Virginia is back as America's Top State for Business in 2021
The Virginia State flag and the American flag fly near the Virginia State Capitol. Drew Angerer | Getty Images

A year of pandemic and social reckoning has changed the nation in countless ways. But one thing has stayed the same: America's Top State for Business is Virginia. The Old Dominion captures top honors in CNBC's 2021 competitiveness rankings, just as it did in the previous study published in 2019. It is Virginia's fifth win since the study began in 2007, more than any other state. And it is the first state to post back-to-back victories (CNBC did not publish rankings in 2020 due to the pandemic.) Virginia pulls off the repeat performance despite a vastly altered competitive landscape, a testament to the resilience of the state's business climate.

Mitsui Osk Lines ship MOL Magnificence docked at one of Norfolk's port terminals. Alexandre Tziripouloff | iStock Editorial | Getty Images

"We've seen a remarkable V-shaped recovery from Covid," said Stephen Edwards, CEO and executive director of the Port of Virginia, a major economic engine in the state, which is in the middle of a 10-year, $1.5 billion expansion. "May 2021 was an all-time record for the port, 56% bigger than we were last year, and significantly above 2019." "We put a lot of investment and a lot thought into our port and it is a tremendous asset for our economy," Virginia Governor Ralph Northam, a Democrat, told CNBC on Tuesday. Going into the pandemic and coming out of it, Virginia's greatest strength has been its ability to nurture and retain talent. Public schools perform well in terms of test scores, and a world-class higher education system is reliably funded.

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Virginia employers reap the benefits, with one of the best-educated workforces in the country — nearly 39% of workers have a bachelor's degree or higher, according to the U.S. Census Bureau. Virginia also boasts the nation's third-highest concentration of science, technology, engineering and math (STEM) workers, according to the U.S. Bureau of Labor Statistics.

Virginia Tech Hokies fans cheer against the Boise State Broncos at FedExField on September 6, 2010 in Landover, Maryland. Geoff Burke | Getty Images

"Education is the best tool we have to make our Commonwealth a better, more equitable place for everyone," said Gov. Northam in his annual State of the Commonwealth address on Jan. 13.

The battle for inclusiveness

Equity has not always been the state's strong suit — nor the governor's. In 2019, one year into his term, Northam was embroiled in a scandal over a racist photo on his 1984 yearbook page at Eastern Virginia Medical School showing an individual in blackface standing with another in Ku Klux Klan robes and hat. The governor has insisted that neither person is him, but he has otherwise struggled to explain the photo, leading to widespread calls two years ago for his resignation.

Virginia Gov. Ralph Northam speaks at an event titled “Transforming Rail in Virginia” at the Amtrak-VRE station in March 30, 2021 in Alexandria, Virginia. Win McNamee | Getty Images

Instead, Northam vowed to use the remainder of his term to work toward equality in the state. "There are a number of inequities in our society, to include access to health care, access to education, access to the business environment, access to the voting booth," Northam told CNBC in 2019. "So, we are really focusing on those inequities." Two years later, Northam has gone a long way toward keeping his promises. This year alone, the state enacted legislation requiring all agencies to develop plans for diversity, equity and inclusion in their ranks. And in April, Virginia bucked the trend among many other Southern states with a package of laws to expand voting rights, repealing voter ID laws, and making Election Day a state holiday. In 2020, Northam signed the Virginia Values Act, expanding anti-discrimination laws to make Virginia the first state in the South to extend comprehensive protections to LGBTQ residents.

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"When you do the right thing for people it's not only right for them but it's good for business, and we've proven it," Northam told CNBC on Tuesday. "Yes, Virginia went through some tough times and Virginians stuck with me. I committed to dealing with equity, to addressing numerous inequities we have in Virginia," Northam said. As other states — including some of Virginia's top competitors for business like Texas and Georgia — focus on voting restrictions, "Virginia is promoting making it easier to vote while other states are not," he said.

