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Top States for Doing Business 2014: Georgia Unseats Texas, Industrial Midwest Rises

Q3 2014
Sparking growth in business investment and jobs has proven more difficult than expected for states as they have emerged from the Great Recession. Capital spending and, especially, job creation have remained below par as corporate chiefs and business owners stick with a conservative philosophy until they perceive signs of a true boom. So the fight for the attention of site consultants and CFOs is more pitched than ever.

With that in mind, Area Development is publishing our fifth annual Top States for Doing Business survey of site consultants, ranking the states based on their number of mentions by the consultants in three overall categories and 18 subcategories:

Business Environment: overall cost of doing business, incentive programs, corporate tax environment, cooperative state government, access to capital and project funding, speed of permitting, most favorable regulatory environment

Labor Climate: availability of skilled labor, competitive labor costs, labor climate for right-to-work states, labor climate for non-right-to-work states, leading workforce-development programs

Infrastructure and Global Access: distribution and supply-chain hubs, rail and highway access, certified sites/shovel-ready programs, competitive utility rates, energy reliability and smart-grid deployment, water outlook, including availability and cost

Three major features of the list pop up. First, it continues to be dominated by states in the South and mid-South that have managed to extend the momentum in landing business development that they have enjoyed for some time (mostly, these states just switched positions within the top 10).

Second — and probably more intriguing because it is a new development — the list includes two states from the industrial Midwest. The presence of Indiana and Ohio on the 2014 list indicates that these states in particular, and the upper Midwest in general, are scratching their way back into position as major players in the U.S. economic-development derby.

And third, the state of California finally proved unable, in the new list, to hang on to its 10th place ranking in the 2013 survey. The state’s reputation with site consultants keeps taking hits — witness Toyota’s announcement earlier this year that it plans to move its corporate headquarters and 4,000 jobs to suburban Dallas from southern California. And so this year, California placed in the top states in only three of the 18 sub-categories, notably ranking third for access to capital and project funding, no doubt a legacy of the continued success of Silicon Valley.

The following profiles of each of the top 10 states provide insight into why each state is among the surveyed consultants’ top choices for new and expanded facilities.

Top States For Doing Business 2014

  1. 1.Georgia
  2. 2.Texas
  3. 3.South Carolina
  4. 4.Alabama
  5. 5.Tennessee
  6. 6.Louisiana
  7. 7.Indiana
  8. 8.North Carolina
  9. 9.Ohio
  10. 10.Mississippi
Full Rankings and Results
1. Georgia It’s difficult to beat Texas on any list of economic development power states these days, but Georgia did exactly that in the Area Development survey of site consultants, nudging Texas down into the No. 2 spot after it finished No. 1 a year ago. Georgia’s accomplishment was especially impressive because of the breadth of its strong performances over most of the 18 categories voted on by the consultants, including top-three finishes in 12 of them.

The Area Development honor follows other recent recognition of Georgia’s rise in the ranks, which included its choice by a CNBC study as the No. 1 place for business in America. Such rankings “are a testament to the commitment from Georgia businesses, communities, economic development partners, and the people of Georgia,” Gov. Nathan Deal said in a statement, indicating his confidence that “more businesses will consider expanding or relocating here.”

Georgia’s success has come from dead reckoning in areas that are crucial to business locators. That includes the state’s welcoming and business-friendly government, to be sure. And employers are enthusiastic about one of the Georgia legislature’s most recent moves: passing significant workers’ compensation reform that cuts costs for business.

The state also enjoys a strong infrastructure, featuring Hart International, one of the world’s most efficient passenger airports; two deepwater ports; and one of the nation’s most extensive surface-transportation networks. (The consultants ranked Georgia No. 2 for its overall infrastructure and global access.)

No wonder that Georgia has been able to announce a continuing string of business expansions and relocations over the last year. One of the biggest was the plan hatched by Kia to expand its auto-making operations in the state as the Korean automaker increases its share of U.S. car sales. Its Georgia workforce has, in fact, helped the brand move to the top of automotive-quality perceptions among American consumers. In fact, Georgia’s Quick Start has ranked as the leading workforce development program among site consultants polled in the Area Development Top States for Doing Business survey in each of the five years it has been conducted.

2. Texas Texas keeps racking up big economic development wins, such as the Toyota headquarters relocation. But the state has slipped in the consultants’ ranking to No. 2.

