Texas Is America's Top State for Business 2012

July 10, 2012
CNBC
Scott Cohn

The Lone Star State makes a triumphant return as America’s Top State for Business—its third time at the top of our rankings.

“Listen, there is a reason that Caterpillar [CAT 80.27 -2.87 (-3.45%) ] moved their hydraulics manufacturing and their engine manufacturing to the state of Texas,” said Gov. Rick Perry in November during the CNBC Republican presidential debate.

We can attest to that.

In our sixth annual study, Texas racked up an impressive 1,604 points out of a possible 2,500, with top-10 finishes in six of our 10 categories of competitiveness. Texas has never finished below second place since we began the study in 2007.

Each year, we score all 50 states on the criteria they use to sell themselves. This year’s analysis is the most comprehensive yet, using 51 metrics developed with the help of the National Association of Manufacturers and the Council on Competitiveness, as well as input from the states themselves.

This year’s categories and possible point totals are:

Cost of Doing Business (350)
Workforce (350)
Quality of Life (350)
Infrastructure & Transportation (325)
Economy (325)
Education (225)
Technology & Innovation (225)
Business Friendliness (200)
Access to Capital (100)
Cost of Living (50)

This year’s study comes amid slowly improving fortunes for the states. A recovering economy coupled with lingering fiscal restraint following the Great Recession are helping states improve their finances for the first time in years.

“Revenue performance remains positive, expenditures in most states are stable and few states have faced mid-year budget shortfalls in fiscal year 2012,” the National Conference of State Legislators reported in May. That means states can resume their focus on the battle for business — and jobs.

In addition to the top spot overall, Texas has the nation’s best Infrastructure, according to our study. It improved to second place forTechnology and Innovation, and boasts the third lowest Cost of Living. The state's Workforce improved to seventh best from 14th last year. Access to Capital declined a bit, but Texas still finished in the top 10 (eighth). Perhaps most impressive, the Texas economy recovered from a rare stumble last year, when it finished 14th in the category, improving to fifth this year.

Texas endured a wrenching budget crisis last year. While the state is still not out of the fiscal woods, it managed to emerge with its sterling, triple-A bond rating and stable outlook intact.

The state had to make some sacrifices though, and that hurt in some categories. Texas comes in 26th inEducation and 35th in Quality of Life. And while the state held the line on income taxes, the overall tax burden — including property and sales taxes — is high. That hurts Texas in the all-important Cost of Doing Business category, where it comes in 28th.

Since we began ranking the states in 2007, Texas and Virginia have traded places each year in first and second place. But the pattern was broken in 2012.

This year’s runner up is not Virginia but Utah, which surged from last year’s eighth-place finish. The Beehive State boasts low costs (11th lowest for Cost of Doing Business, sixth for Cost of Living), a world class Workforce (ninth place) and moves into the top 10 for Quality of Life. The state has seen an impressive influx of venture capital of late, jumping ten places to 13th for Access to Capital, and its Infrastructure improved to eighth place this year.

Virginia: Road to Trouble

So what happened to Virginia — last year’s top state?

The Commonwealth is still a contender, finishing a solid third overall. But it faltered in two categories in particular: Infrastructure and Economy.

Infrastructure — specifically the state’s perpetually clogged highways — has long been an issue in fast-growing Virginia, and there is fresh evidence this year that the state is having trouble keeping pace. With some of the country's toughest commutes, the state dipped to number 33 in the category, down from 10th a year ago.

Virginia’s economy remains in the top tier. But it has suffered in part due to circumstances beyond its control. The state’s proximity to Washington, DC has helped in previous years. Late last year, however, Moody’s slapped a negative outlook on Virginia’s otherwise pristine bond rating because of the federal government’s fiscal crisis. That contributed to Virginia slipping to 10th from eighth in our Economy category this year.

While still the envy of most states, Virginia declined in a total of six categories in 2012. The other four are Cost of Doing Business (32/21), Education (13/6),Technology & Innovation (14/11) and Business Friendliness (4/3). In this competition, you can’t post that many declines and stay on top — or, it turns out, finish second either.

Raconteur Media Company in Austin, TX designed, develops and maintains RickPerry.org for Texans for Rick Perry.