Virginia got some bad news this week.
It’s now rated the third best state for business in the annual CNBC ratings, the business equivalent of those U.S. News & World-Report rankings of colleges.
Now, being third isn’t bad, compared to the 47 states below us, especially last-place Mississippi. However, Virginia had been first for two years in a row, the first state ever to post back-to-back championships. Against that backdrop, third place is kind of disappointing, made more so by the fact that North Carolina – our rival in so many things – is now first.
There’s also a political dimension to this. Glenn Youngkin ran for governor last year claiming that Virginia’s economy was “in the ditch” and he’d get it out. Democrats countered that we weren’t in any such ditch because we’d placed first in the CNBC ratings two years running. Now Youngkin is governor, and the rating slips, and Democrats were quick to blast the Republican governor for fouling things up.
“Perhaps the governor needs to acknowledge that Democratic policies helped our Commonwealth lead the nation, and that his approach has made us fall behind,” said Rep. Don McEachin, D-Richmond, just one of many Democrats to say something similar.
Republicans, meanwhile, pointed out that Youngkin has only been governor six months – how responsible can he be at this point? They, quite naturally, blamed Democratic policies that laid the groundwork for this decline (without crediting Democratic policies that may have previously made the state first).
So what’s the truth here? To what extent is Youngkin to blame? Let’s try to find some facts, shall we?
CNBC uses 88 metrics across 10 general categories to come up with these ratings. “Each category is weighted based on how frequently states use them as a selling point in economic development marketing materials,” CNBC says. “That way, our study ranks the states based on the attributes they use to sell themselves.”
We don’t know CNBC’s precise algorithm but we do know the sources the network uses – sort of. CNBC pointed me to a list of all its sources, but that list is not as helpful as it might seem because the links go to general websites – say, the U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics and Moody’s Investors Services – but not specific reports. Many of these entities generate lots of statistics but it’s impossible to tell which ones CNBC used unless the network quoted them in the published narrative.
However, CNBC does say, “We gather empirical data on the states’ performance in each metric using the most recent figures available.” The most important words there, for our purposes, are the last five – “the most recent figures available.”
Whether you’re trying to indict Youngkin or exonerate him, that’s what the (political) case rests on. What are the most recent figures available?
Some we know are quite recent, because CNBC specifically notes the unemployment figures from May. Now, you can debate whether Youngkin has been governor long enough to be fully responsible for the unemployment figures in May, but at least we know a date. In any case, the state’s unemployment rate for May was 3.0%, which is low, and lower than May’s national average of 3.6%. (The lowest in the country was Nebraska at 1.9%, the highest was New Mexico at 5.1%.)
Another measure that we know CNBC used – but it was quoted – was the state’s gross domestic product in the first quarter, which shrank by 1.7%. Now we get into really debatable territory. The first quarter runs from Jan. 1 to March 31. Youngkin was inaugurated at noon on Jan. 15. That’s at least 14 and a half days he wasn’t responsible for. Did he become fully responsible for the GDP at 12:01 p.m. on Jan. 15? How much did his policies – good or bad – truly influence the state’s GDP from Jan. 15 until March 31? Count me as skeptical. Governors do make a difference, policies do matter, but I’m not sure the governor is so all-powerful that he could make a big change, good or bad, in such a short period of time.
For what it’s worth, Virginia’s -1.7% sounds bad – anything with a minus sounds bad – but it was in line with what was happening nationally. The national GDP shrank by 1.6% during the first quarter; 46 states saw their GDPs go down. If Democrats want to blame Youngkin for Virginia’s GDP shrinking, then, logically, they should also blame President Joe Biden for the national GDP shrinking. Since I’m sure they’re inclined to blame structural forces beyond Biden’s control, then surely the GDP is beyond the control of a mere governor, as well.
Here’s the clincher for me. CNBC makes a big deal out of the state’s net out-migration – how more people are moving out of the state than moving into the state. “The Old Dominion became the first back-to-back Top State for Business in 2021 on the strength of its education system and its workforce,” CNBC said. “But net migration to the state among college-educated workers has slowed, according to Census figures, hurting the commonwealth’s Workforce ranking.”
