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2016 Top States for Doing Business: Georgia Back in Top Spot Again

Q3 2016
What’s it take to be recognized as a top state for doing business? On one hand, it’s a complicated question to answer, because there are a lot of factors that go into that kind of a reputation. On the other hand, you can get a pretty good idea of what it takes by checking out the attributes of some of the states that top the list.

The overall cost of doing business is, of course, a primary consideration, one that encompasses a wide range of components, from real estate costs to utility rates to labor expenses. The environment created by state and local leaders plays a big role, too — the choices they make on tax structures and business incentives can tip the scales on cost, and they also can impact the no-hassle factor driven by their overall responsiveness, their regulatory practices, and how fast they respond to permitting requests. And the kinds of workforce programs states establish make a tremendous difference in both labor-related costs and hiring challenges. A location or facility project won’t get far without adequate capital, either, and that’s a factor that can vary quite a bit from one place to another.

Site consultants have an insider’s view into all of these factors — and an unbiased perspective, too. That’s why Area Development’s Top States for Doing Business analysis solicits the views of in-the-know consultants. For 2016, we surveyed consultants and asked them to name their top state picks in each of 10 categories that impact location and facility decisions. They shared their top picks in each category, and we weighted those scores to come up with rankings within each factor, along with overall rankings that take all of the factors into account.

There’s a familiar face atop the overall rankings — Georgia is back again in the #1 spot for the third year in a row. The Peach State rode to the top by ranking in the top six spots on each of the factors in the survey — including #1 picks for cooperative and responsive state government as well as workforce development programs, and #2 for competitive labor environment, regulatory environment, and speed of permitting. An integrated and statewide approach to economic development puts everything from workforce to global commerce to innovation promotion to film industry support under one umbrella — and virtually every county is regularly touched by state economic development support in one way or another.

It goes without saying that you can’t stay ahead in the competitive business of economic development if you’re not constantly moving forward, and Georgia hopes to hang onto its lead in workforce development with its brand-new WorkSource Georgia initiative. It’s a unified, statewide approach for helping employers and qualified job-seekers find each other, and for spotlighting training and educational opportunities.

South Carolina ranks second, on the strength of its incentives, business-friendly government and permitting processes, and overall cost of doing business. The tax environment gets high marks, and no wonder — the corporate income tax rate is 5 percent, and there are no state property taxes, inventory taxes, local income taxes, taxes on manufacturing equipment or materials for finished products, nor wholesale taxes.

Texas usually ranks highly on this list, and this year it’s third overall. It’s #1 in multiple factors, including access to capital, competitive labor environment, and favorable regulatory environment. There’s neither a corporate nor individual income tax in Texas, and the Tax Foundation’s latest State Business Tax Index ha0s Texas in the top 10. Its labor environment gets a boost from a full three dozen public universities and 50 community college districts, along with a Skills Development Fund that awards millions of dollars annually to upgrade worker skills.

TOP STATES FOR DOING BUSINESS 2016

  1. 1.Georgia
  2. 2.South Carolina
  3. 3.Texas
  4. 4.Tennessee
  5. 5.Louisiana
  6. 6.Alabama
  7. 7.Florida
  8. 8.Indiana
  9. 9.North Carolina
  10. 10.Mississippi
  11. 11.Ohio
  12. 12.Nevada
  13. 13.California
  14. 14.Kentucky
  15. 15.Arizona
  16. 16.Arkansas
  17. 17.Oklahoma
  18. 18.Michigan
  19. 19.New York
  20. 20.South Dakota

Individual Categories

Overall Cost of Doing Business

  1. 1.Texas
  2. 2.South Carolina
  3. 3.Tennessee
  4. 4.Florida
  5. 5.Georgia
  6. 6.Alabama
  7. 6.tNorth Carolina
  8. 8.Mississippi
  9. 9.Oklahoma
  10. 10.Indiana

