Virginia is back as America’s Top State for Business in 2021

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.

“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.

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.

“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.

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.

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.

“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 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.

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.

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.

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.

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.

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.

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 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.

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. 48 Maine has the nation’s worst Infrastructure, including the most unreliable power grid of any state. The average customer endures more than 15 hours per year without power, according to the U.S. Department of Energy.

And states 49 and 50 — Hawaii and Alaska — are outrageously expensive places in which to live and do business at a time when cost is king.

We welcome your feedback on this year’s rankings. Let us know your thoughts on social media using the hashtag #TopStates.