This is a big deal because Workforce counts more (16%) than any other category in the CNBC ratings. This is also the line that, to me, exonerates Youngkin. I know this Census Bureau migration data, because I wrote a six-part series about these numbers earlier this year.
It’s like the pivotal scene in the HBO series “Chernobyl” where managers at the wounded nuclear plant are trying to assure some bureaucrat sent down from Moscow that all was well, and that the black pieces of charred material lying on the ground were nothing more than harmless burnt concrete. The bureaucrat didn’t know much – he wasn’t a nuclear scientist, he once managed a cement factory. But once the locals told him those black things were burned pieces of concrete, the bureaucrat glowered at them and said: “That’s where you’ve made your mistake.” He knew concrete and he knew concrete didn’t burn like that. It was something else – it turned out to be deadly radioactive graphite, a sure sign that the explosion had blown out part of the nuclear core. I may not know all the statistics CNBC has used but I know these, and I know these statistics on net migration aren’t ones Youngkin had anything to do with for one very good reason: They’re from before he took office.
Virginia hasn’t simply seen migration slow down. It’s seeing more people move out than move in. That’s also not a new trend: That net out-migration has been happening every year since 2013, so it started under a Republican governor (Bob McDonnell) and continued under two Democratic governors (Terry McAuliffe and Ralph Northam). But here’s the thing: The most recent Census Bureau population estimates that track in-migration versus out-migration are from July 2021 – so on the most serious charge that CNBC levels against Virginia, the data is actually from last year, under a Democratic governor. That doesn’t mean the data is bad – it’s the most recent available and quite newsworthy – but if you’re trying to pin this decline on Youngkin, that’s a pretty big hole in the argument. In fact, Youngkin spent quite a bit of time on the campaign trail last year talking about these net out-migration trends and why they were a warning signal about Virginia’s economy, so while he didn’t predict this CNBC slide, he did, at least, call attention to one of the key metrics that CNBC has used to downgrade the state.
I can see Republicans out there smiling right now: They can blame this on Democrats!
Not so fast. There are three main reasons for this net out-migration, according to demographers.
- High housing prices are pricing people out of the state’s biggest economy, in Northern Virginia. Can that be blamed on either party?
- Virginia’s population is starting to age out and many retirees are moving out of state, to retirement havens along the Southeast coast – the classic snowbird phenomenon. Can that be blamed on either party?
- Virginia hasn’t created enough high-wage jobs to attract enough new residents. Can that be blamed on either party? Maybe so, but maybe not. Big picture, our two biggest population centers – Northern Virginia and Hampton Roads – have been overly reliant on federal spending, the federal government in the former, the military in the latter. Federal sequestration (and other federal decisions under both Democrats and Republicans) have had the quite expected effect of slowing economic growth in both places. That was a big part of the rationale behind the GO Virginia economic development initiative to grow a bigger private sector economy in the state. It’s notable that the push for that was led by business leaders from Hampton Roads (and was endorsed by McAuliffe when he was governor).
As someone who has studied this data, I’m not inclined to blame either party – I think structural reasons that go far beyond politics are to blame. I certainly don’t think we can blame Youngkin for the state’s rating slipping – he wasn’t in office when one of the key metrics used in the ratings was compiled. I also don’t think we can blame our two former Democratic governors because a) they’re not responsible for high housing prices in Northern Virginia, b) they’re not responsible for the state’s aging demographics, c) they’re not responsible for the forces that slowed private sector job growth in Northern Virginia and Hampton Roads, and d) they responded appropriately once they saw those things happen. Now, you can certainly argue that they should have done more, or done things differently. Still, not every problem has a political cause and the causes here aren’t really political.
