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Forbes Ranks Utah as the Best State for Business for the 3rd Year in a Row

Donald Trump shocked pundits and pollsters last week by winning the electoral college and the right to follow Barack Obama as the 45th President of the United States. On the campaign trail he promised to make America great again and said we are “going to get tired of winning.”

Trump’s definition of what makes America great is up for debate, but there is no denying that the economy has sputtered in many parts of the country. Thirty-seven states had real economic growth rates below 2% annually over the past five years. Only three states are north of 3% since 2010. Yet, there are states that are “winning” thanks to low business costs, educated workforces and pro-business regulatory climates.

Mountains frame the skyline of Salt Lake City in Forbes Best State for Business. (Photo: George Frey/Bloomberg)
 

Forbes 11th annual Best States for Business list measures which states have the best business climates and are poised to succeed going forward. Leading the way for the third straight year is Utah, which also ranked on top between 2010 and 2012. Only Virginia in 2013 interrupted Utah’s reign this decade as the Best State for Business.

Utah scores well across the board, with particularly high marks for its regulatory climate and growth prospects, which are both second best among the 50 states. Governor Gary Herbert has made cutting red tape a tenet of his administration since he was elected in 2009. He’s eliminated or significantly changed nearly 400 regulations during the past seven years. Utah also boasts a business-friendly legal climate and a fiscally sound government – it’s one of only 10 states to hold a AAA bond rating from all three ratings agencies. One marker of fiscal responsibility: State government employment is down 11% over the past five years despite an 8% rise in the population.

Utah’s growth prospects are strong in part because of a burgeoning tech sector. Venture capital investment was $1.5 billion combined in 2014 and 2015 compared to $635 million the two years prior. In April, PayPal co-founder and early Facebook investor Peter Thiel, along with Mitt Romney’s co-led venture fund Solamere Capital, announced plans to invest $100 million in Provo-based Vivint Smart Home. In a nod to its neighbor to the west and Utah’s ski terrain, the corridor connecting Ogden, Salt Lake City and Provo has been dubbed “Silicon Slopes.”

The state is home to a handful of “unicorns” like Domo Technologies, Insidesales.com, Pluralsight and Qualtrics. These privately-held firms, which boast VC investments that value the companies at more than $1 billion, can count on a deep pool of young, educated employees from schools like Brigham Young University and the University of Utah.

Old-school tech stalwarts like eBay, Oracle, Microsoft and Twitter have also expanded operations in Utah in recent years, escaping the higher costs along the West Coast. Energy costs in Utah are 19% below the national average.

Moody’s expects Utah’s job growth to be third best in the nation over the next five years, while EMSI forecasts the Beehive State to be tops in the nation for employment.

Forbes’ Best States for Business list factors in 40 metrics from 17 sources across six broad categories: business costs, labor supply, regulatory environment, economic climate, growth prospects and quality of life (click here for a detailed methodology).

A new addition in this year’s ranking in the regulatory category is a measure of laws that protect people from employment discrimination based on sexual and/or gender identity. The state ratings were provided by the Movement Advancement Project, which identified 18 states that offer protection for LGBT people and 18 states that are hostile.

LGBT policies are affecting the bottom line in places like North Carolina, which passed the controversial HB2 or “Bathroom Bill” this year requiring citizens to use the public facility that corresponds with their biological gender. The measure has already cost the state an estimated $630 million in economic activity. The NBA, ACC and NCAA pulled sporting events from the state and Deutsche Bank and PayPal halted expansions. “Some clients are actively staying away from North Carolina because of [HB2],” says Jeff Lessard, who works with clients on their occupancy and location strategies at Cushman & Wakefield.

Despite the backlash from HB2, North Carolina ranked second for the second straight year among the Best States for Business. The “hostile” rating didn’t alter the state’s overall rank, but it did knock down its regulatory category ranking three spots to No. 7.

Foreign direct investment has fueled much of North Carolina’s high-tech job growth, with $2.7 billion and 5,300 jobs generated from FDI in 2015, according to North Carolina Commerce Secretary John Skvarla, who says the state is on track to top those numbers this year.

North Carolina has the second smallest union workforce in the U.S. in terms of percent of total employment (South Carolina is first). The resulting benefit is labor costs that are 11% below the national average—fourth lowest in the country. North Carolina is the only state to appear in the top five of our Best States study every year.

Rounding out the top five states in 2016 are Nebraska, Texas and Colorado.

Florida is the biggest riser, up eight places to No. 12. The Sunshine State’s college attainment rate rose and the growth forecast rates among the nation’s best. Projected job and population growth are both expected to be second best in the country over the next five years with income growth fourth fastest. Florida ranks second among larger states in the Kauffman Foundation’s Index of Startup Activity.

Kentucky had the biggest drop, down nine places to 38th, hurt by low levels of startup activity, as well lower ranks on growth for jobs, incomes, GSP and net migration, according to data from Moody’s Analytics. The state’s regulatory score also took a hit from its “hostile” rating regarding laws protecting LGBT people.

We rank West Virginia as the worst state for business, behind Alaska, Mississippi and Maine. It is the second straight year bringing up the rear for the state. Population growth has been anemic—worst in the U.S.—and the state’s college attainment rate is also the lowest in the country with only 19.6% of the population over the age of 25 holding a college degree. West Virginia ranked last in half of our six broad categories, including labor supply, regulatory environment and growth prospects.

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Forbes Wed, 11/16/2016 - 11:45