Editor's Introduction: And The Winner Is—Texas

Welcome to our second annual look at America’s Top States for Business—a study that shows you can’t sit still if you want to stay competitive.

When we embarked on the 2008 edition, we wondered how much could possibly change in one year. After all, the states that put it all together for business have it down to a science, and those that are gunning for the top spot couldn’t possibly make a difference in so short a time—could they?

It turns out they can.Our 2008 study is full of changes, most notably at the top.

Hello Texas, Goodbye Virginia

(AP)

Houston skyline, Texas

Fueled by record high energy prices, Texasis America’s Top State for Business in 2008. It is not a huge climb—Texas was number two last year. Just like last year, our study shows Texas has the best all-around economy in the nation. But the Lone Star State made strides this year in Transportation—where it went from number five to number one—as well as Business Friendliness, Cost of Living and Quality of Life.
Last year’s Top State, Virginia, falls to number two in 2008. It’s not that Virginia is no longer a great place to do business—it is. But it is also not immune to an economic downturn. Economic growth slowed markedly in the Old Dominion State, dropping it from the third best economy in the nation last year to number 17 in our study this year.

New To The Top Five

Two new states enter our top five for 2008: Coloradoat number five, and Idaho at number four. Both states were solid performers last year, but they cracked the top five this year by playing to their strengths.

Colorado, among the first states to be hit by the housing crisis, has been actively courting what it calls the New Energy Economy—wind and solar. The effort has paid off in jobs, and a big jump in our Business Friendliness category, finishing fifth this year, from number 12 in 2007.

Idaho has been experiencing a long but quiet economic boom. Anchored by Boise-based chipmaker Micron Technology, high-tech is hot in Idaho. But in this era of record commodity prices, so is agriculture (that’s right, hot potatoes).

Important Role Of Education
Education is crucial in the race to attract business, and it continues to be a trouble spot for some otherwise solid states. Utah, which repeats its number three overall ranking in our study this year, nonetheless comes in at number 46 in education. State officials insist the statistics—particularly the figures on per pupil spending—are skewed somewhat by Utah’s youthful population and large families. Likewise, Idaho, despite its emphasis on high technology, offers some of the worst education in the nation, ranked 48^th.

Moving Up/Down

This year’s Most Improved State for Business is Indiana, which jumps 13 places to number 13. Indiana improved in eight of our 10 categories, with its biggest jump in the Economy category, rising to number 37 from number 48. Indiana’s reliance on commodities—both agricultural and industrial—helped improve the state’s economy from its near-bottom ranking last year. Other big movers:

South Dakota, with the best Cost of Doing Business, rises to number seven overall from number 18; and Illinois, riding the commodity boom, rises nine spots to number 30 overall. On the flip side, Florida, hit hard by the foreclosure crisis, tumbles to number 17 from number 8 last year.

Maryland also drops nine places to number 36. New York(number 26) and Alabama (number 42) both drop five places.

Two Sides To The Economy

There were some big moves in the “internals” this year as well. Did you know that Oklahoma has one of the fastest growing economies in the nation? That surprised us at first, but it stands to reason. The state’s economy is heavily dependent on energy, after all. Oklahoma’s Gross State Product grew more than 7% in 2007, according to the Bureau of Economic Analysis, and 10.8% in 2006. That growth propelled Oklahoma to a number 3 ranking in our Economy category, compared to number 26 last year.

On the flip side, Georgia, which drops out of our overall Top Five this year, can blame the economic slowdown—especially the housing crisis. Slowing growth turned the 18^th-ranked Economy in our study last year into number 31 this year. Ouch.

Stuck At The Bottom

One thing that hasn’t changed in a year is America’s Bottom States for Business. Alaska, which repeats at number 50, couldn’t capitalize on the energy boom to outweigh its negatives in cost and location. Hawaii, at 49, at least gets a consolation prize: it’s Hawaii!

Just like last year, our study rates the states on the very selling points they use to attract business. To maintain consistency, we measured the same factors as in 2007. The states are ranked on 40 metrics in ten broad categories, weighted based on how frequently they appear in state economic development marketing literature.

Of course, different businesses have different needs, and every state has something different to offer. In business, one size doesn’t fit all. But our study shows some states are more competitive than others, and competitiveness, from year to year, is a moving target.