Surveys show Virginia has an edge in competing for business prospects

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Print this page by Robert Powell

Two recent surveys shed new light on how Virginia stacks up competitively against other states in attracting new businesses.

One survey is an evaluation of each state’s business climate. The other is an industry-specific study of the most cost-efficient areas to establish a production plant. Both suggest Virginia can gain ground at the expense of some other states, especially California.

 Chief Executive magazine publishes an annual list of the best and worst states for business based on polls of more than 550 CEOs. The executives graded the states on factors such as taxation, regulation, work-force skills and quality of life. 

“Not surprisingly, states with punitive tax and regulatory regimes are punished with lower rankings, and this can offset even positive scores on quality of living environment,” the magazine says. “While state incentives are always welcome, what CEOs often seek are areas with consistent policies and regulations that allow them to plan, as well as intangible factors such as a state’s overall attitude toward business and the work ethic of its population.”

Virginia ranked seventh in this year’s survey, dropping three spots from the year before. The state also ranked seventh in 2009. Observers say such fluctuation in these surveys is not a cause for great concern as long as Virginia stays near the top. Illinois, by contrast, has fallen 40 places in the past five years in the Chief Executive survey. Its bond rating is 49th, ahead of only California.

The top spot was held by Texas for the seventh consecutive year. The Lone Star State created about 250,000 jobs last year, more than any other state. In addition to Texas and Virginia, the rest of the top 10 includes North Carolina, Florida, Tennessee, Georgia, Indiana, South Carolina, Utah and Nevada.

California, by contrast, was last for the seventh straight year. Joining it in the bottom 10 are New York, Illinois, New Jersey, Michigan, Massachusetts, Connecticut, Hawaii, West Virginia and Ohio.

“California, once a business friendly state, continues to conduct a war on its own economy,” the magazine says. “Although California is not unique in pursuing policies that prompt wealth and job creators to expand elsewhere, (New York being a good example), the Golden State seems uniquely oblivious to the effect its labor and other regulations are having on its innovative and growth-oriented Silicon Valley.”

The magazine says that job growth in Silicon Valley is flat. “Firms keep their HQs there, but pursue growth in friendlier states. Google, Intel, Cisco and other companies locate new plants in states such as Arizona, Utah, Texas, Virginia or North Dakota.”

John Boyd Jr. agrees with the magazine’s harsh assessment of California. “It continues to be a terrible place to do business.”

He is a principal with The Boyd Co. Inc., a Princeton, N.J., corporate location consulting firm, which recently conducted a survey of potential production plant locations for medical devices and supplies industry. The firm compared costs in 56 areas in the U.S, Canada, Mexico and Latin America for a hypothetical plant employing 325 people. The study considered operating costs such as labor, energy, amortization, taxes and shipping. 
Richmond and Northern Virginia were the only Virginia regions examined in the report. The study says the medical devices and supplies industry already employs about 6,000 workers in Virginia with an annual payroll of more than $200 million.

Among U.S. cities, annual costs ranged from $30.7 million in San Jose, Calif., to $22.6 million in Sioux Falls, S.D. At $23.2 million, Richmond ranked as the eighth lowest-cost U.S. location. In addition to Sioux Falls, the other low-cost cities were Memphis, Tenn.; Tulsa, Okla.; San Antonio, Texas; Birmingham, Ala.; and Louisville and Lexington, Ky.

Northern Virginia, by contrast, was in the middle of the pack at $25.4 million. Nonetheless, Boyd points out that the region’s costs still were much lower than other high-tech havens in New England, New Jersey and California, which ranked among the top 10 most expensive sites.

The study notes that costs are the major driver of site selection decisions in the industry, which has an expensive regulatory review process.  Boyd says the trend in the industry is toward plant sites in smaller, less costly markets.  For example, he says, Sioux Falls, a city in a right-to-work state with no corporate taxes, is beginning to attract the attention of medical device manufacturers in Minneapolis, an industry “epicenter” that ranks as the 17th most expensive city in the survey.

“That’s great news for places like Richmond with a reputation for medical excellence and a solid business climate,” Boyd says. “Richmond shows very well.”

He believes Virginia is poised to gain an advantage on rival states because recent moves in the General Assembly, including a research and development tax credit and a capital gains tax exemption for life-science companies. This type of legislation coupled with the Old Dominion’s status as a right-to-work state with low corporate taxes “sends the right message to business,” he says. ‘You have an ally, not an adversary in Richmond.’”

Boyd believes that message is getting through to the California boardrooms of a wide variety of companies, including Northrop Grumman Corp., which is moving its headquarters from Los Angeles to Fairfax County later this year. Virginia beat out Maryland and the District of Columbia in a contest for the company, which wanted to move closer to its primary customer, the federal government. “Northrop Grumman was a bellwether,” Boyd says. “We expect more of that.”

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