The best states for business

By Kurt Badenhausen

updated 3:26 p.m. ET July 12, 2007

You use its products every day — when you take a cross-country flight on a Boeing jet, when you sip your morning Starbucks coffee, when you order the latest Harry Potter book from Amazon.com and when you use the Microsoft operating system on your PC. Washington state is home to these companies and more, befitting the state's tagline, "Innovation is in our nature."

In Forbes.com's second annual Top States for Business, Virginia may be the top-ranked state for the second straight year, but Washington is the big story. The biggest mover (tied with Tennessee), rising from 12th to fifth place, Washington is also the only state to finish in the top five in three main categories (labor, regulatory environment and growth). And Washington's numbers are up across the board when you look both backward and at projections into the future.

"We're blessed by birth. We have an innovative spirit in the state," says Washington's Gov. Christine Gregoire, who adds: "We've made improvements to get out of the way and let innovation and creativity take over."

(MSNBC.com is a joint venture of Microsoft and NBC Universal News.)

Not that Virginia did badly — it just didn't dominate the rankings the way it did last year. The state finished in the top 10 in four of the six main categories we examined. But in 2006, it finished in the top 10 of all of them. Virginia's top attributes include an incentive environment that is the fourth-best in the country, according to Pollina Corporate Real Estate, a commercial real estate consulting firm, as well as an unemployment rate that's the third lowest in the nation.

More from Forbes.com Click links below for slide shows States with best quality of life States with lowest business costs   States with the best labor pools States with the best growth prospects States with the best regulatory environments

Moving up to the second spot this year was Utah, from fourth place in 2006. Utah benefited from low business costs (9 percent below the national average) and a strong current economic environment. The state's five-year job growth rate jumped to 1.8 percent, from 1.3 percent last year, while incomes growth improved to 3.2 percent, from 2.2 percent.

Our second runner-up was North Carolina, whose capital, Raleigh, is our best metro area for business and careers. North Carolina has the second-lowest labor costs in the country (18 percent below the national average), and incomes are projected to increase 3.8 percent annually over the next five years, the second-fastest rate in the country.

We have been ranking the Best Metro Areas For Business and Careers for nine years, and this ranking of states looks at many of the same factors, including business and living costs, job and income growth and educational attainment. But we go a step further with this ranking in several ways.

First, we look at projections of job, income and gross state product growth. We also examine venture capital money going into an area as well as new businesses that have cropped up in the past three years. Another addition is the role that government plays on the business climate in terms of environmental and labor laws, as well as taxes and incentives. These factors play out on the state level instead of on the local level. Overall, we examine 32 criteria to assemble the list.

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