2009 Business Facilities Rankings Report
The ongoing economic downturn is putting every state to the test, intensifying the competition for a dwindling number of new projects and development initiatives. Our annual look at the top-ranked localities reveals those that are thriving as well as surviving.
This year’s annual Rankings Report arrives as every state in the nation is struggling with the worst economic calamity since the Great Depression. The downturn adds an increased urgency to the competition between the states to maintain the economic base they have, and to move as quickly as possible to establish the emerging industries of the 21st century.
As in past years, we have continued to refine and upgrade our rankings, adding new data sources and fine-tuning the criteria we apply to produce the results. We have tried to give special weight this year to new incentive programs and other state initiatives that are specifically targeted toward improving that state’s standing within a ranking category.
We took special care to make sure that our evaluations of state rankings in two critical categories, Greenest States and Overall Biotechnology Strength, reflect the diversity and scope of each state’s efforts in these two growth sectors. Along with our traditional “flagship” ranking, Best Business Climate, a place at the top of our biotech and green rankings has emerged as perhaps the most coveted designation we can bestow. As we reported in the March issue of Business Facilities, many states are protecting their emerging biotech sectors from budget cuts. Our June cover story, “Building a Greener Economy,” revealed that the movement for sustainable development, smart growth and green building is now a key driver of overall economic development.
INFRASTRUCTURE, HEALTH AND SAFETY ARE ASSESSED
Among the new categories you will find in our 2009 Rankings Report are rankings for leaders in Transportation Infrastructure and Workforce Health and Safety. These concerns have moved to the top of the national agenda as economic stimulus funds are targeted to shovel-ready infrastructure projects, and containing the spiraling cost of healthcare has become a top priority for the new Administration in Washington. There is no question that transportation infrastructure and the availability of adequate and cost-effective healthcare are becoming important components of the site selection decision-making process.
We again give a tip of our hat to CQ Press, which publishes a multitude of statistics on states and cities annually, and the Biotechnology Industry Organization (BIO), which in tandem with Battelle produces the most comprehensive data set for state biotech initiatives.
We believe the current economic environment gives special bragging rights to the winners in our 2009 Rankings Report. We congratulate all of this year’s top-ranked locations, and, as always, we invite your suggestions for new categories for next year’s rankings.
Our Business Climate ranking is perhaps our most coveted designation, because the states that emerge on top of this listing already have dominated several other Business Facilities rankings. In 2009, the ranking for best Business Climate takes on added significance due to the ongoing economic downturn. In the midst of the worst economic slump since the Great Depression, lucrative projects are few and far between. A well-earned business-friendly reputation tied to an aggressive growth strategy is an absolute necessity not just to attract new business but also to maintain existing industrial sectors.
There are 20 input factors that helped determine the final outcome, including the 2009 rankings for Cost of Labor, Business Tax Climate, Quality of Life, Educated Workforce and Greenest State. This year, we also factored in data from a new category, Transportation Infrastructure, and we paid special attention to the type and scope of incentives that states are making available to attract new business, relocations and expansions. In developing the results, we also took a close look at per capita GDP, population growth, and energy costs/energy efficiency.
Texas emerged as the clear winner of our 2009 Business Climate ranking, grabbing the top spot after a strong second-place finish in last year’s contest.
TEXAS IS A GROWTH LEADER
Texas has matched its surging population with an aggressive strategy for growth that is maintaining a solid track record despite the economic downturn. The Lone Star State takes the crown based on low taxes, strong incentives, low energy costs, a relatively low cost of labor and solid infrastructure.
Last fall, with most of the country rapidly sinking into the depths of the recession, the Financial Times ranked Texas as having the best state economy in a state-by-state comparison of employment rates, GDP growth and personal income growth. Another leading business journal placed five Texas metros among the top 25 MSAs in the U.S. that had exhibited robust growth during the downturn, and, as Business Facilities noted in a special report in March, six Texas metros rank in the top 15 for the nation’s biggest gains in private-sector employment.
Incentive programs and public-private partnerships in the Lone Star State continue to play a major role in its ongoing economic development juggernaut. The venerable AllianceTexas partnership, a vital economic engine for more than two decades, has now generated an estimated $34 billion in economic activity. Texas also has cast its growth net over a diverse group of emerging high-tech industries, including biotechnology, in which growth is being fueled by the Texas Emerging Technology Fund.
While it was bumped out of the top spot, South Dakota maintained its strong showing in our flagship category with a second-place finish that was ensured by the state’s consistent track record at or near the top of our annual Cost of Labor and Quality of Life rankings. Wyoming, which boasts a business-friendly tax climate, surged into third place, while Utah held steady in fourth place and Florida jumped to fifth place from last year’s ninth-place showing.
