Utah Tops Forbes 2012 List Of The Best States For Business

Thousands of angry union members descended on the Capitol building in Lansing this week to protest new limits on the financing of organized labor that make Michigan the 24th so-called “right-to-work” state in the country. It is a stunning reversal for the home of the United Auto Workers. Michigan is following in the footsteps of Indiana, which in February became the first state since 2001 to adopt legislation that bars requiring workers to pay union dues as a condition of employment. Critics of right-to-work laws argue that it lowers wages and weakens unions, while proponents say that it attracts businesses. Michigan Gov. Rick Snyder is trying to turn the tide in his state, which suffered the worst economic contraction in the nation over the past five years, as well as the largest net population loss.

Snyder makes his case for “Reinventing Michigan” in an op-ed for Forbes. He writes: “ Michigan businesses will realize greater efficiency and higher potential profits while partnering with a world-class workforce that will be free to decide whether union membership is right for them.”

A look at Forbes’ seventh annual ranking of the Best States for Business indicates that Snyder is on the right track: There is a clear separation between right-to-work states and those that are not. All but one of the top 10 states have right-to-work laws on the books (No. 5 Colorado is the exception). Of the bottom 10 states, No. 46 Mississippi is the only right-to-work state. Forbes’ top 10 states expanded their economies 1.7% annually on average (net of inflation) during the challenging five years between 2006 and 2011. The bottom 10 contracted an average of 0.1% a year during the same period.

Utah heads our list of the Best States for Business for a third straight year. Utah’s economy has expanded 2.3% annually since 2006–fifth best in the U.S–versus 0.5% for the nation as a whole. “We have a very fertile environment for entrepreneurs and business,” says Gov. Gary Herbert, who was reelected last month in a 68%-28% landslide.

Herbert cites three areas where Utah has a competitive advantage: taxes, its labor force and a favorable regulatory climate. Utah’s 5% flat corporate tax rate is one of the lowest in the country. The Tax Foundation, which released a study in February that measures the tax burdens in each state across different industries, rated Utah sixth best for existing firms. (It ranked No. 10 for new firms.)

In Pictures: The Best States For Business

Complete Coverage: The Best States For Business

Utah has a young, vibrant workforce. The state’s median age of 29 is four years less than the next youngest state, Texas. A third of the state’s workforce is bilingual, according to the Economic Development Corporation of Utah. This is largely a result of the state’s large population of Mormons, many of whom spend time as missionaries overseas. It is an attractive benefit for companies in an increasingly global economy and has helped lure large U.S. companies with international operations like eBay, Goldman Sachs, Oracle and Procter & Gamble. Goldman Sachs’ Salt Lake City office is its second biggest in the Americas with more than 1,400 employees. Utah has doubled its international trade over the past five years and this year it is up nearly 40%.

Utah ranks third for regulatory climate in the Mercatus Center’s Freedom in the 50 States study–a new metric in our Best States study. “Utah is less likely to reward frivolous lawsuits or hand out excessive judgments,” says Jason Sorens, who co-authored the report. “Utah’s health insurance regulations are generally light, resulting in less costly policies and more choice for people in the small group and individual markets.”

Last year, Gov. Herbert initiated a review of the state’s nearly 2,000 administrative rules. The state eliminated or modified 368 of them that Herbert characterized as “a drag on the economy.”

Among the other pluses for Utah: energy costs that are 29% below the national average. It is also one of only seven states to maintain an Aaa bond rating from the three rating agencies–something the U.S. lost last year. Herbert’s motto: “Government should get off of your backs and out of your wallets.”

Our ranking is based on six vital factors for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We weighed 35 points of data to determine the ranks in the six main areas. Business costs, which include labor, energy and taxes, are weighted the most heavily. We relied on 10 data sources; research firm Moody’s Analytics was the most-utilized resource (click here for a detailed methodology).

Virginia ranks No. 2 thanks to a pro-business regulatory climate that includes a top ranking in Pollina Corporate Real Estate’s study of the states with the best financial incentive programs and state economic development efforts. Utah nipped Virgina thanks to its lower labor costs and stronger economic outlook.

North Dakota moves up one spot to No. 3 this year. North Dakota has had the country’s most robust economy over the past five years. It is tops for job growth (2.3% annually), income growth (4.3%), gross state product growth (6.3%) and employment (3.5% average jobless rate). The outlook is strong too with the nation’s top job growth forecast over the next five years. Credit the development of the Bakken oil shale fields in the western part of the state for much of the growth, as well as thriving technology and service sectors.

The biggest gainer in this year’s rankings was Indiana, which jumped 16 spots to No. 18. Indiana benefited from our inclusion of the regulatory component of the Freedom in the 50 States, which replaced a regulatory study from the Pacific Research Institute. Indiana ranked first on regulatory climate in the Freedom study. Indiana’s job outlook has also improved dramatically. A year ago, its five-year employment outlook was the worst in the U.S., but now it ranks in the top half of states, according to Moody’s Analytics.

New Mexico took the biggest tumble, down 11 spots to No. 43 as its current economic climate and growth prospects declined relative to the rest of the country from last year.

Bringing up the rear of our Best States study for a third straight year is Maine (click here for more on the bottom 10). Blame a high corporate tax burden and a lousy job and economic growth forecast. Its 1.4% projected annual job growth rate through 2016 ranks fourth worst among states, while the projection of 2.5% growth in Maine’s gross state product is fifth worst.

In Pictures: The Best States For Business

Complete Coverage: The Best States For Business

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