It’s also useful to look at the raw scores, not just the ratings. CNBC awards a maximum of 2,500 points. Here’s how many Virginia has scored over the past decade:
2020: No ratings
The main thing I see is how consistent Virginia has been. It dipped some in 2015-16 and made a jump up in 2017 but overall the state’s numbers have been about the same. In fact, the 2022 numbers are almost exactly what they were in 2017 (under McAuliffe) and are exactly what they were in 2012 (under McDonnell). From 2021 to 2022, the numbers went down by just 34 points. Out of the 10 years of scores listed above, the 2022 numbers were the third highest.
There are two reasons why Virginia went from first to third: It fell by 34 points and North Carolina went up by 34 points – and Washington went up by 119.
In 2021, Virginia finished first with 1,587 points while North Carolina had 1,546. Virginia’s 1,553 points this year would have still won first place last year but this year were good enough only for third because two other states did better. It’s certainly fair to ask why Virginia dropped some points but we also ought to be asking why North Carolina (and Washington) were picking up points.
Although CNBC grades in 10 categories, it only displays the top seven: workforce (16%), infrastructure (15%), cost of doing business (14%), economy (13%), life, health and inclusion (13%), technology and innovation (10%) and business friendliness (8%). The other three – education (7%), access to capital (2%), cost of living (2%) – aren’t shown. You can argue that some categories should count more or less, but these aren’t your rankings – or mine – they’re CNBC’s.
Year-to-year comparisons are hard because in 2021 CNBC also displayed seven categories, but not the same seven as this year, so we can only make year-to-year category comparisons where we have categories.
This year Virginia ranked 11th for workforce, the most valuable category. Last year, it ranked third – so the net out-migration CNBC referenced apparently cost the state a lot of points. For what it’s worth, Virginia still ranked higher than North Carolina in this category – the Tar Heel State was 12th, so while we lost points here, we might still have won had we not lost points elsewhere.
This year, Virginia ranked ninth for infrastructure, the second most valuable category, up from 24th last year, so this wasn’t it. This was also a category where Virginia far surpassed North Carolina, which came in 17th. Who should get credit for Virginia’s infrastructure jump? I notice this category includes broadband so the investments the state has made in rural broadband might be paying off here. This is one of the few things that had drawn bipartisan support.
This year, Virginia ranked 25th for the cost of doing business, the third most valuable category, which isn’t good, but is still a slight improvement from 26th a year ago. Again, we did slightly better than North Carolina here, which took our old 26th spot.
This year, Virginia ranked 20th for the economy, down from 13th this year, so this is a place where we lost points. This is also where North Carolina racked up. It went from fourth last year to first this year. So what is this category? Here’s what CNBC says: “We examine the economic strength of each state by looking at gross domestic product growth and job growth over the past year. We measure each state’s fiscal condition by looking at its credit ratings and outlook, its overall budget picture including spending, revenue and reserves, as well as pension obligations. We rate the health of the residential real estate market. Because a diverse economy is important in any environment, we consider the number of major corporations headquartered in each state.”
North Carolina’s GDP shrank by 1.4%, only slightly less than ours, so that’s probably not what drove this category. It’s probably not job growth, either. Virginia’s job growth over the past year is 3.2%; North Carolina’s is 3.6% – better but not astronomically so. The deciding factor here probably wasn’t the major corporation headquarters section, either, given that Virginia landed Amazon under Northam and Boeing and Raytheon under Youngkin.
The Richmond Times-Dispatch points out that Virginia’s state budget was “in limbo” from the General Assembly’s scheduled adjournment in March until June, when a budget deal finally got done. Did the budget wrangling help sink Virginia’s rating? If so, who’s to blame for that? House Republicans who insisted on their way or Senate Democrats who insisted on theirs?
Virginia slipped slightly in “life, health and inclusion,” from 11th to 13th. North Carolina, though, scores terrible on this category – 37th last year, 28th this year.
Virginia ranked 17th for technology and innovation, but this wasn’t a category CNBC disclosed last year, so we don’t know whether that’s up or down. We do know, though, that North Carolina ranks better, at fifth. Is this the effect of being home to the Research Triangle? If so, that’s not something that has happened suddenly – or can be fixed suddenly, either.
