The best states for doing business

By Forbes.com

You use its products every day -- when you take a cross-country flight on a Boeing jet, when you sip your morning Starbucks coffee, when you order the latest Harry Potter book from Amazon.com and when you use the Microsoft Windows operating system on your PC.

Washington state is home to these companies and more, befitting the state's tag line, "Innovation is in our nature."

In Forbes.com's second annual ranking of the top states for business, Virginia is No. 1 again, but Washington is the big story. One of the two biggest gainers (tied with Tennessee) in the rankings, Washington rose from 12th to fifth place and was the only state to finish in the top five in three main categories: labor, regulatory environment and growth.

And Washington's numbers were up across the board when you look back and at projections into the future.

"We're blessed by birth. We have an innovative spirit in the state," says Washington Gov. Christine Gregoire, who adds, "We've made improvements to get out of the way and let innovation and creativity take over."

Despite coming out on top, Virginia didn't dominate the rankings the way it did last year. The state finished in the top 10 in four of the six main categories that Forbes examined. But in 2006, it finished in the top 10 of all of them.

Virginia's top attributes include an incentive environment that is the fourth-best in the country, according to Pollina Corporate Real Estate, a commercial-real-estate consulting firm, as well as an unemployment rate that's the third-lowest in the nation.

Utah, North Carolina ranked high

Moving up to the second spot this year was Utah, from fourth place in 2006. Utah benefited from low business costs -- 9% below the national average -- and a strong economic environment. The state's five-year job growth rate jumped to 1.8%, from 1.3% last year, while income growth improved to 3.2%, from 2.2%.

The second runner-up was North Carolina, whose capital, Raleigh, is Forbes' best metro area for business and careers. North Carolina has the second-lowest labor costs in the country -- 18% below the national average -- and incomes are projected to increase 3.8% annually over the next five years, the second-fastest rate in the country.

Forbes has been ranking the best metro areas for business and careers for nine years, and this ranking of states looks at many of the same factors, including business and living costs, job and income growth, and educational attainment. But this ranking goes further in several ways.

First, Forbes looked at projections of job, income and gross state product growth. It also examined venture-capital money going into an area, as well as new businesses that have cropped up in the past three years. Another addition is the role that government plays on the business climate in terms of environmental and labor laws, and on taxes and incentives. These factors play out on the state level instead of on the local level. Overall, 32 criteria were examined to assemble the list.

Continued: Reducing bureaucracy

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