Amazon had it right: Virginia is America’s Top State for Business in 2019

By Scott Kohn  |  CNBC

In a year marked by historic economic development deals and marred by a damaging trade war, Virginia lands at the top of CNBC’s 2019 ranking of America’s Top States for Business.

This is the Old Dominion’s fourth win in the 13 years since the study began. In fact, Virginia was CNBC’s inaugural Top State in 2007. But this is its first win since 2011. That year began a five-year leveling off in defense spending — a key part of the economy in Virginia. Defense spending accounts for nearly 12% of the Commonwealth’s GDP, more than any other state, according to the National Conference of State Legislatures. Now the Pentagon’s budget is back in a big way, rising to $686 billion for fiscal year 2019. In the state where the Pentagon is located, that is welcome news.

But Virginia’s success involves much more than the military. The state offers the best workforce in the country, reveals our 2019 study. Nearly 38% of adults have a bachelor’s degree or higher, according to the U.S. Census Bureau, placing Virginia in the top 10 for educational attainment. And per the U.S. Bureau of Labor Statistics, Virginia has the nation’s fourth highest concentration of crucial science, technology, engineering and math (STEM) employees, making up 9% of the workforce in 2018. All of this in a right-to-work state with a minimal union presence — something companies prize.

That workforce was a key factor in Virginia’s biggest economic development win in recent memory: Amazon’s decision to locate a portion of its coveted HQ2 project in Arlington, announced late last year. The retailer promises to ultimately hire 25,000 people for Virginia’s part of the facility and to spend $2.5 billion.

“We were really excited by Virginia, what it had to offer,” said Brian Huseman, Amazon’s vice president for public policy and part of the core site selection team, in an interview with CNBC. “Probably the most important thing was the attraction of this place to talent, and particularly tech talent.”

Workforce is the most important category in the CNBC study.

Huseman also pointed to Virginia’s focus on education, which he said was unique among the bids. Virginia Tech University plans to open a new “innovation campus” adjacent to the site.

In the CNBC study, Virginia ties with Massachusetts for first place in the Education category, with solid state support and strong test scores to show for it.

“They listened and really heard our needs about talent and infrastructure and education,” Huseman said.

Our methodology scores the states in 10 categories, weighted based on how frequently states cite them in their economic development marketing materials, for a total of 2,500 points. Virginia scores 1,610 points to take the 2019 Top States crown. This year’s categories and point totals are:

  • Workforce – 450 points
  • Economy – 375 points
  • Infrastructure – 350 points
  • Cost of Doing Business – 350 points
  • Quality of Life – 325 points
  • Education – 175 points
  • Technology & Innovation – 175 points
  • Business Friendliness – 175 points
  • Access to Capital – 75 points
  • Cost of Living – 50 points

Amazon originally planned to build an identical-sized facility in Queens, New York, but it pulled out after public opposition to the project surfaced. In Virginia, what little opposition there was has been much more muted, which business leaders attribute to a more cooperative spirit.

“Government officials, business officials, local citizens groups — people talk to each other a lot,” said Matthew Kelly, CEO of JBG Smith, the real estate investment trust that owns most of the real estate where Amazon plans to set up shop.

More from America’s Top States for Business:
How the trade war with China could crush California’s $2.7 trillion economy and hurt other states
A scorecard on the governors that want to beat Trump in 2020
These states are offering $10,000 or more to get you to live there

Indeed, Virginia rises to third place in our Business Friendliness category, up from fifth place a year ago and earning an A grade. Last year Democratic Gov. Ralph Northam signed into law a bipartisan program to cut business regulations by 25% within three years.

Other major companies headquartered in the Old Dominion include General DynamicsCapital One Financial and Altria Group.

“When businesses large and small want to call Virginia home, that is a one-two punch for our economy that can’t be beat,” said Northam in his annual State of the Commonwealth address on Jan. 9.

But it is Northam’s own past that has raised concerns about another aspect of Virginia’s business climate: inclusiveness.

Northam faced widespread calls to resign in February after his 1984 medical school yearbook page surfaced showing one person in blackface and another in Ku Klux Klan robes. Northam has denied that either of the individuals is him, but a subsequent investigation was inconclusive. He refused to resign, calling the incident an opportunity to heal the state’s fractious racial past and promising to devote the rest of his term to racial equality.

Since then, his administration points to a number of initiatives, including setting a goal to eliminate the racial disparity in the state’s infant mortality rate by 2025, a program to reinstate suspended driver’s licenses that began this month, and setting employment equity targets for state agencies. Northam also established a commission to examine racial inequities in state laws.

The CNBC study measures inclusiveness based on anti-discrimination laws as part of a state’s Quality of Life score. Virginia ties with California for 17th place with a grade of C+. The state does have strong legal protections against most forms of discrimination, but no explicit prohibition of discrimination on the basis of sexual orientation or gender identity.

Another weak spot in the Top State is costs. Those smart workers command big salaries, and wage costs in Virginia are the 10th highest in the country, according to the Bureau of Labor Statistics. The state finishes 35th for Cost of Doing Business and 32nd for Cost of Living — and that is before Amazon comes to town.

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