Finally, Virginia ranked sixth for business friendliness, up from 11th last year. North Carolina is a pretty mediocre 22nd, down from ninth the year before. Should Youngkin, who has declared the state “open for business,” get credit for this improvement? Maybe, except let’s see what CNBC says about this category: “We measure each state’s lawsuit and liability climates, regulatory regimes covering areas such as trade and labor, as well as overall bureaucracy. We also consider how hospitable states are toward emerging industries including cryptocurrency and cannabis.” Maybe Virginia gets credit for legalizing cannabis – under Northam – but it failed this year to come up with a regulatory scheme to enable it to set up a retail market. And I haven’t exactly seen Youngkin endorse crypto.
I wish CNBC had listed the education category because its narrative did praise the state’s education system – we just don’t know the numbers it’s praising. In any case, when we review the categories we can see, it’s clear that where Virginia really lost points was in that “economy” section – and while we don’t know why it did, we also can determine why it didn’t. If something about the state’s fiscal condition did lower our ratings, it’s hard to see how Youngkin can be blamed for that since for all but the past few weeks we’ve been working under a budget he had nothing to do with. My guess – and it’s just a guess – is that the long delay in producing a state budget cost the state points, and likely first place. If so, that seems unfair. While the budget did take a lot longer than it should have, it was clear throughout that the state had plenty of money. In fact, that’s part of what took so long – Republicans wanted to give more of that money back than Democrats. It’s not as if the budget took so long because negotiators had to go looking under cushions trying to find the money to balance the state’s finances.
I understand why Democrats are quick to blame Youngkin – that’s an easy shot to take, whether it’s right or not. I also understand why Republicans are quick to blame a previous Democratic administration – that’s how politics work. I’m just not convinced that politics – at least the politics of the moment – has much or anything to do with these ratings. If Republicans are right, and this is the fault of Democratic policies, that argument can’t be applied nationally: Three of the top four states in the rankings have Democratic governors. Democrats shouldn’t chortle too much, though. North Carolina has a Democratic governor but a Republican state legislature. CNBC approvingly quotes a North Carolina political observer who says that “divided government is working.” Republicans of the social conservative variety might want to take note: CNBC also approvingly points out that North Carolina “long ago retreated from its controversial ‘bathroom bill’ known as HB2 after intense criticism from business.” Virginia would be wise to avoid getting wrapped up in social controversies if it wants to keep a high rating.
Instead of trying to blame the other party (whoever the other party is), the better response here would be for both parties to ask what Virginia should do to improve its ratings – assuming, of course, you think these ratings matter. Both parties sure think they do.
Virginia certainly could use stronger job growth – we can have a robust debate over the best way to achieve that. We definitely need to figure out how to reverse our net out-migration. That will be hard given how much of it is driven by demographic forces, but stronger job growth would obviously help. We might also ask why we rank so relatively low – 17th in the nation – for technology and innovation. The state this year allocated $15.7 million for building life science labs in Roanoke. Should the state be investing a lot more, though? We also could figure out how to lower the cost of doing business. Republicans will reflexively say we should lower taxes, but it’s interesting that CNBC doesn’t mention taxes in this category. Instead, it describes this category as “wage and utility costs, as well as the cost of office and industrial space.” Here’s where the high cost of living in Northern Virginia hurts us. Also, bad news for the free market libertarians among us: “We consider incentives and tax breaks that states offer to reduce business costs, with special emphasis on incentives targeted toward development in disadvantaged communities.” CNBC likes these things.
Years ago, I was on a jury in an attempted capital murder case. We jurors found the defendant guilty because the prosecution made a solid case, and the defense argument just didn’t make much sense. Here, as a self-appointed jury of one, I absolve Youngkin of any blame for the drop in the CNBC ratings – but I’d send him off with instructions to work with both parties in the General Assembly to figure out what we can do to raise them next time.