Tennessee ranks 3rd overall for 2021 Top States for Doing Business by Area Development

Despite the economic uncertainty of the last year, plenty of companies continue to grow, and with growth comes the need to expand and explore new locations. The “Top States” in which to locate represent the general views of our expert panel of site consultants, with Georgia ranking #1 for the eighth year in a row, Texas at #2 and Tennessee in #3.

When we last took stock of Area Development’s Top States for Doing Business, it was a bit hard to gauge what “doing business” was even supposed to look like. In 2020, the country was riding one wave of COVID-19 after another, mixing times of turmoil and concern with ripples of reassurance and optimism.

A year later, the country has undergone significant economic recovery, followed by another time of coronavirus concern. Still, amid the roller-coaster ride, there have been some significant high points and positive business headlines. Plenty of companies continue to grow, some of them dramatically, and with growth comes the need to expand and explore new locations.

And so, we turn once again to our expert panel of consultants, who have been around the business of location and economic development for many collective years. Our location professionals know what businesses are seeking and how states are responding — and they have exceptional instincts for which states are faring the best in several key categories of interest.

To be sure, even in these times of dramatic change, some things don’t change. Like which state is at the top of our overall list. It is, once again, Georgia, for the eighth year in a row. In fact, the entire top 10 from last year remains in place, and almost in the same order. The exception is that Texas moves up from fourth to second, bumping both Tennessee and South Carolina down a notch, to third and fourth places, respectively.

As always, though, it’s worth mentioning that these “Top States” represent the general views of our expert panel; they are not necessarily the last word when it comes to which location is right for your next location. Every company is unique, every project is different, and each and every state can rightfully boast projects for which it was absolutely the best choice. One of our top states may, indeed, be the top state for your plans — or you just might find your own top state that’s not on our list.

Overall Cost of Doing Business

It would be tough to become the overall top state for doing business if your costs were out of hand, so it’s hardly surprising that our top state is also the leader in the category of overall cost of doing business. Georgia is the cost leader for the second year in a row.

A number of different factors play a role in the total cost of doing business, as covered in more detail in some of the following sections. According to our survey, Georgia tends to perform well across the board, thanks to comparatively easy-to-find qualified labor, workforce development programs that fill in any gaps, reasonably priced energy, a favorable real estate situation, and business incentive programs that also boost the bottom line.

Below Georgia’s top ranking, the list of cost leaders is shuffled a bit from the last couple of years. Moving up into a tie for second place are North Carolina and Alabama. North Carolina’s strong performance in this department has to do with a number of important factors. For example, its state and local business tax burden is among the lowest in the country, its utility rates are super-competitive, and construction costs in its metro areas tend to run below the national average.

Alabama, too, benefits from some cost advantages with strong business incentive programs and reasonable energy costs, according to our survey respondents. Tennessee and Texas are perennial top performers for their overall business costs, and they place next in the rankings, tied this time with South Carolina.

Business Incentive Programs

South Carolina’s incentives add up to high rankings year after year in this category. It had been the leader, ranked second last year, and is back on top again for 2021. Check this state’s list of statutory incentives and you’ll see a lot of “no’s” when it comes to taxes (no state property tax, no local income tax, no inventory tax, no wholesale tax, no unitary tax on global profits, no sales tax on manufacturing machinery and other elements of finished products). Add in the “yes” of discretionary incentives that range from job-development credits to rural infrastructure benefits to set-aside benefits for economic development, to name a few (and there are many others on the list).

Georgia is second in this category this year, having topped the list last time around. Among the newer things on its list is the Life Sciences Manufacturing Tax Credit Bonus that covers such things as pharmaceuticals and medical supplies/equipment. The state’s generous offers of incentives even include such pandemic-pertinent options as credits for companies that make hand sanitizer and personal protective equipment. And speaking of the pandemic, there are options to help companies maintain credits they were awarded in years before COVID-19 hit, even if they experience a period when they can’t adhere to the job maintenance requirement.

As usual, this list is dominated by Southern States, including Alabama, Tennessee and Mississippi. An exception is Indiana, with business incentive programs tied for fifth place with Mississippi.

Access to Capital and Funding

This section is filled mostly with the places you would expect to see offering a generous flow of capital and funding options. Topping the list is California, which pretty much serves venture capital for breakfast, lunch, and dinner. Last year, nearly a quarter of the venture capital deal-making took place in the Bay Area, and companies headquartered there took two-fifths of the funds raised, according to PitchBook. That said, analysts are expecting the picture to be a bit different once the 2021 numbers are tallied, thanks to some pandemic-related shuffling.