The new landscape for ranking the states

The push in Virginia comes as companies are increasingly vocal in their demands for inclusiveness in the states where they do business. That, in turn, has increased the importance of equity and inclusion in CNBC's 2021 competitiveness study. It is among the many changes this year to bring Top States in line with the new competitive landscape, including new metrics on diversity, sustainability and connectivity. As in the past, our methodology scores the states in 10 categories, weighted based on how frequently the states cite them in their economic development marketing pitches, for a total of 2,500 points. This year, Virginia scores 1,587 points to take the 2021 Top States crown. This year's categories and point totals are: Cost of Doing Business – 400 points

Infrastructure – 375 points

Life, Health and Inclusion (formerly Quality of Life) – 375 points

Workforce – 325 points

Economy – 250 points

Business Friendliness – 200 points

Access to Capital – 175 points

Technology and Innovation – 175 points

Education – 150 points

Cost of Living – 75 points Virginia's strongest category is Education, where it finishes a close second to perennial leader Massachusetts. The state comes in third for Workforce, hampered slightly by a relative shortage of workers. Unemployment is running slightly below the national average, and Virginia lags in terms of educated workers moving into the state, according to CNBC's analysis of Census Bureau data.

A bicyclist stops in front of signage in the Crystal City neighborhood of Arlington, Virginia, on June 28, 2019, the site of Amazon's HQ2. Andrew Harrer | Bloomberg | Getty Images

The state finishes No. 11 for Life, Health and Inclusion, earning points for the voting rights and anti-discrimination laws, but falling short on some health-care metrics including public health funding, where Virginia ranks 36th per capita according to the United Health Foundation. The state has logged better than average Covid-19 vaccination rates, but the state's hospitals were stretched beyond capacity when the pandemic peaked earlier this year. Northam cited increased access to health care, an expansion of Medicaid, and over 550,000 Virginians having access to health care during the pandemic, and recently making Medicaid recipients in the state eligible for dental care. While the state does underspend the national average on health care, Northam told CNBC that state is "moving in a positive direction, and he added, "I talk to businesses all the time and they want their employees to have access to affordable and quality health care." Virginia's worst category is Cost of Living, where it finishes No. 32. The state finishes No. 26 in the all-important Cost of Doing Business category, hurt by the 11th-highest wage costs in the nation, according to the Labor Department.

Political calculus in a governor's race

Virginia will elect a new governor this fall. Northam will not be on the ballot — the state constitution bars a governor from serving consecutive terms — but his policies will be. The Republican nominee, former Carlyle Group Co-CEO Glenn Youngkin, is promising to bring a business leader's perspective and "shared values" to the job. Youngkin has criticized Northam's policies as being outside the mainstream, and has vowed to reverse some of them, such as restoring the voter ID law. He has also accused the governor of mismanaging the pandemic by keeping schools and businesses closed for too long. "Virginia may be No. 1 for political correctness, pushing critical race theory in schools, and not requiring a photo ID to vote under Terry McAuliffe and Ralph Northam, but Virginia ranks among the worst states when it comes to things that actually determine the success of small businesses and opportunities for workers — cost of living and cost of doing business," a Youngkin spokeswoman told CNBC on Tuesday.

Glenn Youngkin, former co-CEO of the Carlyle Group, at the 2020 World Economic Forum in Davos, Switzerland on Jan. 21st, 2020. Glenn Youngkin, Co-CEO of the Carlyle Group

Youngkin has focused more of his attention on the Democratic nominee, former Gov. Terry McAuliffe, positioning himself as an outsider and McAuliffe as an entrenched politician. "Terry McAuliffe wants to repeal Virginia's Right to Work protections, which will cause employers to flee the state in droves," the spokeswoman said. McAuliffe told CNBC in a statement on Tuesday that his "Trump-endorsed opponent Glenn Youngkin's right-wing agenda" would put all of Virginia's progress under Democrats at risk. He said Governor Northam and the Democratic legislative majority's leadership helped the state emerge stronger from the pandemic's twin health and economic crises. And he cited the 200,000 "good paying" jobs created during his previous run as governor, as well as billions in new capital and big employers which came to the state. "We did it before ... we will do it again," McAuliffe said. "His [Youngkin's] focus on divisive social crusades, Trumpian conspiracy theories, and threats to defund our schools would jeopardize our economic progress and take our Commonwealth back. That's not a recipe for a 'rip-roaring economy,' it's a roadmap to economic chaos and watching businesses flee our state." In an election that is likely to pit the suburbs in the northern part of the state against rural areas elsewhere, voters will decide which candidate is better equipped to keep Virginia on top.

The rest of the top 5 states for business

Finishing second this year is North Carolina, marking its best finish in the CNBC study's history. In fact, the Tar Heel State trails Virginia by just 41 points.

