America's Top States For Business

Business battle among states heats up

How we determine the Top States for Business

The recovery is starting to take hold. Companies are starting to hire again. State finances are finally looking up.

Time for things to get nasty.

It's election year. Voters in 36 states are choosing governors. State politicians are crisscrossing the nation trying to poach jobs, and some states are running expensive ad campaigns to lure businesses from their neighbors. It's time to put all 50 states to the test.

Which states truly live up to their claims? And which ones still have work to do?

For the eighth year in a row, America's Top States for Business will score all 50 states on more than 50 metrics in 10 categories of competitiveness. CNBC's study is designed to hold the states to their own high standards. You can read more about our methodology here. We use hard numbers—not opinion surveys—to measure the states' performance. And while we try to keep our metrics consistent from year to year, we're also constantly scanning the horizon for changes in the ways states compete.

For example, with the employment picture improving, our Economy category is looking more closely at job creation. And after being reminded by several states that innovation can take many forms, we've added agricultural research to our Technology & Innovation category.

War between the states

This year's rankings come at a time when states are increasingly talking tough in the battle for business. That includes some states that have not had much to crow about in recent years, like New York.

The Empire State finished 35th overall in our rankings last year, but it has launched a $15 million national ad campaign to proclaim that a state with a reputation for high taxes and heavy regulation has turned over a new leaf.

"Things are changing. It's a new New York. It's time to give New York a second look," said New York State Economic Development Commissioner Kenneth Adams.

Watch: New York as a top state for business?

That just makes perennial favorites like Texas fight harder. The Lone Star State is vying for its fourth Top State title in eight years in 2014, and Gov. Rick Perry is claiming credit for raising the stakes nationwide.

"The 'New New York' campaign, I will suggest to you, is because [Florida Gov.] Rick Scott and Rick Perry et al. have come up here to promote and get people to move their businesses," Perry said in a May 20 interview at the New York Stock Exchange on CNBC's "Squawk on the Street."

Building a business is tough. But I hear building a business in California is next to impossible.
Texas Governor Rick Perry
in an ad touting Texas as a business relocation state

Perry, in particular, is relentless in his efforts to lure businesses to his state, traveling across the country and personally appearing in TV and radio ads tweaking his rivals.

"Building a business is tough. But I hear building a business in California is next to impossible," Perry says in one such ad.

"The 'new' New York sounds a lot like the old New York," he says in another.

Watch: Why Texas is hot for Sriracha jobs

While such jabs might have been met with a shrug and a sigh from their targets in the past, they are drawing a feisty response now.

"Look, this is New York state and New York City," Adams said. "We're a target because this is where the companies are. This is where the economic activity of the country is located."

New York's ad campaign touts tax cuts and regulatory reform, as well as a targeted 10-year tax break for businesses that partner with universities. Gov. Andrew Cuomo, running for reelection in 2014, has made business competitiveness a priority. It helps that in New York, as in most states, the fiscal picture looks better than it has in years. That gives many states more firepower to compete.

Healthier competition

In its latest State Budget Update, the National Conference of State Legislatures says 43 states are on track to meet or exceed their revenue for the current fiscal year, which ends June 30 in most states. (Only Delaware, Oklahoma, Tennessee, Kentucky, West Virginia, North Carolina and Indiana are expected to miss their targets, the organization says.)

Compare this year's mostly rosy forecast to 2009, when NCSL reported all but four states faced budget shortfalls.

The turnaround is far from complete, however.

"Officials are concerned about sluggish revenue growth, rebuilding reserves and long-term spending trends—especially for K–12 education and health care," NCSL said.

Also an issue: growing pains in some parts of the country, where a domestic energy boom in recent years altered the competitive landscape—and our rankings.

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North Dakota, at the epicenter of the boom, burst into our Top Five in 2012, then rose to third place last year. Since then, unemployment in the Peace Garden State has continued to plummet, hitting a record low 2.6 percent in May. That means intense upward pressure on wages and other expenses, potentially hurting the state in our all-important Cost of Doing Business category.

The situation is similar in South Dakota. The Mount Rushmore State—No. 1 in 2013—is seeking this year to become the first state ever to repeat as America's Top State for Business. But the worker shortage there is so severe that some employers are running help wanted ads on prime time television.

"Our low unemployment rate is a sign of our economic strength, but it also means it's difficult for employers to add more jobs even if they have the business to justify it," said Gov. Dennis Daugaard in his 2014 State of the State address January 14.

The shortage also hurts South Dakota in our Workforce category.

Shifting playing field

As the booming states try to keep the good times rolling, other states see an opening.

Georgia, which finished 8th overall in 2013, has been pursuing new investments in education, worker training and infrastructure.

"When I took office in January 2011, I made a promise to the people of Georgia that we wouldn't stop until our state was the No.1 place in the nation to do business," said Gov. Nathan Deal in a May 6 statement.

But for this to be Georgia's year, the Peach State will have to beat back the likes of Utah—which has never finished outside the Top 10—and Texas, which has never finished lower than second and has somehow managed to take top honors every other year—2008, 2010 and 2012. If the pattern holds, this should be Texas' year.

Louisiana, which has notched several recent victories luring high-tech businesses to the state, is touting what some officials are calling "the Louisiana Miracle."

"Companies are choosing Louisiana because we offer a highly rated business climate and a competitive workforce with great talent and desire," said Gov. Bobby Jindal in April.

By the numbers, it would be a remarkable turnaround for the Pelican State, which finished 43rd in our rankings last year.

Can Louisiana do it? That is what America's Top States for Business is all about: separating the talk from the truth. We know our study generates lots of talk every year, and we want to hear from you. Be sure to weigh in with your comments here, and on Twitter using the hashtag #TopStates.

2013 TOP STATES FOR BUSINESS RECAP: South Dakota is 2013 Top State for Business

—By CNBC's Scott Cohn

TUNE-IN NEXT WEEK: It's that time again! CNBC is preparing to unveil our eighth annual rankings of America's Top States for Business. CNBC's Scott Cohn is headed to the winning state to tell us what they've been doing to top the competition.