Several states that did not make the cut in last year’s top 10 for Business Climate moved onto the list in this year’s ranking, including Delaware, Washington, Oregon and New Hampshire.
The economic upheaval spawned by last year’s fiscal collapse undoubtedly ensures that the competition for next year’s top Business Climate ranking will be fierce.
Most Americans remember a time when the word “green” immediately conjured up images of U.S. dollars. But in a time when global concern for the environment is at an all-time high, corporations and governments alike have introduced “green” into their vocabularies and business practices with a different meaning. Sustainable, eco-friendly developments, regulations, grants and buildings are at the forefront of today’s consciousness; gone are the days when only niche companies cared about the environmental impact of their operations. As such, states competing for big business bucks are enacting laws and standards to paint their locations the most vibrant shade of green possible. Bolstered from the recent distribution of federal economic stimulus dollars, which designated a large portion of funds for environmentally friendly spending, the fight for greenest state is a fierce one.
The West Coast is the backbone of the U.S. green movement, with California, Washington and Oregon ranked in the top tier. The massive economies of New York and Texas also scored well due largely to a scope of financial incentives for energy efficiency and renewable energy. All five of these states also rank among the top 10 in for LEED-certified projects.
While these business-related factors are paramount for corporate responsibility, quality of life factors such as pollution levels and commuter statistics also contribute to a state’s sustainable image. Interestingly, large states like California and New York have to work especially hard to offset their big-city realities—think of Los Angeles’ smog or Manhattan’s traffic congestion. But remember that in states such as these, large swatches of rural and natural beauty exist, too, as do government dollars appropriated for environmental action.
The 2009 Greenest States ranking is an objective and comprehensive look at which states currently lead the unstoppable trend of eco-friendly, sustainable business practice. Business Facilities has expanded its research to include 15 criteria this year, up from nine in 2008. Heavily weighed factors include each state’s number of available financial incentives for energy efficiency and renewable energy; the number of LEED-certified and registered projects as of April 2009; and the amount of rules, regulations and policies in effect regarding energy efficiency and renewable energy.
Additional consideration was given to state pollution levels. For each state, we considered the per capita and the percent change in fossil fuel emissions; the total toxic releases of air emissions and surface water discharges; the total pollution released measured by pounds of toxins; and the number of hazardous waste sites deleted from the national priority list. The percentage of commuters who travel to work by public transportation, which helps reduce air pollution, also was factored into our ranking. Finally, we looked at the total percentage and kilowatts of electricity generated by renewable resources in each state.
In our June cover story, entitled “Building a Greener Economy,” Business Facilities detailed how the global recession has not slowed the pace of the green movement—in fact, the downturn has moved sustainable development, green building, smart growth and alternative energy to the top of the economic development priority list. Additionally, the massive federal economic stimulus package enacted by Congress in February and signed into law by President Obama has targeted billions of dollars in top-priority funding for green initiatives including alternative energy, and energy-efficiency retrofit projects.
These funds will continue to be allocated through the end of next year. As the U.S. converts to a greener economy, the impact will be manifested in numerous sectors beyond construction: logistics, distribution, transportation, energy and infrastructure all are being transformed by the push to “go green.”
As we reported in the cover story of the March issue of Business Facilities, a pattern has emerged in many states that are wrestling with painful budget cuts—most of them are opting to protect their biotechnology initiatives from the fiscal ax.
The still-hot biotech sector has cemented its status as a crucial building block for future growth. Industries that will loom large in the 21st century—from cellulosic biofuels, to genetically tailored drugs that “deliver” themselves, to sophisticated defenses against bioterror—rapidly are moving from laboratories to the commercial sector. The traditional focus of bioscience initiatives in drugs, medical devices, agricultural chemicals and testing labs now is being rapidly supplemented by diverse growth centers built around specific research targets like stem cells and biofuels.
Last year, Business Facilities undertook a major overhaul of the methodology applied to our Biotechnology Strength ranking to reflect the diversity of current development efforts, and to give every state appropriate credit for its biotech initiatives. Using government statistics and the latest State Bioscience Initiatives Report, prepared by the Biotechnology Industry Organization (BIO) and Battelle, as a starting point, we identified more than 20 key criteria that have been applied to rank overall biotechnology strength.