Corporate Tax Environment

  1. 1.Florida
  2. 2.Texas
  3. 2.tNevada
  4. 4.South Dakota
  5. 5.Wyoming
  6. 6.Georgia
  7. 6.tAlabama
  8. 6.tIndiana
  9. 9.Tennessee
  10. 10.South Carolina
  11. 10.tMississippi
  12. 10.tUtah

Business Incentives Programs

  1. 1.South Carolina
  2. 2.Louisiana
  3. 3.Georgia
  4. 4.Tennessee
  5. 5.Texas
  6. 6.Alabama
  7. 7.New Jersey
  8. 8.Mississippi
  9. 9.Florida
  10. 9.tIndiana

Access to Capital & Project Funding

  1. 1.Texas
  2. 2.California
  3. 3.New York
  4. 4.Georgia
  5. 5.Florida
  6. 6.Tennessee
  7. 7.North Carolina
  8. 8.Colorado
  9. 8.tMassachusetts
  10. 10.Ohio
  11. 10.tIllinois

Competitive Labor Environment

  1. 1.Texas
  2. 2.Georgia
  3. 3.North Carolina
  4. 4.South Carolina
  5. 5.Alabama
  6. 6.Tennessee
  7. 7.Florida
  8. 7.tMississippi
  9. 9.Idaho
  10. 9.tUtah

Leading Work Force Development Programs

  1. 1.Georgia
  2. 2.Louisiana
  3. 3.South Carolina
  4. 4.Tennessee
  5. 5.Alabama
  6. 6.Florida
  7. 7.North Carolina
  8. 8.Indiana
  9. 8.tMichigan
  10. 8.tCalifornia

Cooperative & ResponsiveState Government

  1. 1.Georgia
  2. 2.South Carolina
  3. 3.Louisiana
  4. 4.Tennessee
  5. 4.tFlorida
  6. 6.Ohio
  7. 7.Indiana
  8. 8.Mississippi
  9. 8.tAlabama
  10. 10.North Carolina

Favorable Regulatory Environment

  1. 1.Texas
  2. 2.Georgia
  3. 3.South Carolina
  4. 4.Tennessee
  5. 5.Louisiana
  6. 6.Alabama
  7. 7.Florida
  8. 8.Indiana
  9. 9.Arizona
  10. 10.Mississippi

Speed of Permitting

  1. 1.South Carolina
  2. 2.Georgia
  3. 3.Alabama
  4. 4.Tennessee
  5. 5.Texas
  6. 6.Indiana
  7. 7.Louisiana
  8. 8.Mississippi
  9. 9.Florida
  10. 10.Kentucky

Most Improved Economic Development Policies

  1. 1.Indiana
  2. 1.tOhio
  3. 3.South Carolina
  4. 4.Georgia
  5. 5.Michigan
  6. 6.Alabama
  7. 7.Tennessee
  8. 8.New Mexico
  9. 9.North Carolina
  10. 9.tArizona
Overall Cost of Doing Business
What components go into the cost of doing business? That, of course, depends tremendously on the business, and such questions as whether it needs lots of real estate or square footage, whether it’s a higher or lower user of energy, whether it needs a lot of workers or just a few, whether it has lots of customers in relatively close proximity, and many other variables. Needless to say, the business cost also includes taxes.

Our consultants give high marks to Texas, where the business tax burden tends to be lower, where a deregulated energy market ensures utility competition, and where right-to-work status encourages strong choices in the labor market. Tennessee, meanwhile, ranks among the nation’s best when it comes to low state and local taxation per capita, helped along by its lack of a personal income tax on wages and salaries. And South Carolina boasts a favorable tax status, too, along with the transportation cost advantage of a few hundred million potential customers reachable by truck in two days or less.

Highly ranked states tend to balance their advantages in different ways. Indiana, for example, does have a corporate income tax (with a rate that is on the decline), but it also compares favorably in workers’ compensation premium rates, and its cost of living is below average.
Methodology for 2016 Top States for Doing Business

Our 2016 Top States for Doing Business rankings reflect the results of our recent survey asking the consultants to give us their top state picks in 10 categories that impact companies’ location and facility plans. The responses were weighted with their #1 choice in each category receiving three points, #2 choice receiving two points, and runners-up in each category receiving one point. States were ranked in order based on the total of weighted scores across all 10 categories.



