Top States for Business

CNBC's America's Top States for Business 2018: Methodology and sources

Key Points
  • Each year CNBC scores all 50 states on their business competitiveness.
  • The Top States methodology weights 10 major categories based on analysis of state's economic development plans.
  • The top three categories for 2018 are Workforce, Infrastructure and Cost of Doing Business.
Crunching the numbers for Top States honor roll
Crunching the numbers for Top States honor roll

Our exclusive study scores all 50 states on 64 metrics across 10 categories of competitiveness. Our study is not an opinion survey; we measure actual performance by the states.

Our aim is to grade the states based on the qualities they deem most important in attracting business. To do that, we assign a weight to each of our 10 categories by analyzing every state's economic development marketing materials. The more the states cite a particular category as a selling point, the more weight that category carries. For example, if more states are talking about their workforce, the Workforce category carries more possible points.

New for 2018, states receive a letter grade in each category to measure their performance relative to the competition. Grading is scaled, with the high score equal to 100 percent and the low score equal to 50 percent. However, each state's overall ranking, as well as its ranking within each category, is based solely on the number of points scored.

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Here are this year's categories and weightings, along with an explanation of each.

Workforce (425 points)

Most states point with great pride to the quality and availability of their workers, as well as government-sponsored programs to train them. We rate states based on the education level of their workforce, the numbers of available employees, and net migration of college-educated workers. We consider each state's concentration of STEM (science, technology, engineering and math) workers, increasingly in demand by business. We measure workforce productivity based on each state's economic output per job. We look at the relative success of each state's worker training programs in placing their participants in jobs. We also consider union membership and the states' right-to-work laws. While organized labor contends that a union workforce is a quality workforce, that argument, more often than not, does not resonate with business.

Infrastructure (400 points)

Access to transportation in all its modes is a key to getting your products to market and your people on the move. We measure the vitality of each state's transportation system by the value of goods shipped by air, waterways, roads and rail. We look at the availability of air travel in each state, the quality of the roads and bridges, and the time it takes to commute to work. We also consider the condition of each state's drinking water and wastewater systems.

Cost of Doing Business (350 points)

Cost is a major consideration when a company chooses where to do business. We look at the competitiveness of each state's tax climate, as well as state-sponsored incentives that can lower the cost of doing business. Utility costs can add up to a huge expense for business, and they vary widely by state. We also consider the cost of wages, as well as rental costs for office and industrial space.

Economy (300 points)

A solid economy is good for business. So is a diverse economy, with access to the biggest players in a variety of industries. We look at economic growth, job creation, consumer spending, and the health of the residential real estate market. We measure each state's fiscal health by looking at its credit ratings and outlook, its overall budget picture, and pension and retiree health-care obligations. Because of their own economic impact as well as the ripple effect, we consider the number of major corporations headquartered in each state.

Quality of Life (300 points)

One way to attract qualified workers is to offer them a great place to live. We score the states on livability including several factors, such as the crime rate, the quality of health care, the level of health-insurance coverage and the overall health of the population. We measure inclusiveness by looking at statewide anti-discrimination protections, as well as the ability of local jurisdictions to set their own standards. We evaluate local attractions, parks and recreation, as well as environmental quality.

Technology & Innovation (225 points)

Succeeding in the new economy — or any economy — takes innovation. Truly competitive states prize innovation, nurture new ideas, and have the infrastructure to support them. We evaluate the states on their support for innovation, and the number of patents issued to their residents. We also consider federal health, science and agricultural research grants to the states.

Education (200 points)

Education and business go hand in hand. Not only do companies want to draw from an educated pool of workers, they also want to offer their employees a great place to raise a family. Higher education institutions offer companies a source to recruit new talent, as well as a partner in research and development. We consider the number of higher education institutions in each state as well as long-term trends in state support for higher education. We look at several measures of K-12 education including test scores, class size and spending, and we look at technology infrastructure in the schools. We also look at life-long learning opportunities in each state.

Business Friendliness (150 points)

Regulation and litigation are the bane of business. Sure, some of each is inevitable. But we grade the states on the freedom their legal and regulatory frameworks provide for business.

Access to Capital (100 points)

Companies go where the money is, and capital flows to some states more than others. We look at venture capital investments by state, as well as traditional bank financing for small and mid-sized businesses.

Cost of Living (50 points)

The cost of living helps drive the cost of doing business. From housing to food and energy, wages go further when the cost of living is low. We measure the states based on an index of costs for basic items.

Our Sources

Our rankings are based primarily on publicly available data. Most of the information comes from federal government databases. In the cases where government statistics are not available, we seek neutral and/or ideologically diverse data sources. In addition to the sources listed below, we use data from the most recent Comprehensive Annual Financial Report (CAFR) issued by each state.

· ACT, Inc.

· American Lung Association

· American Society of Civil Engineers

· U.S. Bureau of Economic Analysis

· U.S. Bureau of Labor Statistics

· U.S. Census Bureau

· Cato Institute

· Center for Regional Economic Competitiveness

· U.S. Chamber of Commerce

· The College Board

· CoStar Group

· Council for Community and Economic Research (C2ER)

· U.S. Department of Agriculture

· U.S. Department of Commerce

· U.S. Department of Education

· U.S. Department of Energy

· U.S. Department of Justice

· Education Week Research Center

· EducationSuperHighway

· U.S. Employment and Training Administration

· U.S. Environmental Protection Agency

· Federal Aviation Administration

· Federal Highway Administration

· Federal Housing Finance Agency

· Foundation for Excellence in Education

· Fraser Institute

· Good Jobs First

· George Mason University

· Milken Institute

· Moody's Investors Service

· National Association of State Budget Officers

· National Conference of State Legislatures

· National Education Association

· National Institutes of Health

· National Right to Work Legal Defense Foundation

· National Science Foundation

· National Venture Capital Association

· The Pew Charitable Trusts

· RealtyTrac

· S&P Dow Jones Indices

· Sharecare

· State Higher Education Executive Officers

· Tax Foundation

· U.S. Patent and Trademark Office

· U.S. Small Business Administration

· U.S. Surface Transportation Board

· United Health Foundation