Virginia should prepare itself for bad news — and a political blame game.
Sometime next month the annual CNBC rankings of “best state for business” will come out. Last year, Virginia fell from first to fourth, its lowest ranking in seven years.
Last year, Democrats blamed President Donald Trump — and they weren’t wrong. CNBC demoted Virginia last year because cutbacks to the federal workforce had a disproportionate impact on the state.
If Virginia’s ranking falls further this year, you can bet Republicans will blame Democrats — and some Democrats may blame each other on the grounds that the recent debate over whether to do away with data center tax breaks eight years early has marked the state as untrustworthy. (The budget the legislature eventually passed kept the tax breaks in place but created a new tax on the facilities.)
But will Virginia fall? Here’s what we need to know: CNBC changes its formula every year. Critics say that makes these well-publicized rankings inherently flawed, because they’re not consistent over time. CNBC’s argument is that the economy changes over time and what once mattered may not matter so much anymore. Regardless, these rankings are considered important by many in the economic development world — even if only as talking points if their state does well — so their release is always a big annual event.
This year, CNBC has changed its formula yet again.
CNBC not only changes the weight it assigns to certain categories, it changes the measurements it uses within those categories. When these ranking started in 2007, the network used 46 different types of data. Last year, it used 135. This year, it’s up to 138 — that’s just three more but the first 135 may not be the same 135 as last year.
Let’s take a look to see whether the changes are likely to help or hurt Virginia. Think of this as the chatter that takes place before any sporting event, where the commentators compare the starting line-ups.
Here’s what we know for certain:
This year infrastructure will be the top-ranked category, accounting for 17.6% of the total score. Last year, it ranked second at 16.2%. Maybe that’s not much of a change, but it is a change and if you’re in a close contest, everything matters. This change ought to be good for Virginia. Last year, we ranked second in infrastructure, behind only Ohio. However, here’s the key line in what CNBC says about this year’s formula: “With skyrocketing demand for abundant, reliable power, we scrutinize each state’s electrical grid more closely than ever before. In addition to measuring the reliability of each state’s power, we consider cost and generating capacity.” Does Virginia get credit for adding more capacity — all those solar farms we see, Dominion Energy’s new offshore wind project and proposed gas plants? Or does Virginia get dinged for still having to import more power than any other state except California? Guess we’ll see. (Disclosure: Dominion is one of our donors, but donors have no say in news decisions; see our policy.)
Last year, economy ranked first, at 17.8% of the score. This year, it’s second at 16.6%. We ranked 14th last year so having this category demoted by about one percentage point could help Virginia at the margins.
Workforce stays at third, but bumps up from 13.4% to 13.8%. Virginia ranked 14th in this last year, so a little extra weight here won’t be helpful.
Quality of life makes a big jump, from six to fourth and a weighting increase from 10.6% to 11.6%. Virginia ranked eighth last year, so it’s hard to tell how this plays out. This was one of our better scores last year, although eighth place is still below our overall ranking.
Cost of doing business loses a little weight, dropping from 11.8% to 11.6%. Virginia, driven by high-cost Northern Virginia, usually does poorly in this category. Last year we ranked 31st. Anything that reduces the weighting of this category ought to be good for us, but is this enough of a change?
Technology and innovation get bumped down, too, from 10.2% of the total score to 9.8%. Virginia did pretty well with this last year, ranking eighth, so this demotion of technology and innovation probably doesn’t help us. Of note to state policymakers: CNBC says, “We also consider which states provide their own support for research and development, independent of the federal government.”
Business friendliness — now we come to the potentially controversial one. Business groups have said the state’s data center debate has shown that Virginia is no longer “business-friendly.” The description of what CNBC will consider may not be helpful: “We also consider how hospitable states are toward emerging industries, including artificial intelligence, digital assets and cryptocurrency; prediction markets, quantum computing, and digital health, giving them a framework for growth without stifling innovation.” If data centers count as “digital assets,” then any attempt to tax them or regulate them would likely count against Virginia. However, CNBC has also downgraded this category from 10.8% of the score to 9.9%. Last year Virginia ranked 7th, so downgrading one of our better categories won’t help — unless the data center debate is going to downgrade our score. Guess we’ll find out.
Access to capital is one of the smallest categories, but it’s got a bigger share that before — growing from 2.4% of the score to 4.2%. Virginia ranked 10th in this category this year, so it’s hard to tell what increasing its weight might mean.
Education is downgraded from 4.4% to 4.0%. This definitely doesn’t help us; Virginia ranked first in this category so shrinking the weight of our best category isn’t good.
Cost of living also goes down, from 2.4% of the score to 2.0%. While the education downgrade hurts Virginia, the cost of living downgrade should help us. This is usually one of our worst scores; last year Virginia ranked 21st.
So what’s all this mean? One of our best categories (infrastructure) gets more weight but another of our best categories (education) gets less. Two of our worst categories (cost of doing business and cost of living) lose weight.
And while we can all speculate, no one really knows how the data center debate will play out in these rankings — or in real life.
The problem with traditionally ranking so high in these CNBC lists is that there’s pressure to maintain that position, even as the ground shifts underneath. We’ve seen instances in the past where states improved their scores but fell in the rankings because rival states scored even better. I suspect Republicans already have their press releases written and ready to go if Virginia’s ranking falls. If Virginia holds its place, or rises, then the Spanberger administration will have two reasons to celebrate — doing so well in the CNBC list, and avoiding getting blamed for a fall.
And now we wait.