No state in the past few decades has put together a run like Texas, which alone was responsible for about one third of America’s net-job gains over a decade-long period that ended in 2012. The pillars of its success include a pro-business environment, strong work force, improving schools, and an infrastructure that allows efficient access to global markets. Plus, there are no personal or corporate income taxes.

The ongoing U.S. boom in natural gas and oil exploration and production, thanks to “fracking,” is juicing the Texas economy as well, especially because the Gulf Coast also is home to the nation’s biggest concentration of oil refineries.

The continuing advantages of Texas were enough to get Toyota to move its headquarters over the next few years to Plano, near Dallas; that move will add to a substantial automotive base in the state that also includes a General Motors assembly plant in Arlington and Toyota’s pickup-truck factory in San Antonio. Also exemplary of Texas’s appeal is the opening of a customer-service center in far North Dallas by Kohl’s, the Wisconsin-based department-store retailer that will employ 1,500 people within four years.

But the state is not without its challenges. Texas’ tough problems with drought discourage some businesses. And site consultants might not like the fact that Texas retains a so-called “margin tax” as its primary business levy; it’s considered complicated and onerous — at least by Texas standards.

3. South Carolina The Palmetto State long has been held in high regard by the economic development community, but South Carolina picked up two huge new testimonials this year from a couple of the biggest names in global manufacturing. BMW and Boeing each announced crucial new and expanded roles for their South Carolina operations.

The companies could cite South Carolina advantages such as its low overall cost of doing business (site consultants ranked the state No. 1 in this regard). The state was also given especially high marks for its incentive programs, cooperative state government, and certified sites/shovel-readiness in the Area Development survey. Site consultants ranked South Carolina No. 2 for all three of the aforementioned factors.

Probably the most consistent advantage of South Carolina is the quality of its workforce. South Carolina is a right-to-work state with a low unionization rate of 3.3 percent overall, and — at 1.3 percent — the lowest unionization rate in the United States for the private sector.

The state’s ReadySC workforce-training system includes recruiting, screening, training, and other aspects of workforce preparation. ReadySC, for example, committed to help Boeing hire 3,600 people over the next several years. And that was even before Boeing committed to producing the new stretch version of the Dreamliner at its plant in North Charleston, S.C., which will become the first Boeing jetliner model to be built solely in a nonunion factory.

Meanwhile, BMW said it would expand its plant in Spartanburg County with a $1 billion investment that will create 800 new jobs and make the facility the biggest exporter of autos anywhere in the United States.

4. Alabama Alabama remained solidly in position No. 4 in the Area Development survey of site consultants. This may be based on the strength of its significant and growing accomplishments in transportation manufacturing and the success of the state’s long-term economic development plan known as Accelerate Alabama. Accelerate Alabama was launched in 2012 and concentrates on optimizing Alabama’s advantages in infrastructure, workforce training, and other areas in working with 11 major industries.

The state’s most notable development is the continued climb in importance of car production, with Alabama as host to major facilities for Mercedes-Benz, Honda, and Hyundai that produced more than 915,000 vehicles last year. Mercedes launched output of its C-Class sedan, while Toyota moved ahead with a $150 million expansion of its Alabama engine plant. Meanwhile, the state’s auto-supplier sector added 2,300 new jobs in the year ended in June to keep up with burgeoning final demand.

“They’ve done a nice job in Alabama for Mercedes,” Sean McAlinden, executive director of the Center for Automotive Research in Ann Arbor, Mich., told Area Development.

And the state has also “done a nice job” for the airplane and aerospace industry. Alabama was the traditional home of Saturn rocket manufacture during moon-shot days, and now its United Launch Alliance factory in Decatur turns out a range of $200 million to $1 billion in rockets to carry an array of satellites into space.

And in its first U.S. production, Airbus plans to begin manufacturing its A320 family of passenger jets in Alabama next year. That will add to the European consortium’s existing engineering presence in Alabama. It will also prompt development of a supplier infrastructure, joining Boeing’s operations in the state to make Alabama one of America’s air-transportation manufacturing leaders.

5. Tennessee The Volunteer State continues to leverage its geographic position at the virtual center of the United States into a pronounced advantage in infrastructure factors in the 2014 Area Development survey of site consultants, helping ratchet Tennessee up two spots to an overall No. 5 ranking this year compared with No. 7 last year.

In fact, Tennessee placed No. 1 in overall infrastructure and global access as well as No. 1 in two subcategories within that ranking: distribution/supply-chain hubs and certified sites/ shovel-ready programs. It also placed No. 5 for its rail and highway access.

