How we are choosing America’s Top States for Business in 2023

When the going gets tough, the tough get going. That pretty well sums up the race between U.S. states for business and jobs in 2023.

Interest rates and overall costs are still rising, a possible recession is looming, and the nation is still figuring out the future of work in a post-pandemic world. All that is making businesses wary about expanding, and it is forcing every state to up its game.

Which states are meeting the challenge? America’s Top States for Business is back to find out. The annual CNBC study puts all 50 states through their paces using a methodology we first developed in 2007. The aim: to determine which states are delivering most effectively on the things that mean the most to business.

To do that, we start with ten broad categories of competitiveness. These are the factors companies consider year after year when making site selection decisions, and that states pitch in their efforts to woo business.

Next, we analyze each state’s economic development marketing pitches to determine the appropriate weight for each category. For example, if more states are talking about their workforces, the Workforce category is worth more possible points. That way, we measure the states based on the attributes they use to sell themselves.

The more weight a category carries, the more metrics it includes. This year’s study employs 86 metrics across the ten categories. We develop our metrics with input from a broad and diverse range of business leaders, policy experts, and the states themselves. States can earn a maximum of 2,500 total points. The states with the most points are America’s Top States for Business.

Despite policymakers’ best efforts to blunt inflation by slowing the economy, companies are still voraciously hiring. Employers posted more than 10 million job openings in April, in an economy with only about half that number of people available for work. So, it is little wonder that Workforce remains the most talked about topic in economic development circles in 2023, and it is again the heaviest-weighted category in the CNBC Top States study.

The ongoing effort to rebuild the domestic supply chain, powered by massive federal dollars in the CHIPS and Science Act and the Bipartisan Infrastructure Law, has helped solidify Infrastructure as the second most important category. Economic uncertainty has led to more states touting a strong, stable and diverse Economy, raising that category’s weight in 2023. And the unrelenting need to attract qualified workers has raised the profile of Life, Health & Inclusion.

Categories carrying slightly less weight this year include Cost of Doing Business as inflation begins to cool, and Education.

Our study is not an opinion survey. We gather empirical data on the states’ performance in each metric using the most recent figures available. Where it makes sense, we calculate some metrics on a per capita basis to allow large and small states to compete on a level playing field.

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 percent and the low score equal to 50 percent. 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:

Workforce (400 points – 16%)

No state is immune from worker shortages, but some states have more and better workers available than others. With skilled workers in such short supply, and with the push to bolster domestic manufacturing, the definition of a qualified worker is expanding. In addition to measuring each state’s concentration of science, technology, engineering and math (STEM) workers and the percentage of workers with college degrees, we also consider workers with associate degrees and industry-recognized certificates. We look at which states are most successful in attracting talent at all levels, considering the net migration of educated workers to each state. We look at state worker training programs, right-to-work laws, and worker productivity based on economic output per job.

Infrastructure (390 points – 15.6%)

Rebuilding supply chains and redefining the very nature of work takes a reimagined infrastructure. 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, the availability of air travel, and the time it takes to commute to work. With the rise of remote work, we also consider the quality, availability, and price of broadband service in each state. We consider access to markets by measuring the population within 500 miles of each state. We look at the availability of vacant land, and office and industrial space. We rate each state’s utility infrastructure including the condition of drinking water and wastewater systems, the reliability of the electrical grid, and the availability of renewable energy. And we measure each state’s sustainability in the face of climate change, looking at the risk of flooding, wildfires, and extreme weather.

Economy (360 points – 14.4%)

Particularly in uncertain times, companies are seeking states with stable finances and solid economies. We examine the economic strength of each state by looking at gross domestic product 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, revenues 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. New in 2023, we measure each state’s entrepreneurial economy based on new business formations.

Life, Health & Inclusion (350 points – 14%)

With workers in short supply, companies are seeking to locate in states that can attract a broad array of talent. That makes quality of life an economic imperative. We rate the states on livability factors like per capita crime rates, environmental quality, and health care. We look at worker protections. We look at inclusiveness in state laws, including protections against discrimination of all kinds, as well as voting rights, including accessible and secure election systems. With studies showing that childcare is one of the main obstacles to employees returning to the workforce, we consider the availability and affordability of qualified facilities. And with surveys showing a sizeable percentage of women considering reproductive rights in deciding where they are willing to live and work, we factor abortion laws into this category as well.

Cost of Doing Business (290 points – 11.6%)

As inflation erodes company balance sheets, we measure each state’s tax burden and the strength of its business tax climate. We also measure wage and utility costs, as well as the cost of office and industrial space. We consider the incentives and tax breaks that states offer to reduce business costs, and we consider available incentives targeted toward development in disadvantaged communities.

Technology & Innovation (270 points – 10.8%)

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. With domestic semiconductor research, development and manufacturing taking center stage, we look at how each state’s place in this crucial technological ecosystem.

Business Friendliness (215 points – 8.6%)

Companies follow 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. We also consider how hospitable states are toward emerging industries including cryptocurrency and cannabis.

Education (125 points – 5%)

A state’s education system is its main source of talent and an engine of innovation. It is also a key consideration for companies and families deciding where to put down roots. We look at multiple measures of K-12 education including test scores, class size and spending. We consider the number of colleges and universities 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. With the search for talent expanding to include employees with marketable, industry-recognized skills, we measure each state’s community college and career education systems.

Access to Capital (50 points – 2%)

As business costs and interest rates rise, companies large and small need ready access to financing. We look at venture capital investments in each state, as well as traditional bank lending by state in relative and absolute terms. We also look at state-backed capital and loan guarantee programs

Cost of Living (50 points – 2%)

With inflation persisting, 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. We measure the states based on an index of costs for basic items, with an added emphasis for 2023 on housing affordability.

Sources

We base our rankings primarily on publicly available data. In addition, real estate cost and availability data are compiled for CNBC by CoStar Group, and they are factored in the Infrastructure and Cost of Doing Business categories. Labor market data firm Lightcast developed a State Talent Attraction Scorecard exclusively for CNBC. Those results are factored into the Workforce category. And First Street Foundation, a non-profit, nonpartisan climate risk research firm, provided some of the sustainability data for the Infrastructure category.

Most of the rest of our information comes from federal government databases. In the cases where government statistics are not available, we seek neutral and/or ideologically diverse data sources.

We use data from every state’s primary economic development arm, and from the most recent Annual Comprehensive Financial Report (ACFR) issued by each state, in addition to the sources listed below.