For the third year running, Virginia ranks as Forbes Magazine’s “Best State for Business,” edging out Utah for the top spot. While the Old Dominion won the top spot two years ago with a slam dunk, its lead in 2008 was “razor thin,” with Utah and other states nipping at its heels.
Whereas the Old Dominion ranked in the Top 10 for all categories two years ago – regulatory environment, cost of business, labor, economic climate, growth prospects and quality of life – its standing has fallen markedly in “cost of business” and “growth prospects.”
The ranking by the business magazine is arguably the most prestigious of the all best-place-to-do-business ratings, so state officials justifiably crowed over the “three-peat” feat of garnering the top spot three years running. Said Gov. Timothy M. Kaine: “This best-in-nation validation speaks volumes to our competitiveness in today’s global market. It’s a real honor to receive this recognition from Forbes.com once, but to be named the ‘Best State for Business’ three years in a row is a true accomplishment for which we should all be proud.”
Virginia fared best – No. 1 — in the “regulatory environment” category, which incorporates measures of regulatory and tort climate, incentives, transportation and bond ratings. We fared well in economic climate (No. 6), quality of life (No. 6) and labor (No. 7), although we have slipped a notch or two in each over the past two years. (Compare the 2008 and 2006 rankings.)
But Virginia has suffered market deterioration in two of the six categories. Wrote Forbes reporter Kurt Badenhausen:
Driven by higher labor costs, business costs in Virginia jumped, and are now approaching the national average. The biggest factor closing the gap between Virginia and everyone else: lower growth projections for the next five years. On last year’s list, Virginia ranked eighth in our growth-prospects category. This year, lowered expectations for growth in jobs, income and gross state product knocked Virginia’s growth-prospects ranking down to 26th.
In the “cost of business,” which incorporates labor, energy and taxes, Virginia has slipped from No. 10 to No. 20 in two years. Badenhausen attributes the decline in ranking to higher labor costs, which does cut two ways. If labor costs are going up, it may be hard on business, but higher wages and salaries are a benefit to employees and taxpayers. If this is bad news, I’ll take more of it.
Meanwhile, the “growth prospects” category has fallen even harder over the two past years, which is a bit of a paradox: If Virginia has been such a great state — the very best in the country — in which to do business for three years running, how come its growth prospects have dropped from No. 10 to Nov. 26?
Lamentably, Forbes provides no explanation for the lowered expectations for growth in jobs, income and gross state product. What’s going on? Is the Northern Virginia economic engine slowing down, reflecting the inevitability that federal spending, which has buoyed the regional economy, cannot sustain its post 9/11 growth rate? Or is the problem downstate, to be found in the failure of downstate metro areas to adapt to globalization and the knowledge economy?
For Virginians, the ranking raises as many questions as it answers. But the way the trends are heading, don’t be surprised if we get knocked off our perch next year.
(Cross-posted with R’Biz.)