Corporate Tax Environment
Nobody likes taxes, but most people recognize that to a certain extent they are a necessary evil — a business can’t succeed without a host of public services, from education to infrastructure to public safety. But each state divides the burden in a different way, sometimes vastly different.

Top-ranked Florida, for example, has no personal income tax, and there’s no corporate income tax for limited partnerships and subchapter S-corporations. You won’t find a state-level tax on property, and there’s no inventory tax or tax on goods in transit. There are sales taxes, but those are offset by a long list of exemptions, ranging from manufacturing-related machinery, equipment, and energy to R&D expenses, commercial space activities, and film production.

Tied for second are Texas and Nevada, both of which go without state corporate and individual income taxes. There’s no state property tax in Texas, and the franchise tax system was reformed several years ago, with a fairer and lower margins tax plus a host of exemptions and reductions that reward good business practices. Nevada is in the Tax Foundation’s top five, and doesn’t believe in franchise or unitary taxes either.

Business Incentives Programs
It’s challenging to compare apples-to-apples when reviewing the advantages of different states, and business incentives are among the reasons. Every state is eager to land job-creating investment, and each state has its own way of sweetening the deal, with incentives that reflect local strengths as well as development aspirations and priorities.

Site consultants speak favorably of South Carolina, with a long list of business incentives, some of them statutory and some discretionary. Move a corporate headquarters there and you can earn a generous credit of up to 20 percent that can be applied against corporate income taxes or license fees. Conduct research and your tax burden decreases. Create jobs and you’ll be rewarded with incentives. Tourism infrastructure projects can earn incentives, and businesses that use state port facilities can earn a credit if they increase their port usage.

Louisiana also has a long and diverse list of possibilities, including incentives that encourage angel investment, technology commercialization, rehabilitation of existing structures, and even the creation of motion pictures, theatrical productions, and sound recordings. New Jersey’s incentives encourage everything from green energy to innovation, and there are numerous programs that aim to give growing businesses easier access to the capital they need. As is the case in most places, job creation is a primary goal, and various New Jersey incentives are tied directly to success in this regard — there are credits that can deliver thousands of dollars per job.

Access to Capital and Project Funding
You can’t grow anything — a flower, a child, or a business — without feeding it. Site consultants know that emerging or expanding companies need ready access to capital and funding for their projects, and are likely to want locations where that funding isn’t scarce. The economic woes of the past decade have changed the funding landscape, and the best states from this perspective tend to be those that have existing clusters of fast-growing business as well as state programs that either provide or facilitate funding.

This is one of the many areas where Texas excels, for a host of reasons. One of the programs that gets a lot of attention is the Texas Enterprise Fund, a generous pot of stimulus for economic development projects. Its awards include cash grants and have been as high as $50 million. But there are plenty of other programs on the list, too, such as the Certified Capital Company program that facilitates private, government-sponsored venture capital availability, and the Capital Access Program that aims to reduce funding barriers for growing companies that have trouble lining up conventional funding.

California and New York rank highly, too, thanks in part to their major concentrations of financial-sector activity as well as tech-related venture investment. Add in these states’ government-sponsored financial assistance and loan programs, and the capital picture gets even brighter.

Competitive Labor Environment
Surveys of location professionals typically list workforce-related factors among the most critical considerations. Companies need to know that there will be enough qualified workers to fill the jobs, and that those workers are available for a reasonable cost. Sounds simple enough, but the ability to fulfill those needs depends a lot on the characteristics of the existing workforce, clusters of specific skills, wage rates and how much those rates are influenced by organized labor, how high pay must be to help workers afford the local cost of living, and whether the quality of life is the right match for those workers who may need to be attracted from somewhere else. A wild card that helps ease some of the above challenges is workforce development (more on that below).