Charlotte North Carolina Myles Gelbach | iStock | Getty Images

North Carolina does well in Economy (No. 4) with solid growth, and Workforce (No. 6) with a steady influx of educated workers. Both helped persuade Apple earlier this year to choose the Research Triangle area outside Raleigh for its first East Coast corporate campus. But as one of only five states with no statewide public accommodation law to protect nondisabled residents against discrimination according to the National Conference of State Legislatures, North Carolina falls short on Life, Health and Inclusion (No. 37), potentially enough to keep the top spot out of reach. Utah finishes third thanks to the third-best economy in the country, according to CNBC's analysis. Economic growth barely missed a beat in 2020, according to U.S. Department of Commerce data. The Beehive State's economy contracted by just 0.1% for the year — the best in the nation — helped by a 7.1% surge in the fourth quarter.

Fans of the Texas Rangers hold a Texas state flag at a game in Arlington, Texas. Stephen Dunn | Getty Images

Texas comes in fourth on the strength of America's top workforce — educated workers are flocking to the state in droves, according to Census Bureau data — and the fifth-best economy. But this year's finish ties for the worst ever for the four-time Top State, which last won in 2018. While the size, depth and breadth of the Lone Star State's economy puts it at the heart of any conversation about competitiveness, Texas has relentlessly pursued policies that run counter to inclusiveness. Further proposed restrictions on voting and LGBTQ rights failed in the regular legislative session, but Gov. Greg Abbott, a Republican, is pressing ahead with the effort in a special session that began last week. Lawmakers were to take up the voting restrictions as soon as Tuesday, but Democrats left the state on Monday, leaving the legislature without a quorum, potentially for the remainder of the 30-day session. Abbott, who can call an unlimited number of special sessions, has vowed to continue his efforts to pass the law. Add a woefully underfunded public health system, the nation's highest rate of uninsured, and a low Covid-19 vaccination rate, and Texas finishes No. 49 for Life, Health and Inclusion. Coming in at No. 5 is Tennessee, making its first appearance in the Top Five. The Volunteer State has the nation's second-best economy (following red hot Idaho), as well as the eighth-lowest cost of doing Business, bolstered by ample incentives and a competitive tax climate.

State movers

This year's most improved state is Maryland, surging 19 points from its No. 31 ranking in 2019 to finish No. 12 this year. The state improves mainly on the strength of its infrastructure — not its traditional infrastructure like roads and water utilities which remain in suboptimal shape, but in components like broadband and the power grid, both of which are new metrics for 2021. Maryland is a leader on expanding broadband access and grid modernization. And the state performs well in other areas, scoring higher rankings in eight of the 10 categories of competitiveness.

The Chicago, Illinois, downtown skyline including the Willis Tower, formerly known as the Sears Tower, is seen from the air, February 15, 2013. Saul Loeb | AFP | Getty Images

Other improvements include Illinois, jumping 15 spots to No. 15; Michigan, which rises 13 spots to No. 11, and Oklahoma, moving 11 places to No. 32. The biggest decline belongs to Oregon, which falls 13 spots in 2021 to No. 35 overall, largely due to a big drop in its Economy ranking. The state falls to No. 29 in the category, compared with No. 7 in 2019 when the Pacific Northwest was going gangbusters. The pandemic hit the Beaver State hard, state economists say. More than 20% of the labor force collected unemployment benefits at some point in 2020 after the shutdowns began. Overall economic growth for the full year fell 2.8% in Oregon, or slightly better than the national average, according to the Commerce Department. But Oregon has been slower than the rest of the country to rebound, with 2.7% growth in the fourth quarter versus 4.3% nationally. Hardest hit was the state's vital tourism sector, but officials also note that Oregon is among the states that are most dependent on international trade. Its largest foreign trading partners are China, Canada, Japan, Malaysia and South Korea, all of which suffered disruptions last year. Other big declines include New Hampshire, which slides 12 spots to No. 37; Nevada, slipping 11 places to No. 40, and Arizona and Wyoming, which each fall 10 places to No. 20 and No. 36 respectively.

Bottom states for business

This year's also-rans find themselves in familiar territory. State No. 46 Rhode Island improves from last place in 2019 even as it remains in the bottom tier. The Ocean State's physical infrastructure remains dismal, but good broadband and a reliable electric grid pull it out of the cellar. No. 47 West Virginia ranks near the bottom for Technology and Innovation, Access to Capital, Business Friendliness and Education.

Coal mounds sit beneath coaling towers at the SunCoke Energy Partners LP Ceredo Terminal in Ceredo, West Virginia. Luke Sharrett | Bloomberg | Getty Images