New York, of course, is as prominent as it gets with regard to finance in America, so no surprise it is third on this particular list, and like California, fourth-place Massachusetts is a perennial hotbed for venture capital activity. Texas claims the second spot on the list, thanks to its special programs and incentives that open the spigot for business funding, and fifth-ranking Georgia also makes funding easier through generous incentives.

Competitive Labor Market

Those on our panel of experts report that the labor market is particularly competitive in Georgia and Texas — which is not really news because labor is always a plus in these two states that tie for top honors this year. Companies choosing locations in Georgia and Texas appreciate the fact that they both have wages below the average in more than half of all other states, while at the same time their educational opportunities and quality-of-life factors help them attract highly qualified workers.

A common thread through the most labor-competitive jurisdictions is the fact that all are right-to-work states. The top states for labor also tend to have generous and effective programs for filling in any gaps in training and education.

Plenty of companies continue to grow, and with growth comes the need to expand and explore new locations. Workforce Development Programs

To build upon that last statement, workforce development programs are a major differentiator that can play a vital role in site decisions. Georgia earns its top ranking in this area with the help of Georgia Quick Start, often seen as the gold standard when it comes to workforce development. More than a million employees have tapped into new skills and opportunities with the help of this program, which offers customized, free services to any qualified company that’s expanding its Georgia workforce or adding technology to be competitive.

Georgia Quick Start is part of the Technical College System of Georgia. Likewise, Virginia’s community colleges make that state’s FastForward program a reality, with its workforce training programs providing credentials for in-demand jobs. Virginia Career Works and the Virginia Talent Accelerator Program are additional examples of why that state is highly ranked in this area.

Tied with Virginia for second place in the workforce development category is Louisiana, which has its own highly regarded program known as FastStart. The program assists in multiple ways, including employee recruitment, screening, training development, and training delivery, and for qualifying companies, the services carry no cost. Rounding out the top five in workforce development programs, according to our survey respondents, are South Carolina and Alabama.

Energy Availability and Costs

Tennessee and Georgia are perennial favorites among companies seeking to locate operations for which energy is a big factor. They were tied for the top spot in this category last year, and now Tennessee ranks first and Georgia second.

Tennessee has long had a leg up in the area of available and affordable power, an advantage known as the Tennessee Valley Authority, established in the 1930s as a federally owned utility. Today it’s a public power wholesale provider serving more than 150 local power companies, and customers in its area have rates lower than 70 percent of the nation.

Georgia, meanwhile, also boasts commercial rates below the national average along with energy services that are business-friendly. Georgia Power, for example, has a full menu of rate and usage programs that can be tailored to the size and very specific needs of individual customers. Rounding out the top five are states with diverse energy supplies and competitive rates. Texas gets an increasing amount of its power from the wind, North Carolina is among the nation’s leaders in production of nuclear power, and Washington produces nearly a third of America’s renewable hydropower.

Methodology for 2021 Top States for Doing Business

Our 2021 Top States for Doing Business rankings reflect the results of our recent survey asking leading consultants to industry to give us their top state picks in 13 categories that impact companies’ location and facility plans. The states in each category were ranked based on their number of mentions in the particular category, and total mentions in all 13 categories were calculated to rank the top 20 states overall.

Logistics and Infrastructure

For those in the manufacturing and distribution sectors, your bottom line depends on the ability to get things from here to there, across quality infrastructure served by exceptional logistics capabilities. Infrastructure must be well-maintained and well-connected from an intermodal point of view.

Texas moves to the top of this category this year on the basis of its road, rail, and water connections, in particular — i.e., more miles of freight rail and public roadway than any other U.S. jurisdiction, plus 16 seaports, 11 of which are deepwater. Georgia has a couple of deepwater ports of its own, with direct links to I-95 and I-16 and on-terminal rail, not to mention the world’s most efficient (and busiest) airport, in Atlanta. Its location, of course, is also ideal for serving the Sunbelt and connected with U.S. and global markets.

Tennessee and Indiana tie for third in this category. Both have favorable locations along with extensive highway and rail systems. Together they host the biggest and second-biggest FedEx airport hubs, in Memphis and Indianapolis. And they offer port access, as well. Indiana’s access comes by way of Lake Michigan and the Ohio River, and Tennessee offers river ports including Memphis and Nashville.

Site-Readiness Programs

We’re living in a strange time when you may have to wait and wait to obtain furniture, certain computer chips, appliances, and some new vehicles (and who can forget toilet paper shortages?). By contrast, it’s nice to find a great spot for development that is ready to go, with a head start on the necessary due diligence, infrastructure, and approvals.