These criteria included the amount of state R&D funding and venture capital investments; the level of concentrated occupational employment in biotech; tax exemptions specifically targeted to biotech; the number of biotech facilities; biotech patents generated; university grant funding; and bioscience higher education degrees, among other factors. A point scale was applied, giving special credit to states that “walked the walk, as well as talked the talk,” financially speaking, when it came to biotech initiatives. Extra points were awarded to states that actually invested in biotech facilities and/or had the highest concentration of employment in more than one biotech subsector.
We have applied the same criteria this year, updating data where available. We also have factored in estimates of overall economic impact of state biotech industries, biotech incentives, expansion of academic research programs, major new initiatives announced in the past year, growth potential based on state funding commitments and employment numbers to adjust and upgrade this year’s rankings.
CALIFORNIA, BIOTECH KING
Last year’s Biotechnology Strength ranking produced a bit of a surprise when Pennsylvania edged out biotech powerhouse California for the top ranking. In 2009, California has reclaimed the crown, and we can state without hesitation that currently the center of the biotech universe can be found in the nation’s largest state, which aptly is known as the “birthplace of biotech.”
California, home to more than a third of the nation’s leading biotechnology firms, has maintained its leadership position by leveraging its huge university system and pouring millions into research. The Golden State also has aggressively moved forward with the establishment of a network of world-class genomics labs.
Massachusetts moved up to second place in our biotech ranking, while Pennsylvania finished third. Kansas, which was chosen as the location for the nation’s new $650-million biodefense lab, cracked the top 10 this year [although, at press time, the DHS decision to award the NBAF lab to Kansas is being challenged in federal court by Texas, our sixth-place finisher].
BEST EDUCATION CLIMATE
This year, we have divided our annual Educated Workforce category into skilled (advanced degrees) and unskilled rankings. There currently is a critical shortage of highly skilled workers in the United States, and states that lead the way in producing graduates with advanced degrees, particularly in high-technology-oriented disciplines, have a significant advantage in luring high-tech companies or keeping their high-tech players from relocating.
The Northeastern states dominate this year’s results in the skilled workforce category, taking five of the top six positions, and eight out of the top ten. In our overall ranking for Best Education Climate, meanwhile, Vermont continues to place at the top of the list, while New Jersey posted an impressive showing in second place.
Our Most Educated Workforce rankings examine the number of employees over the age of 25 that possess a high school diploma, a bachelor’s degree, or an advanced degree. Our Best Education Climate ranking differs from the Educated Workforce ranking because it examines a broader set of criteria.
The Education Climate ranking determines the effectiveness of a state’s educational system by analyzing factors including: student to teacher ratios; public high school graduation rates; enrollment rates at institutes of higher education; programs; estimated expenditures per pupil at public elementary and secondary schools; and state and local government expenditures on education, among other criteria.
BEST BUSINESS TAX CLIMATE
We have based our Tax Climate ranking on the annual compilation of The Tax Foundation, a nonpartisan organization based in Washington, DC.
The overall index of best climates is made up of five subindices: corporate tax, individual income tax, sales tax, unemployment tax and property tax. The entire report is available for free at www.taxfoundation.org. Traditionally, this ranking tends to show very little movement among the leaders, and this year is no exception, with Wyoming, South Dakota, Alaska and Nevada again reaffirming their status as the states with the most business-friendly tax environments in the nation.
QUALITY OF LIFE
After several years of a “status quo” ordering of the states in our annual Quality of Life ranking—with the same grouping of states dominating this category—this year’s competition produced a bit of a shakeup, with Washington, Colorado and Minnesota moving into the top tier, and Connecticut and Maryland (largely on the basis of their good showing in education) improving their standing.
To measure the quality of life, we take a look at 20 key factors that influence how happy you and your employees are likely to be based on the state you live in. Quality of life is a key component of our Business Climate ranking as well, since we believe that employers and employees who are happy outside of work will contribute to a better bottom line through increased motivation, morale, productivity and retention. Quality of life also is a critical factor for companies that need to attract top talent to remain competitive and avoid the turnover that accompanies a major move of corporate offices. Components of our Quality of Life ranking include our own education and health rankings, as well as the crime rate, material well-being (including average income levels, tax rates, and personal bankruptcy rates), job security, arts and recreation assets, pollution, commute length, healthcare premiums, occupational accident rates, climate and the cost of living.
COST OF LABOR
South Dakota has maintained its place at the top of our Cost of Labor ranking for the third consecutive year, but West Virginia, Arkansas, Oklahoma and Montana are now staking a claim to leadership in labor-cost savings.
Perrenial cost-of-labor contenders Mississippi, Alabama and South Carolina have maintained their standing on the list, with strong showings by North Dakota and Louisiana.