“Companies choose to locate in Tennessee for a number of reasons, but our pro-business environment, ideal central location, and advanced transportation and logistics system tend to be prominent factors in the decision-making process,” said Tennessee Economic and Community Development Commissioner Bill Hagerty.

Notably, Tennessee — with its effective history of water development stretching all the way back to the creation of the Tennessee Valley Authority as a water-based platform to help drag the state out of the Great Depression — also was the top-cited state outside the Upper Midwest for the availability and cost of water.

Tennessee also ranked No. 6 in workforce development in the 2014 survey. No doubt some site consultants were chagrined at the high-profile tussle earlier this year between Tennessee politicians and supporters of United Auto Workers representation at the Volkswagen plant in Chattanooga. The union narrowly lost an organizing vote in February, and recently Volkswagen AG committed to building a new mid-size SUV in an expansion of the Chattanooga site.

6. Louisiana In holding on to its No. 6 position in the Area Development survey from 2013 to 2014, Louisiana has consolidated its reputation among site consultants as one of the most accommodating state governments under Gov. Bobby Jindal.

Louisiana tied with Alabama for No. 4 in overall business environment and is in the top four in several important sub-categories, including No. 1 in incentives programs. The state has combined a business-friendly approach with enduring advantages such as a highly productive and well-trained workforce and a modern transportation infrastructure.

Since 2008, the state has secured projects that are creating more than 83,000 new direct and indirect jobs and more than $54 billion in new capital investment, along with hundreds of millions of dollars in new sales for Louisiana’s small businesses. Among the global companies investing are BASF, Nucor, Dow, Bell Helicopter, Chiquita Brands, and Procter & Gamble.

Major projects from leading digital media/technology companies — including IBM, CenturyLink, CSC, GE Capital, CGI, Gameloft, and EA — are joining such investments. And, perhaps due to an aggressive state program of tax incentives for the film industry, in 2013 the Louisiana film industry overtook that of California for the title of “film-production capital of the world,” according to nonprofit Film L.A. — the city of Los Angeles’ film office. Of the 108 major-studio productions released into theaters last year, 18 were shot substantially in Louisiana, according to the report.

There’s also huge momentum behind Louisiana’s already-strong position in hydrocarbon processing and transportation, as the fracking boom takes hold across America’s mid-section and much of the new supply is funneled to and through Louisiana. For example, Sasol, the South African oil company, is proceeding with one of the largest foreign-direct investments in the history of the U.S. with a liquid-fuels complex that will require construction outlays of up to $21 billion. The Sasol project in Southwest Louisiana will benefit from $2 billion in incentives proffered by the state. It’s also likely to create about 1,200 permanent jobs.

7. Indiana Indiana is leading a charge by upper Midwest states to compete with the recently ensconced economic development powerhouses in the South and mid-South. The Hoosier State rode America’s manufacturing boom — with state-level corporate-tax reform and a new right-to-work law, among other factors — to the No. 7 spot in the Area Development survey of site consultants, as Indiana also benefited from some of its traditional advantages.

One believer is Debbie Smith, managing director of America Place, a commercial real estate developer in Jeffersonville, Ind., across the Ohio River from Kentucky, which landed a Fortune 500 auto supplier in its first building and is developing one million square feet of space. “I’m speaking with a lot of executives in the manufacturing industry, and Indiana is the place they want to be,” she says.

What’s going on? Indiana’s geographic advantages showed up big in site consultants’ ranking it highly in the survey as a distribution and supply-chain hub and for its rail and highway access. Indiana also placed in a tie for No. 1 with Michigan for its availability of skilled labor and No. 2 for water availability and cost — both legacy attributes as well.

But what helped Indiana vault closer to top-of-mind for the consultants surveyed by the magazine were some very recent developments. First, in 2012, Indiana became the first new right-to-work state in many years, suddenly putting it on dozens of new site-consideration lists.

Also, last year, the Indiana legislature passed what was “probably the best individual income-tax reform recently,” according to Scott Drenkard, economist and manager of state projects at the Tax Foundation. It maintained the third-lowest corporate income tax rate, at 4.9 percent, while also instituting a moderate cut in individual income taxes and speeding up repeal of the inheritance tax. Surveyed site consultants rewarded Indiana with a No. 5 showing this year in corporate tax environment.

8. North Carolina The Tar Heel State slid to the No. 8 spot from the No. 5 spot last year in Area Development’s survey of site consultants. But the drop more than likely reflected more aggressive efforts and more impressive improvements by competing states than anything “gone wrong” in North Carolina.