Tennessee helps make this dream come true with well-regarded site-readiness initiatives, landing once again in first place in this category. What are sometimes called “shovel-ready sites” are known here as Certified Sites, and they’re all over the state, from a nearly 2,000-acre mega-site in middle Tennessee, to one more than double that size near Memphis, to smaller and mid-sized sites in every corner of Tennessee.

Second-place once again is held by Georgia, with a similar certified sites program called Georgia Ready for Accelerated Development. When Georgia economic development officials say “certified,” they mean it — these fast-track sites have been evaluated by a third party to be sure they’re up to standards with regard to zoning, environmental assessment, utility services, and other factors that, if lacking, could otherwise derail projects.

The North Carolina Certified Sites program also is all about reducing site risk. These sites are prequalified rigorously, and periodically reviewed to ensure they’re still ready to roll if some time has passed. North Carolina ranks third in this category, and programs in South Carolina and Ohio helped those states achieve a fourth-place tie in the eyes of our responding consultants.

Available Real Estate

You can’t have site readiness if you don’t first have good available sites, so we asked our experts about this basic category, as well. Texas and Georgia tie for top honors when it comes to available real estate. For example, since 2014, the Savannah real estate market has seen tremendous growth, with industrial inventory increasing by more than 60 percent, according to CBRE. North Carolina fares well in the real estate hunt, earning a third-place ranking, and the fourth-place spot is a tie between Ohio and South Carolina. Tennessee is an excellent choice for available real estate, too (and as mentioned above, much of that real estate is primed and ready to develop).

Cooperative and Responsive State Government

And then there are the factors that collectively can be seen as the “welcome mat” states place at the doorsteps of companies doing business within their borders. Some of this is reasonably measurable, such as the tax burden, and some of this is more of a subjective gut feel regarding which states are the most eager and welcoming, the best able to make helpful introductions on the local level, and the most willing to go the extra mile in tailoring incentive and training programs.

Our top five this year for most cooperative and responsive state government are the same as last year, with the order a bit shuffled. Georgia remains tops in this regard, according to our responding consultants, thanks to overall fiscal strength, a critical mass of successful companies, and economic development leaders ready to open up opportunities, share data, and connect prospects with all the right resources.

Tennessee moves up to second place, placing at or near the top of various rankings of business friendliness and positive climate. Indiana moves up from fifth to third place, proclaiming itself to be “a state that works.” North and South Carolina round out the top five.

Corporate Tax Environment

Speaking of cooperative, one of the most cooperative things a state can do is not be too burdensome with taxes. Lots of states boast about a business-friendly environment from the perspective of taxes, but our experts rank Texas as the best in this category. There are no corporate or personal income taxes there, after all.

Florida was tops in this category last year and is second this year, and it’s easy to see why. It doesn’t have a state-level property tax, and certain corporate structures don’t have corporate income taxes, either. Florida also doesn’t levy a personal income tax, which pleases corporate executives. Rounding out the top five are Nevada and North Carolina, tied for third, and Tennessee in fifth place.

Workforce development programs are a major differentiator that can play a vital role in site decisions. Favorable Regulatory Environment

Benjamin Franklin said nothing is certain except death and taxes, yet the previous category disproves the part about taxes, at least in some states. What about red tape? That feels like pretty much a certainty, too, but our final two categories highlight states that have found a cure for the most common hassles of location and expansion.

With regard to regulatory hassles, our location experts say South Carolina is the place that has the most favorable regulatory environment. Same with lots of other Southern locales, including second-place Texas and the two states tied for third: Georgia and Alabama. Continuing the South’s success, Tennessee places sixth, Mississippi seventh, and two of the states tied for 10th are Florida and North Carolina.

Still, this category is decidedly less exclusively Southern than it was before. Indiana makes the list again, this year in fifth place, up a notch from last year. But we’re also spotlighting the regulatory friendliness of three states to the West this year: Arizona, Nevada, and Utah.

Speed of Permitting

Last but not least is the speed at which the permitting process moves. Permitting can be a nightmarish hassle, and it’s one of the things that states try to take care of in advance when they create shovel-ready locations.

Generally speaking, the Southern States are the speediest when it comes to permitting. Just check out the top five: Alabama, South Carolina, Georgia, Mississippi, and Texas, ranking in that order in this category. With only a couple of exceptions, the rest of the list is pretty Southern, too: Tennessee, Virginia, and North Carolina, and Louisiana, which ties for a ninth place spot with Arizona and Indiana.

Source: Area Development, by Steve Kaelble

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

Published September 22, 2021