How we chose America’s Top States for Business in 2021

How intense is the battle between the states for business and jobs?

Even a global pandemic, a wrenching economic downturn, and a year of social upheaval could not slow it down. If anything, the competition has grown. And it has taken on multiple new dimensions, from the rise of remote work to a new corporate consciousness.

As the recovery gains steam, America’s Top States for Business is back to determine which states are best positioned to prevail.

Our formula for rating the states, which we have used since 2007, is designed to adapt to changing realities — even the seismic changes of the past year.

We start with 10 broad categories of competitiveness. States can earn a maximum of 2,500 points across our 10 categories. The states with the most points are America’s Top States for Business.

We assign a weight to each category based on how hard the states are pushing it in their economic development marketing. We determine that by analyzing every state’s economic development web site. If, for example, more states are pitching their low business costs, Cost of Doing Business carries more possible points.

With the global economy still shaky, Cost of Doing Business is this year’s heaviest weighted category. That follows several years in which Workforce was king. Economic uncertainty may also have helped raise the profile of Access to Capital as companies clamored for the resources to stay afloat. And it is hard to recall a time when infrastructure has been so central to competitiveness, not to mention the national debate. So, the Infrastructure category carries more weight in this year’s study than ever before.

But even our flexible formula has its limits, which 2021 put to the test.

This year, to ensure that we are measuring the states accurately, we put them through more paces than ever before, including an unprecedented 85 metrics across our 10 categories. But adapting Top States to the new realities involves more than just numbers.

The pandemic has changed the way we view health care. And the new, national focus on racial and social justice has led to unprecedented demands from corporations for inclusiveness in the locations where they choose to do business. To capture these new realities, we decided to reimagine the category we formerly called Quality of Life.

The new category, Life, Health and Inclusion, still looks at traditional quality of life measures like crime rates, health care and environmental quality. Now, we also look more closely at health-care resources and the states’ progress in ending the pandemic. In addition to the state economic development websites we review annually to weight the categories, this year we reviewed special Covid-19 resource pages that many states established. We also pay greater attention than ever to equity and inclusion — not only in this category, but throughout the study.

CNBC’s Top States for Business is not an opinion survey. We gather empirical data on the states’ performance in each metric, using the most recent figures available. Data specifically related to the coronavirus covers the period through May 2021.

In addition to their point totals, states receive a letter grade in each category to measure their performance relative to the competition. Grading is scaled, with the high score equal to 100% and the low score equal to 50%. However, each state’s overall ranking, as well as its ranking within each category, is based solely on the number of points scored.

Here are this year’s categories and weightings, and an explanation of each:

Cost of Doing Business (400 points – 16%)
At a time of unprecedented economic uncertainty, cost has returned to the forefront of competitiveness. We measure the strength of each state’s business tax climate, as well as tax burdens for various types of businesses and facilities. We also measure wage and utility costs, as well as the cost of office and industrial space. And we consider incentives and tax breaks that states offer to reduce business costs, with special emphasis on incentives targeted toward development in disadvantaged communities.

Infrastructure (375 points – 15%)
The pandemic has sparked a worldwide reevaluation of supply chains, as well as where and how we work and travel. We measure the vitality of each state’s transportation system by the value and volume of goods shipped by air, waterways, roads and rail. We look at the condition of highways and bridges, and the availability of air travel. We consider access to markets by measuring the population within 500 miles of each state. With the rise of remote work, we consider the quality, availability, and price of broadband service in each state. We rate each state’s utility infrastructure, including the condition of drinking water and wastewater systems, and the reliability of the electrical grid. We measure each state’s sustainability in the face of climate change. And we consider the availability of sites for expansion and development.

Life, Health and Inclusion (375 points – 15%)
Combine an era of enhanced social consciousness with a growing worker shortage, and it explains why, now more than ever, companies are demanding that states offer a welcoming and inclusive environment for employees. At the same time, the pandemic has put a new spotlight on health and health-care resources. These new dimensions of quality of life led us to reimagine and rename this important category for 2021. We continue to rate the states on livability factors like per capita crime rates, health care and environmental quality. Because of the new focus from businesses, we have expanded our measures of inclusiveness, looking more deeply at protections against discrimination, as well as at voting rights and current efforts to expand or restrict access to the polls, based on legislation enacted as of June 1, 2021. As the nation seeks to move past the pandemic, we look at Covid-19 vaccination rates, and we consider public health and hospital resources to deal with the lingering effects of the pandemic as well as potential future crises.

