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The Best States For Business -- #1: Utah! Again!

Published: 11/28/2011
Kurt Badenhausen, Forbes -- The U.S. economy grew by 2.5% in the third quarter which was its best performance in a year, but no one is breaking out the party hats just yet after the first half saw microscopic growth of 0.9%. Economic problems are still seemingly everywhere.

Unemployment is too high at 9.1% with underemployment running at a recent 16.2%. Housing prices continue to fall. U.S. corporate income taxes remain the second highest in the world. The Greek debt crisis is not going anywhere and gridlock in Congress continues unabated. It is enough to make anyone want to scream.

Yet for businesses or employees struggling with the question of where to relocate (or expand in the case of businesses), we offer a scorecard on what states have the best business climates.

Utah repeats this year as Forbes Best State for Business and Careers in our sixth annual look at the business climates of the 50 states. No state can match the consistent performance of Utah. It is the only state that ranks among the top 15 states in each of the six main categories we rate the states on.

Utah highlights include energy costs 31% below the national average and employment growth that has averaged 0.6% the past five years. Compare that to the U.S. as a whole where job growth has averaged negative 0.6% since 2005. Utah's 5% corporate tax rate is well below western neighbors Arizona, Idaho and New Mexico. Utah ranks sixth in a new Tax Foundation study that looks at the tax burden on business in each state across different industries. As part of the ranking, we included the study which will be released to the public in the coming months.

Businesses are getting the message on Utah. Procter & Gamble, ITT, Home Depot and Boeing all announced expansions in Utah this year. The Goldman Sachs office in Salt Lake City is its second biggest in the Americas with more 1,000 employees and significant expansion expected over the next four years.

Technology companies particularly have had Utah on their radar as an affordable alternative to California with overall business costs in Utah 10% below the national average. Adobe Systems, eBay, Electronic Arts and Oracle have all expanded in Utah in recent years.

Companies are also attracted by Utah's population growth which is one of the fastest in the country and provides a burgeoning workforce. "Utah has a young, dynamic economy with a vibrant high-tech sector," says Mark Zandi, chief economist of Moody's Analytics.

The Utah story is far from over. Job growth is projected to be 2.4% annually through 2015 according to Moody's, sixth best in the country.

Our ranking measures six vital categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We factor in 37 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 11 data sources, with research firm Moody's Analytics as the most-utilized resource.

Virginia ranks No. 2 for the second straight year after a four year run ranked first. Virginia has a strong, educated labor force and a pro-business regulatory climate. The only thing keeping it from the top spot is its outlook.

Virginia has been a major beneficiary of the federal government's largesse in terms of military spending and infrastructure development in northern Virginia. Those days may be coming to end according to Zandi who says, "As the fiscal screws tighten, it is going to be more difficult for Virginia to maintain the growth rates and success it has had in the past."

Louisiana was a big climber on the list as it ranked No. 30, up from No. 44 last year. Louisiana has made great strides since Hurricanes Katrina and Rita hit in 2005 and the state's population fell nearly 300,000 people. Household incomes are up 5.2% annually since then which is tops in the nation.

Louisiana's business friendly climate is helped by a low union workforce which at 5.5% of employment is fourth lowest in the U.S. Louisiana ranks second in an annual study on tax incentives and economic development conducted by Pollina Corporate Real Estate."Louisiana has made strong efforts to adjust to the needs of businesses," says Brent Pollina, who authored the study.

The worst states for business continue to be dominated by those in the northeast including: New Jersey (No. 44), Vermont (No. 45), Rhode Island (No. 48) and Maine which lands at No. 50 for a second straight year. Maine suffers from energy costs 31% above the national average, stagnant population growth and anemic forecasts when it comes to job and gross state product growth.

One bright spot in the northeast is No. 18 Massachusetts thanks to the dynamic Boston economy which is strong in growth industries like healthcare, education and technology. Business and living costs are among the highest in the country, but the state ranks first overall in quality of life and has one of the most educated labor forces in the U.S.