Virginia garners high rankings for its business climate, a complex and important component of a state's economic health and potential.
Why is This Important?
Business climate gives an indication of a state's current economic status and its future growth potential. States with positive business climates are likely to attract new businesses and encourage expansion of existing ones, thus promoting economic growth in the state.
How is Virginia Doing?
As its many accolades attest, Virginia has long been widely regarded as a top-notch state for business, with a high-quality workforce and a business-friendly environment. Challenges remain, however, particularly in terms of adjusting to recent cuts in federal spending and slow overall growth, as well as ongoing infrastructure and congestion issues in some areas of the state.
Forbes Magazine Best States for Business 2015
- In October 2015, Forbes.com and Forbes
Magazine rated Virginia as the 7th Best State for Business -- a drop from 4th the previous year and a worsening trend from the 2006-2013 period, when the Commonwealth ranked #1 or #2 in this annual Best States for Business study.
According to Forbes, Virginia's rank fell due to higher business costs and a declining economic climate. Utah maintained its 1st place, while peer state North Carolina rose to 2nd. Maryland dipped again, this time to 33rd (down from 20th in 2014), but Tennessee ticked up a bit to 19th (from 21st in 2014). Forbes' index is based on a combination of factors for business climate, labor, regulatory environment, economic climate, growth prospects, and quality of life.
- In July 2015, CNBC and CNBC.com dropped Virginia's rank from 8th best state for business to 12th, citing slowing job creation in the state. All peer states also dropped in the rankings: North Carolina came in 9th (from 5th), Tennessee ranked 17th (14th), and Maryland was rated 36th nationally (from 35th). CNBC's rankings are based on 51 indicators in business costs, workforce, quality of life, economy, and infrastructure and transportation, as well as several other categories.
- In its 2015 "Enterprising States" report, which focused heavily on innovation as a driving economic force, the US Chamber of Commerce did not assign states an overall ranking, but instead grouped them as being Top 10, 11-25, or Below 25 on 35 measures. Virginia achieved Top 10 status for median income, educational attainment and advanced high school placement scores, and the state's high share of both high-tech firms and high-tech and STEM jobs. On the remaining 29 indicators, Virginia placed in the middle tier for 11 measures and below 25 on 18 measures.
- Virginia placed 12th in a tie with Oklahoma for best business climate in a 2015 report by Site Selection magazine. Peer states North Carolina (2nd) and Tennessee (7th) ranked in the top ten, while Maryland was below the rank cutoff of 25.
- Virginia fared much better in the annual survey done by Pollina Corporate Real Estate Inc. A US corporate site selection expert that scores states based on 32 factors of most importance to their clientele, in 2015 Pollina again ranked Virginia #4 nationally for its pro-business climate.
CNBC Best States for Business 2015
What Influences the Business Climate?
Business climate is influenced by a number of factors, including the cost of labor, transportation, and energy; education levels and the quality of the workforce; and the tax and regulatory environment.
Indices of business climate attempt to capture this multitude of factors in different ways. The Forbes index incorporates a large number of measures that capture specific aspects of the business climate. CNBC ranks all 50 states in 10 broad categories, including cost of doing business, workforce, economy, education, and quality of life. While no index provides a perfect measure, they do give an indication of how businesses view the business climate in Virginia.
It is also important to note that business climate surveys are "weighted" for those factors that are specifically beneficial for business and investors. For example, states that stress environmental and safety regulations are scored lower than those where the regulatory environment is more relaxed. In a similar fashion, states lose points if their median wages are high, even though those high wages also mean better scores on consumer and quality-of-life measures. There are also significant variations in scoring criteria, methods, and results across the several organizations which conduct these annual surveys and even within the same survey from year to year.
What is the State's Role?
States can improve their business climate by:
- finding a balance between pro-business regulation and tax structures
- promoting an educated labor force
- ensuring adequate transportation networks
- raising the quality of life for residents
State rankings are ordered so that #1 is understood to be the best.
Data Definitions and Sources
Forbes Magazine: Business Costs -- Index based on cost of labor, energy and taxes. Labor -- Measures educational attainment, net migration, and projected population growth. Regulatory Environment -- Measures regulatory and tort climate, incentives, transportation, and bond ratings. Economic Climate -- Reflects job, income, and gross state product growth, as well as unemployment and presence of big companies. Growth Prospects -- Reflects projected job, income, and gross state product growth, as well as business openings/closings and venture capital investments. Quality Of Life -- Index of schools, health, crime, cost of living, and poverty rates.
CNBC: Publicly available data on over 50 different measures of competitiveness were used to score all 50 states. States received points based on their rankings in each metric. Then the metrics were divided in 10 broad categories: cost of doing business, workforce, quality of life, infrastructure and transportation, economy, education, technology and innovation, business friendliness, access to capital, and cost of living.
United States Chamber of Commerce, Enterprising States 2015: Enterprising States Innovate. The Chamber revised / renamed its indicators in 2015 to focus on transportation and trade, business climate, talent pipeline, and high-tech performance, in addition to traditional indicators such as economic performance and innovation and entrepreneurship.
2015 Top Ten Pro-business States (pdf), Pollina Real Estate.
See the Data Sources and Updates Calendar for a detailed list of the data resources used for indicator measures on Virginia Performs.