Workforce (325 points – 13%)
Even as millions of Americans remain out of work due to the pandemic, companies report they are having difficulty finding qualified workers. So, states are aggressively touting the quality of their workforces. We measure the educational attainment of each state’s working-age population, as well as which states are attracting college-educated workers and which states are losing them. With skilled workers in particular demand, we consider each state’s concentration of science, technology, engineering and math (STEM) workers. We measure worker productivity based on economic output per job. We look at union membership and right to work laws. And we measure the availability of workers, as well as the diversity of each state’s workforce.

Economy (250 points – 10%)
Particularly in uncertain times, companies are seeking states with stable finances and solid economies. We examine the strength of each state’s recovery by looking at economic growth and job growth over the past year. We measure each state’s fiscal condition by looking at its credit ratings and outlook, its overall budget picture including spending, revenue and reserves, as well as pension obligations. We rate the health of the residential real estate market. Because a diverse economy is important in any environment, we consider the number of major corporations headquartered in each state.

Business Friendliness (200 points – 8%)
As companies seek to emerge from the crisis, they are following the path of least resistance. That includes a legal and regulatory framework that does not overburden business. We measure each state’s lawsuit and liability climates, regulatory regimes covering areas such as trade and labor, as well as overall bureaucracy.

Access to Capital (175 points – 7%)
T
he abrupt shutdown of much of the economy left businesses of all sizes scrambling for capital, and states doing what they could to help. As a result, access to capital, which in prior years was mentioned by only a handful of capital-rich states, is now a feature of almost every state’s marketing and thus is a bigger factor in our rankings than in the past. We measure the maximum amount of state-funded Covid-related grants, loans, and loan guarantees. We also consider federal aid through the U.S. Small Business Administration Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) by state. Beyond Covid-19, we consider overall venture capital investments, as well as traditional bank lending by state with an emphasis on loans to small businesses.

Technology & Innovation (175 points – 7%)
Truly competitive states prize innovation, nurture new ideas, and have the resources to support them. We measure the states based on results, including the number of patents issued per capita, as well as health, science and agriculture research grants. We measure the vitality of each state’s technology ecosystem based on people, companies, and investment.

Education (150 points – 6%)
Not only do companies want to draw from an educated pool of workers, but they also want to offer their employees a great place to raise a family. Higher education institutions offer companies a source to recruit new talent, as well as a partner in research and development. We consider the number of higher education institutions in each state as well as long-term trends in state support for higher education. We also consider historically Black colleges and universities (HBCUs), which companies are increasingly seeking to partner with. We look at multiple measures of K-12 education including test scores, class size and spending. We also look at life-long learning opportunities in each state.

Cost of Living (75 points – 3%)
With increasing concerns about potential inflation, companies and workers are seeking states where prices are stable and daily living is affordable. The cost of living helps drive the cost of doing business. From housing to food and energy, wages go further when the cost of living is low. We measure the states based on an index of costs for basic items.

Our Sources

Our rankings are based primarily on publicly available data. Most of the information comes from federal government databases. In the cases where government statistics are not available, we seek neutral and/or ideologically diverse data sources. In addition to the sources listed below, we use data from every state’s primary economic development arm, state statutes, and the most recent Comprehensive Annual Financial Report (CAFR) issued by each state.

• ACT, Inc.

• American Lung Association

• Association of American Railroads

• ATTOM Data Solutions

• Brennan Center for Justice

• BroadbandNow Research

• U.S. Bureau of Economic Analysis

• U.S. Bureau of Labor Statistics

• CNBC Quantitative and Data Services

• U.S. Census Bureau

• Center for Election Innovation and Research

• U.S. Centers for Disease Control and Prevention