One labor-related attribute shared by all of the states at the top of the competitive labor environment list is right-to-work status. All are states whose laws ensure that workers aren’t required to support a union to work at any given workplace. These states also tend to have large workforces with already diverse skillsets. North Carolina, for example, has a manufacturing workforce exceeding 450,000, the biggest in the Southeast. A number of Southern States on this list have strong automotive manufacturing sectors, including Alabama and Tennessee. Meanwhile, North Carolina has a large active-military population, which means it always has a big group of potential workers coming off active duty — that tends to be a young and well-trained group with a strong work ethic. The state also has a prestigious collection of colleges and universities, and a high-quality network of community colleges (attributes shared by Texas, which leads the ranking of competitive labor environment).

Clearly, the workforce development strengths spotlighted in the next section are vital, but the less training that potential hires need, the better off everyone is.

Leading Workforce Development Programs
It’s a location professional’s dream to open a new facility and have long lines of immensely qualified candidates applying for jobs. And it happens, sometimes, but more often than not there’s a big need for workforce development. A shortage of qualified workers is a common enough problem — what really sets some states apart is how well they address that challenge.

Georgia, the overall top state for doing business, is tops in workforce development, according to the site consultants we surveyed. Workforce training in Georgia is provided through several initiatives, but the state’s signature program is Georgia Quick Start, the oldest program of its kind in the U.S. Quick Start’s training programs are provided free of charge through the Technical College System of Georgia. The programs are designed specifically for the skills a company is looking to develop in its employees, with training provided in classrooms, mobile labs, or on site. Quick Start delivers training in a broad range of industry sectors, including biotech/healthcare, warehousing/distribution, automotive, advanced manufacturing, and food/agribusiness. Recent clients have included Baxalta, Caterpillar, Mando, Carter’s, Starbucks, King’s Hawaiian, Mitsubishi Power Systems Americas, NCR, and Ricoh Electronics, among others.

Louisiana, meanwhile, gets high marks for its LED FastStart workforce training program, which blends employee recruitment, screening services, and the development and delivery of training programs for new or growing companies — the cost: zero. FastStart’s staffers have experience in a wide range of industries, giving them the ability to support everything from manufacturing operations to corporate headquarters to R&D initiatives to call centers.

And AIDT — Alabama’s leading workforce development program — has been helping to provide new and expanding industries in the state with qualified workers since the early 1970s. Among AIDT’s latest initiatives is the establishment of the Alabama Aviation Training Center, which is helping Airbus assemble a workforce for its aircraft assembly facility in Mobile.

Cooperative & Responsive State Government
One of the best ways to welcome new and expanding business is to simply put out the welcome mat. The attitudes of state and local officials can go a long way toward facilitating economic development, or discouraging it. Growing companies would much rather choose locations where the state government is cooperative and responsive.

The site consultants surveyed put Georgia atop this list, too. Its Department of Economic Development takes a broadly integrated approach to marketing the state and rolling out the red carpet, aligning a wide range of services, departments, and initiatives relating to the workforce, global trade, innovation, tourism, and other areas.

South Carolina, #2 on this list, also is consistently ranked among the most business-friendly states, from its tax structure to its support of innovation to its incentives encouraging growth. Texas has long declared that it’s “Open for Business,” backing up the slogan with a healthy list of services for companies seeking a place to do business. Indiana’s legislative sessions regularly include efforts to build upon a business climate already widely recognized as friendly.

Favorable General Regulatory Environment
There’s no better way to pull back the welcome mat than to enact stifling regulations and requirements. Some states do just fine economically, despite reputations for high regulation. The states atop this list, on the other hand, actively work to tip the scales in the other direction and facilitate business location and expansion through a more favorable regulatory environment.