The thinking behind this ranking was to compile some of the most critical labor costs facing employers in the United States. To that end, we measured unionization rates, unemployment insurance tax rates, worker’s compensation premium rates, average hourly pay in manufacturing, average annual pay in the private sector (all industries) and the employer’s average annual cost for providing an employee with “employee + one” health coverage. In a tough economy, cost of labor has emerged as a critical site selection factor.
As in our past rankings reports, a key source of data for our cost of living ranking was CQ Press’s State Rankings 2009, as well as the most up-to-date U.S. Department of Labor and U.S. Census data.
AUTOMOTIVE MANUFACTURING STRENGTH
This has been a year of unparalleled upheaval in the automotive industry. The global recession has reduced demand to barely half of the worldwide production capacity and accelerated a long-predicted industry consolidation. At press time, two of the largest carmakers, General Motors and Chrysler, are in the midst of bankruptcy-protected restructurings, backed by billion-dollar government bailouts. The only certainty is that the global lineup of leading automakers is going to look dramatically different in 2010.
General Motors, for example, already has announced it is discontinuing its venerable Pontiac brand, and it has sold its notorious gas-guzzling Hummer brand to a manufacturer in China. Chrysler has had most of its assets purchased by Italian auto giant Fiat (the United Auto Workers union in the U.S. has taken a large equity stake in General Motors in exchange for massive contract concessions), and GM and Chrysler both are racing to shutter more than a third of their U.S. dealerships.
The uncertainty surrounding the battered global automotive sector renders this year’s automotives rankings a snapshot of an industry in transition; undoubtedly, next year’s rankings in this category will show some dramatic movement. In order to give this year’s standings more long-term relevance, we have factored in investments and projects that were announced this year, as well as current production statistics (assembly and parts) and facilities.
By virtue of the size and scope of its assembly and parts production, Ohio managed to hang onto the top ranking for automotive manufacturing strength despite the clobbering in the automotive employment sector the Buckeye State has experienced due to the economic downturn.
Like Ohio, Indiana managed to snare a position in the top five largely on the basis of its traditional strength.
The brightest spot in an otherwise dismal year for the auto industry continues to be Tennessee, which snared the biggest new automotive project last year, when Volkswagen announced that it had selected a site near Chattanooga as the location for its new assembly plant, which marks VW’s return to North American manufacturing after a 20-year absence. At the nadir of this year’s downturn, VW reaffirmed its commitment to move forward with the Chattanooga plant, an announcement followed by a commitment from Tier 1 supplier Gestamp to build a $90-million stamping facility to supply the VW plant. Fueled by its momentum from VW, Tennessee has surged to second place in our rankings and is poised to claim the title of leading U.S. automotive manufacturing state in coming years.
Kentucky, which recently announced an ambitious plan to become a national center for advanced battery technology, came in third. The Bluegrass State will face competition in the battery sector from longtime auto leader Michigan, which is aggressively trying to reposition itself as a leader in electric-vehicle power systems. South Carolina, home to BMW’s North American facilities, and Alabama (another automotive transplant success), meanwhile, are cementing their status as automotive manufacturing leaders.
A huge portion of federal stimulus funds now flowing out of Washington have been targeted to rebuild the nation’s neglected transportation infrastructure. Therefore, we thought this would be a good time to introduce a Transportation Infrastructure ranking.
Our criteria for the Transportation Infrastructure ranking included the state’s share of overall federal highway funding; per capita federal highway funding; lowest number of roads in mediocre condition; lowest number of deficient bridges; deficient bridges as a percentage of total bridges; total inland waterway mileage; railroad mileage/freight tonnage and interstate highway mileage.
We also factored in the lowest average travel time to work; percentage of commuters who use public transportation to go to work; and the number of airports, ports, air cargo hubs (ranked by tonnage) and maritime container hubs (ranked by tonnage).
This year’s results were populated mainly with large states that have dense transportation infrastructures. California, Texas, Florida and New York emerged as the leaders with the best overall transportation infrastructure.
WORKFORCE HEALTH AND SAFETY
As healthcare reform has jumped to the top of the national agenda, businesses as well as individuals are focusing on the current state of healthcare in the U.S. Healthcare spending in the U.S. continues to rise at an exponential rate, forcing some businesses to cut back on operations. Here are some eye-opening statistics, compiled by the National Coalition on Health Care:
Total national health expenditures rose 6.9 percent in 2007, two times the rate of inflation. Total spending was $2.4 trillion in 2007, or $7,900 per person. Total healthcare spending represented 17 percent of the gross domestic product (GDP). U.S. healthcare spending is expected to increase at similar levels for the next decade, reaching $4.3 trillion in 2017, or 20 percent of GDP.
