Vote ‘Yes’ for growth
- July 28, 2015
What do Virginia, Texas, Utah, North Carolina, South Carolina, Georgia, South Dakota and Minnesota all have in common? They’ve all been at the top of one or more “best states for business” lists during the past decade.
The most widely recognized lists are CNBC’s Top States for Business, Forbes.com’s Best States for Business, Pollina Corporate Real Estate’s Top 10 Pro-Business States and Site Selection magazine’s Top US Business Climates.
Virginia has been the runaway leader on these four lists, making it to the top 10 a total of 35 times in the past 10 years, with 12 appearances as the overall No. 1 state by one or more of these rankings.
Nevertheless, things have been more competitive lately. In late June, the most recent CNBC list placed Virginia in 12th place, down from eighth in 2014, fifth in 2013, third in 2012 and first in 2011. While it’s hard to say that placing anywhere close to the top 10 is bad, a declining trend is clear. Other states are getting better.
Virginia’s top-ranking heyday began back in 2007 and 2008, when state rankings for economic development started becoming widespread in the business media. At the time, much of the U.S. was plunging into deep recession. Federal spending, however, was soaring to offset damages wrought by the mortgage-banking crisis and to support military buildups in Iraq and Afghanistan. Virginia was a primary beneficiary of the increase in government spending. Unemployment rates stayed below the national average, and job creation was relatively robust.
Contrast that with the past several years. Budget cuts and a wind-down of military operations have reduced federal spending. While the commonwealth’s unemployment rate remains below the national average, recession-wracked economies in other states have grown faster during the recovery.
Delving into the 10 factors behind Virginia’s 12th-place ranking by CNBC, the commonwealth is strongest on Business Friendliness, scoring third in the nation; Education (sixth); Workforce (also sixth); Access to Capital (12th); and Technology and Innovation (14th).
Virginia scores in the middle of the pack (25th) on Quality of Life, Cost of Living and Infrastructure.
The commonwealth’s lowest scores are in Economy (36th) and Cost of Doing Business (37th).
Moreover, looking back to 2014 to see where our rankings have changed most in the past 12 months — Virginia has dropped seven places in both Economy and Cost of Doing Business and six places in Infrastructure.
Beyond reliance on federal spending, Virginia’s overall economy, cost of doing business and infrastructure are largely functions of the state’s ability to pay for highways and provide funding for education, economic development and other maintenance or growth-oriented programs.
A separate study by the Mercatus Center at George Mason University ranked Virginia 21st among the 50 states in terms of fiscal health. This study looked at five factors: Cash Solvency (30th), Budget Solvency (29th), Long-run Solvency (27th), Service Level Solvency (fifth) and Trust Fund Solvency (15th).
These factors necessitate some explanation. Cash Solvency is the ability to cover short-term obligations. Budget Solvency is the ability to cover planned spending with current-year revenue; in other words, is there a budget shortfall? Long-run Solvency looks at how much asset levels are above long-term obligations. Service Level Solvency asks whether a state is in good position to raise taxes and cover shortfalls without harming the economy — apparently we are. Finally, Trust Fund Solvency looks at things such as unfunded pension liabilities, and, surprisingly, we are in relatively good shape there, too.
Overall, though, a combined ranking of 21st among all states just barely squares with our longheld self-perception of Virginia being above average on all things.
When it comes to economic development, Virginia has many assets that are unmatched by other states. The Port of Virginia, Washington Dulles International Airport and our railroad infrastructure make the commonwealth an unbeatable gateway to the global marketplace.
Still, Virginia can get better. The General Assembly has long taken pride in fiscal conservatism, but, thanks to the proliferation of such conservatism, Washington is now a less reliable source of growth. More needs to happen at the state level.
According to the Mercatus Center study, the good news is there is room to raise state revenues to pay our own way. Being all about “No more taxes” is nice, until it means sacrificing needed services and losing out on economic opportunities.
Diversifying Virginia’s economy away from over-reliance on federal spending is much needed, as is a significantly higher investment in economic development incentives and more transportation funding. Is there political will to do these things? My vote is a resounding “Yes.”