Texas, for example, has focused a lot of attention on making its legal system fairer for the business community, enacting major packages of reforms at least three times since the early 2000s. Tort reforms protect large and small businesses alike from frivolous claims and suits, trying to rein in damages, end court-shopping, and allow judges to send packing those plaintiffs whose suits have no merit.

Tennessee, too, boasts a pro-business regulatory environment, having devoted a lot of effort to reforming tort and workers’ compensation laws. Arizona has undertaken a variety of measures to streamline regulation and reduce red tape, including changes that simplify tax collection and eliminate requirements for multiple tax licenses, tax returns, and tax audits.

Speed of Permitting
When it comes to business-unfriendly practices that cause red lights in the location or expansion process, slow permitting is among the worst offenders. With all the talk of “shovel-ready” sites and easily adaptable existing spaces ready for businesses that need to move quickly, speediness isn’t possible unless the permitting lights are green.

Consultants say that no state turns those lights green any better than South Carolina. The state’s proactive approach toward easing regulatory slowdowns got a boost a dozen years ago when it created a Small Business Regulatory Review Committee, a collection of volunteer business owners who review the regulatory situation and, if needed, order economic impact studies and flexibility analyses.

Mississippi works to streamline permitting (and the whole economic development process) by taking a team approach. Collaborations between state and local economic development officials are intended to ease the process, including the site choice and the workforce development…and the speedy permitting that makes it all possible.

Kentucky also ranked among the top 10 for its speed of permitting. It’s Build-Ready site program ensures companies that site due diligence has been performed and permits are in place, helping a business to get up and running quickly. Further, the state has put in place a new Red Tape Reduction initiative to streamline the regulatory process.

Most Improved Economic Development Policies
In the competitive world of economic development, if you’re not moving forward quickly, you may as well be moving backward. State economic development policies can make all the difference in helping determine where the next big project will land. Such policies may include incentives to seal the deal or legislation to reduce taxes. They may be initiatives to help overcome potential challenges such as shortages of skilled workers or business costs that are just a little too high.

Our panel of consultants weighed in on which states have been working the hardest to tip the scales and improve their economic development policies. Neighboring Indiana and Ohio tied for the top spot.

Indiana has made a number of moves in recent years to improve upon its business-friendly reputation. For example, 2014 legislation is resulting in a gradual reduction of the corporate income tax rate — this past summer it dropped from 6.5 percent to 6.25 percent, and it’ll keep dropping by a quarter percent every year through 2020. In 2021, it’ll settle in at 4.9 percent. The financial institutions tax rate is also heading south, a little at a time. The legislation, signed two years after Indiana joined the ranks of right-to-work states, also gave counties new leeway in creating tax breaks for businesses.

Like Indiana, Ohio operates on a balanced budget with a healthy surplus for a rainy day, and that kind of fiscal responsibility translates into high credit ratings for both states. Ohio claims the lowest tax burden on new investment in the Midwest, and among the lowest tax burdens nationwide for both new and mature businesses. The state also welcomes new industry with a broad range of economic development grants, loans, and tax credits.

Third-place South Carolina has emerged as a manufacturing powerhouse, and an even bigger economic development winner. New and expanding businesses invested more than $4 billion last year and created more than 17,000 jobs, and the state boosted its exports for the sixth straight year, topping $30 billion. Helping the state thrive is an already positive tax environment and business-friendly climate. Among its newest economic development ideas is the S.C. Innovation Hub, an online portal giving tech-sector individuals and businesses a platform to connect with one another and access resources.

Just because Georgia has topped the Top States list for multiple years, that doesn’t mean the Peach State is sitting still. Its brand-new WorkSource Georgia is intended to align the resources of the state’s workforce system, with the hopes of making it all the easier for job creators to connect with job seekers. It’s this kind of continual improvement that landed Georgia fourth on the “most improved” list.

Michigan (5th for most improved economic development policies) continues to hone its business-friendly reputation. With regard to taxes, for example, the state has a simple, 6 percent corporate tax, but the elimination of industrial personal property taxes is expected to save small businesses hundreds of millions of dollars by 2020.
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