CNBC's Top States For Business 2009—And The Winner Is ... - Top States For Business 2009

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CNBC's Top States For Business 2009—And The Winner Is ...

By: CNBC.com | 23 Jul 2009 | 02:23 PM ET

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Welcome to our third annual look at the states that put it all together for business—and the ones that don’t, and everyone in between.

Virginia's State Capitol.
It has been a year of drastic change—in government, the economy and the competitive landscape. When we unveiled our 2008 study last July, the price of oil had just hit a record $147 a barrel, and the depths of the economic meltdown were still a couple months away.

Today, oil costs less than half of what it did, and the nation is mired in the worst recession in 60 years. A new administration in Washington is sending massive amounts of stimulus dollars to the states, while state governments struggle with massive budget shortfalls. And all of this change has led to big changes in our rankings this year.

And The Winner Is....

Virginia reclaims the title of America’s Top State for Business this year, squeezing past last year’s Top State, Texas, by a nose—just four points. Texas is still a business powerhouse—the Lone Star State still has the top Economy in the nation despite the falling price of oil, and its Transportation and Infrastructure remain second to none. But Virginia, always a solid performer across the board, managed just enough improvement in the right areas—like Economy (7 vs. 17 last year)--to regain the title it won in 2007.

Texas, meanwhile, lost crucial points in our most important category, Cost of Doing Business (33 vs. 27). Texas office rents rose, perhaps because of its strong economy, and its business taxes went up as a share of the state’s output.

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Because the economy deteriorated so quickly at the end of 2008, and some metrics are much more current than others, America’s Top States for Business 2009 reflects only the earliest effects of the slowdown on the competitive landscape. But still, the effects are pronounced.

Idaho, last year’s No. 4 state overall, plunges to No. 22 this year, as economic growth slowed to a trickle, and joblessness rose to a 25-year-high. In contrast, Iowa, last year's No. 9 moved up to No. 4 this year. A model of Midwestern consistency, Iowa has always been a quiet economic power. Make no mistake, the Hawkeye State’s economy has suffered, too. But being in the Midwest means the economic booms are less pronounced than the rest of the country, which means the busts are not as severe.

That same theory appears to have helped the two most improved states this year, Nebraska (11) and Wisconsin (26). Both jump eleven places in the rankings, Nebraska on the strength of its Business Friendliness (6), and Wisconsin by improving its Cost of Doing Business showing from last year (27 vs. 36).

New Year, Revised Weightings

Not only have the seismic changes in the economy shaken up our rankings this year, they also altered our study itself.

Just as in past years, we measured the states on the criteria they use to sell themselves, weighting those criteria based on how frequently they are cited in state economic development marketing materials. This year, in part because of the changes in the economy, the states’ sales pitches have changed. They now emphasize areas less sensitive to the economy, like Quality of Life, while de-emphasizing economically sensitive areas like Education, Cost of Living, and the Economy itself.

Consequently, the weightings of some of the categories shifted this year and those changes impacted the results. For example, the fact that Quality of Life carried greater weight this year helped Top State Virginia, whose Quality of Life ranking jumps to 18 compared to 28 last year. And it hurt No. 2 Texas, which falls to 32 in Quality of Life from its 22 ranking in 2008.

But the idea behind our study remains the same, and the comparison to previous years is apples to apples: We rate the states based on their own scorecards. And by that measure, Virginia is No. 1 again.