Indeed, by many indicators, the business climate in North Carolina just keeps getting stronger. In 2013, the state passed a comprehensive tax-reform package that was hailed by some analysts as the best by any state in decades. Gov. Patrick McCrory signed a bill that reduced North Carolina’s already-low corporate income tax rate by 29 percent, to 6 percent this year from 6.9 percent, and then again to 5 percent in 2015.

Since then, Gov. McCrory led the devising of a 10-year strategic plan for economic development in North Carolina. The plan includes recommendations that the state should nurture high-performing industries already committed to the state, undertake broad-scale regulatory reform, streamline tax credits to encourage venture capital investment, and so on.

Consultants to industry continue to rank North Carolina highly in crucial infrastructure areas including competitive utility rates, energy reliability and smart grid deployment, and certified sites/shovel-ready programs. North Carolina updated its Certified Sites program, which has vast digital capabilities.

The state also has continued to rank highly for its labor climate, with the nation’s lowest unionization rate, and in the quality of its workforce. Thanks in part to the presence of the educational institutions in its Research Triangle, North Carolina’s expanding and diverse labor force is up to the demands of today’s knowledge-based industries.

9. Ohio The Buckeye State impressed site consultants, as Ohio became the second Midwest state to join the list for 2014, placing No. 9. Like Indiana, much of Ohio’s positive showing stemmed from its legacy advantages. It placed No. 4 in the overall infrastructure/global access category because of its central location, distribution and supply-chain infrastructure, rail and highway access, and water outlook as a Great Lakes state.

But Ohio also placed a strong No. 6 in overall labor climate. This reflected not only the deep pool of skilled labor (No. 2), but also progress in how business utilizes this advantage in Ohio. The state has stopped short of adopting the right to work, as neighboring Michigan and Indiana have done, but the consultants responding to the Area Development survey ranked Ohio’s labor climate as No. 3 among all non-right-to-work states, over traditional favorites such as New Mexico and Colorado.

Also, Ohio has made great strides in improving its business climate. The Ohio legislature laid claim to the largest year-to-year tax cut of the 2013 legislative sessions with a cut of $2.7 billion over three years, including breaks for small businesses as well as individuals. And Gov. John Kasich can argue in his 2014 re-election campaign that Ohio has gained nearly a quarter-million private-sector jobs under his tenure, though it has rebounded from a worse low than most of the U.S. after the Great Recession.

One surprising new area of growth for Ohio, and for some other Midwest states, has been the siting of some call centers in the state, as U.S.-based companies have been “onshoring” call-center labor to placate consumers dissatisfied with dealing with non-native English speakers around the globe. For example, Zulily, a Seattle-based online discount retailer, committed to building a call-center campus with 900 jobs in the state, adding to the 1,000 it already employs at a distribution center in Ohio.

10. Mississippi Mississippi slipped one spot but retained a place on the consultants’ list, at No. 10 compared with No. 9 in 2013. Among the perceived biggest strengths of the state was the overall business environment, where it ranked No. 6. In the subcategory of the overall cost of doing business, Mississippi also tied for No. 6 with Florida.

Consistent with those rankings were other strong showings by Mississippi that spoke to its overall rise in business climate: speed of permitting (No. 5), most favorable regulatory environment (No. 6), and competitive utility rates (tied for No. 5). Mississippi also placed No. 3 in competitive labor costs and No. 5 for labor climate among right-to-work states.

The Mississippi legislature also took a major step toward creating a more sound business tax base last year by exempting manufacturers form paying a 1.5 percent sales tax on energy. Otherwise there would be tax pyramiding, or the compounding of the tax burden as products make their way through the chain of production. The reform was “a small, but important, step in the right direction,” said Scott Drenkard, of the Tax Foundation.

This rising status has been reflected in more wins for Mississippi in targeted areas including automotive and aerospace. Tokyo-based Yokohama Tire plans to locate a commercial truck tire plant in West Point, Miss., creating 500 new jobs and potentially up to 2,000 jobs. And France-based Eurocopter is expanding its plant in Columbus, Miss., to serve as a final helicopter assembly and test site.

The state also is a major center for oil and gas investment as the fracking economy booms, with more than 13,000 miles of pipelines supporting Mississippi’s important role.

Additionally, Mississippi has also entered the film-incentive derby, offering rebates of up to $10 million per project. The 2014 James Brown biopic, Get On Up, was filmed entirely in the state.

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