In 2008, employer health insurance premiums increased by five percent, two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $12,700. The annual premium for single coverage averaged more than $4,700.
We anticipate that in coming years, worker health and safety will grow in importance as a key consideration that potentially could impact site selection decisions. So this year we are introducing our Workforce Health and Safety ranking. We also used our Workforce Health and Safety ranking as a criteria in this year’s Quality of Life ranking.
Among the factors we considered when developing this ranking were lowest occupational injuries (fatalities, based on U.S. Bureau of Labor Statistics); OSHA-approved health and safety plans; states with the highest percentage of private-sector companies offering health insurance; states with the lowest percentage of people lacking access to primary care; the number of physicians per 100,000 population; the number of community hospitals; states with the lowest numbers of persons not covered by health insurance; and states with the lowest death rates from cancer. Much of this data was culled from CQ Press’s excellent annual compilation of state statistics, supplemented by the federal government’s latest numbers.
Hawaii emerged as the top-ranked state in Workforce Health and Safety. According to the U.S. Department of Health and Human Services data, almost 90 percent of private-sector establishments in the Aloha State offer health insurance; only about 8 percent of the state’s population is not covered by health insurance.
Hawaii was second only to New Jersey as the state with the lowest percentage of its population lacking access to primary care. All of the top 10 finishers in this category recorded low tallies in occupational injuries.
INNOVATIVE GLOBAL ECONOMIES
In April 2009, the Economist Intelligence Unit, sponsored by Cisco, released a new ranking of the world’s most innovative countries. Innovation is defined as the application of knowledge in a novel way, primarily for economic benefit. Companies deem it vitally important as a competitive tool. Government policymakers see it as essential for economic growth.
Japan and Switzerland have had a headlock on the top two spots since 2004 and will continue their stronghold over the next five years. In fact, the top 10 countries will remain the same, but with some movement. Germany will jump two positions, bumping the U.S. down to fifth. Sweden and the Netherlands will see drops, while Israel and Taiwan will increase their status as innovative economies. There’s a strong showing by Northern Europe in general. Japan and Taiwan are East Asia’s only representatives, and the United States is the top innovative economy in all of the Americas. (Notable economies ranked outside the top ten include South Korea at 11, France at 13, Canada at 14, the UK at 18 and Australia at 20.)
To rank countries, the Economist Intelligence Unit distinguishes between “innovation output” (performance) and “innovation inputs” (enablers). Innovation output is measured by the sum of patents granted by three major government patent offices: the European Patent Office (EPO), the Japanese Patent Office (JPO) and the US Patent and Trademark Office (USPTO). The data are averaged over four-year periods, and normalized as number of patents per million to create an index on a 1-10 scale. The 2007 index is based on data from the 2002-05 period; the 2009 index uses data from 2004 to 2007. Innovation inputs include both direct drivers and the broad economic, social and political context, or innovation environment. They are based on the scores from the Economist Intelligence Unit’s Business Environment Ranking (BER) model averaged over five-year periods: 2002-06 for the original ranking and 2004-08 for the update. The five-year forecasts (2007-11 and 2009-13, respectively) are based on the BER model. The model itself is based on historical conditions and expectations of conditions over the next five years.
According to The Economist, innovation is beneficial to both national economies and corporate performance, but its impact is more visible at the microeconomic than the macroeconomic level. Innovative companies and firms connected to high-tech clusters tend to outperform their peers, while the technical skills of the workforce and IT/telecommunications infrastructure are critical to innovation. Small countries tend to have an advantage and return on investment is higher in middle-income countries than in rich countries.
In February 2009, the Economist Intelligence Unit updated the innovation index. The new rankings largely confirm the forecasts of the original research, although some countries, including China, rose more quickly than expected. The forecast for 2009-13 has been affected by the severe business downturn and the global economic crisis, which will have a negative impact on countries’ long-term ability to innovate. While developed countries will continue to top the list of innovators in the medium term, poor business conditions will sap their innovation capacity. But China and India are among the countries that will continue to gain ground.
Innovation at a global level is now expected to advance at a significantly slower pace over the next five years than was previously forecast. The current financial turmoil will affect a variety of the innovation inputs that directly drive innovation. It is likely to result in a reduction of investment in research and development (R&D), spending on training and education and the quality of information and communications technology (ICT) infrastructure. The economic crisis also will have a negative impact on certain aspects of the environment that enable innovation—access to finance for firms, conditions for entrepreneurship, and economic and political stability. A significant slowdown in the pace of innovation would harm the long-term prospects for economic growth around the world.