, Florida and Tennessee have no income tax. Oklahoma and Kansas have lowered theirs. Indiana Governor Mike Pence has called for a 10 percent cut. The governors of New Mexico, Nebraska and North Carolina have prioritized tax reform. Then there’s Louisiana’s Bobby Jindal, who wants to eliminate his state’s corporate tax and replace it by raising the state’s current 4 percent sales tax. Louisiana has come a long way since 2006 when it ranked 47th. 

“A lot of states are making strides in moving towards more favorable business climates,” offers Stephen Maher, principal of RMA, an architecture firm with offices in Brookline, Massachusetts and Mumbai. “Louisiana has made strong strides in this direction and is still pushing. Texas has been there for years…others are being left behind.” 

CEOs are well disposed to Texas, and it’s not hard to understand why. Fifty-two Fortune 500 companies now call Texas home. Fifteen Texas companies went public in 2011, making the state the hottest IPO market in the nation. Austin has become one of the fastest growing tech hubs. (The A5 chips in Apple’s iPhones and iPads are made in Austin.) Young programmers and engineers can actually afford to live well in Austin, where the housing cost index is 300 percent lower than in San Francisco. Texas job creation has outpaced the national average, too. Writing in Investors Business Daily, Wendell Cox commented that, “the number of jobs in Texas has grown by a truly impressive 31.5 percent since 1995, compared with just 12 percent nationwide, according to BLS data. Texas lapped California, an important economic rival and the only state with a larger population.” In addition, Texas jobs pay well and employees there fared better than the rest of the U.S. from 2002 to 2011, according BLS data. Adjusted for cost of living, Texas’ per capita income is higher than California’s and nearly as high as New York’s, observes Cox, who is principal of Demographia, a consultancy.

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