Can Virginia stay ahead? We’re messin’ with Texas

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Print this page by Bernie Niemeier

Rarely does a moment go by without Virginia making some claims to superiority.  Over the years, the commonwealth has been named the best-managed state and the best state for business.  Our cities and regions have been named best places to live, even called “gazelles” for having an abundance of fast-growing companies.

Even history is on our side.  Virginia is, of course, the “mother of presidents.”

Probably the most frequently mentioned ranking in recent years has been Forbes.com’s annual list of the best states for business.  The commonwealth was No. 1 on this list so often that business cards for the Virginia Economic Development Partnership touted our top-of-the-heap status.  After leading the list for the first four years since its inception, Virginia fell to No. 2 behind Utah. Oops!

Another widely cited list comes from the cable TV network CNBC.  Virginia just regained the top ranking from CNBC for 2011 after swapping the No. 1 and No. 2 spots with Texas annually for the past five years.

In both 2009 and 2010, Virginia topped the list for “Pro-Business States” compiled by the Pollina Commercial Real Estate Report.  Other Top 5 contenders in both years were Utah, Wyoming, North Carolina and South Carolina.

Also widely cited is a “Business climate” ranking by Site Selection magazine.  Virginia fell from No. 3 to No. 4 last year, coming in behind North Carolina, Tennessee and Texas.

If that’s not enough, Chief Executive magazine also has a list of “Best and Worst States for Business.”  Virginia came up No. 7 on the Best list for 2011, falling from No. 4 in 2010.  The Top 5 in the past two years also included Texas, North Carolina and Tennessee.

Each of these lists has its own methodology, typically ranking states on dozens of measures, which are grouped into categories and weighted for importance in arriving at an overall ranking.  It is hard to make a definitive assessment of the results from so many sources.  Virginia definitely ranks high, but can it stay at the top?  And, just what is better about Texas?

The CNBC rankings are perhaps the most comprehensive.  They use 10 categories to arrive at the overall ranking: cost of business, work force, quality of life, economy, infrastructure and transportation, technology and innovation, education, business friendliness, access to capital and cost of living.  None of the other ratings use this many categories, and some leave out important ones.  The Forbes.com ranking, for instance, does not measure transportation except for fuel taxes, whereas CNBC looks at infrastructure spending.

In 2010, Texas scored ahead of Virginia in five of CNBC’s categories to take the No. 1 spot from Virginia.  This year, Virginia regained the top ranking by besting Texas in six of the 10 categories.

The biggest change involving the two states came in measurements related to their respective economies.  Texas dropped from first place for economy to 14th, largely because of a nagging state budget crisis. Virginia rose from 11th to eighth because of the relative stability of its diverse economy and the ripple effects of federal spending in areas like Northern Virginia and Hampton Roads.

Staying ahead requires that Virginia continue to focus on getting better.  Texas’ top ranking on transportation measurements is a source of particular concern for Virginia, where adequate long-term funding for roads and transit remains in short supply.  Texas’ fall from first to second in the overall list was largely due to a drop in its performance in the economy ranking. That turn of events highlights the importance of keeping Virginia’s economy strong.

Our state has much that makes it an attractive place to do business.  While our roads may need work, Virginia is one of the few states that have both a major seaport and a major international airport.  According to the Corporate Tax Foundation, our corporate tax rates are relatively low, ranking 12th lowest in the U.S. (Texas is 13th).  When you look at states with the lowest corporate tax rates, they don’t have much else to recommend them: South Dakota, Alaska and Wyoming are the lowest three.  Being the northernmost right-to-work state on the East Coast makes Virginia a favorable labor market.

Ongoing work-force investments in producing more STEM (science, technology, engineering and mathematics) graduates, smaller class sizes and better early childhood development are also important.  In addition to having reasonable tax rates, the tort law environment in Virginia is also relatively business friendly.
Looking ahead, keeping our state economy healthy is of prime importance. Texas-size budget potholes could easily undermine Virginia’s work-force and education investments and potentially require new tax revenue to keep our budget balanced.  Gov. Bob McDonnell’s success this year in finding nearly $3 billion for investments in Virginia’s transportation infrastructure was largely the result of debt financing.  This money needs to be backed up with a long-term funding plan.

If Virginia stays focused on the areas that make it an appealing place to do business, it should continue to rank near the top of these lists and mess with Texas.

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