Why did the southern part of the United States continue its dominance in the rankings? A few of the key reasons are tax structure changes, funding support for education and workforce development, enhancements to incentive programs, and ready-to-develop sites.

The analysis focused on equally weighted criteria. Half of the ranking was based upon responses provided by corporate site selectors. The site selectors who participated in the survey possess multi-state experience in manufacturing, distribution/logistics, life sciences, information technology, financial services and corporate headquarters projects. The remaining 50% of the ranking was tied to a state’s performance in key economic categories tied to the location of new facilities. The performance factors focused on the total number of new or expanded projects, plant performance, square footage, and per capita and geographic rank of each state.

Top Ten Business Climates

1. North Carolina
2. Texas
3. Ohio
4. Georgia
5. Tennessee
6. Indiana
7. Kentucky
8. Alabama
9. Michigan
10. South Carolina

In order to understand how these states made it on the 2006 top ten list, it is important to examine the steps taken by these states to position themselves for economic development success.. Please find below a summary of a few key steps taken by each state to foster economic growth.

1. North Carolina: The state of North Carolina overhauled its tax credit programs to focus on job creation and capital investment. The list of targeted industries which qualify for the William S. Lee program was expanded to include motorsports, logistics, and R & D firms. In addition, the state increased the amount of credits a business is eligible to use if they locate in an economically distressed or rural community. The state also created the One North Carolina Small Business Fund which provides matching funding for federal small business grants. The fund has $5 million of annual funding for matching grants.

2. Texas: The state of Texas recently enacted the largest property tax cut in Texas history. The tax cut will cut property taxes for businesses and property owners by approximately $16.7 billion over a three year period. The state has also taken steps to lower workers compensation rates for employers and improve benefits for employees injured at work. In addition, Texas has launched a $10 billion public-private partnership to develop infrastructure for wind energy power generation.

3. Ohio: The state recently launched the Ohio Fuel Cell Initiative, a $200 million program to develop alternative energy sources for vehicles. The state also expanded the Job Creation Tax Credit program to include additional industry sectors, thus allowing more companies to potentially take advantage of the program. The state also lowered personal income tax rates again in 2006, the second time in less than a year.

4. Georgia: Beginning in 2007, the state of Georgia will provide a sales tax exemption for all materials and equipment used in the construction of bioenergy facilities in the state. In addition, the state enacted a 4% tax incentive for companies producing biofuels, using agricultural products and biomass from the state. The state also made changes to its county tiering system for job creation tax credits to reflect the special needs of urban and rural counties throughout the state.

5. Tennessee: The state of Tennessee has invested a significant amount of its budget surplus in education and workforce development programs. The state created 250 new pre-kindergarten classes, increased amounts of scholarships, and increased funding for faculty and researchers at higher education institutions throughout Tennessee. The state also increased the number of industry sectors eligible to apply for job creation tax credits. Tennessee also invested in healthcare programs to ensure all residents have access to affordable, quality healthcare.

6. Indiana: The state of Indiana implemented a new single sales factor for corporations in the state. The change will result in companies investing capital and hiring people in Indiana, instead of being penalized in terms of corporate income taxes. The state also enacted a program to lease the Indiana Toll Road for a period of 75 years in return for $3.85 billion of funds. The funds will be used to build infrastructure throughout the state during the next ten years to create jobs. The state also made changes to its corporate headquarters and job retention tax credits to lower minimum thresholds required to potentially qualify for the program.

7. Kentucky: The state of Kentucky repealed the gross receipts and profit tax for all businesses with less than $3 million of receipts or profits. The state also lowered the tax on corporate profits from 7% to 6%. Kentucky made changes to the corporate tax law to treat pass-through entities the same as the federal government for purposes of taxation. Finally, the state expanded healthcare programs to improve the quality of its healthcare.

8. Alabama: The state of Alabama created a program to provide funding of up to $2 million to industrial development authorities throughout the state to prepare sites for development projects. A minimum of 20% of all funds must go to rural areas in the state. The state also made changes to personal income tax rates to lower rates for citizens. In addition, Alabama increased the amount of the child tax credit for residents. Finally, the state made a commitment to streamline its regulatory process to ensure that all agencies impacting economic development projects have collaborative procedures in place to expedite necessary approvals.

9. Michigan: The state of Michigan approved increasing the number of tax-free Renaissance Zones by ten throughout the state to encourage economic development in the area of alternative energy. In 2007 state funding of stem cell research will also be increased to stimulate new discovery of medical technology. The state also created a tax credit program to assist workers transitioning from the automotive industry to a new job. Michigan also committed to expediting the phase-out of the Single Business Tax.

10. South Carolina: The state of South Carolina reformed property taxes to remove school operating taxes from property tax bills. The state also increased funding for workforce development programs delivered by community colleges/technical schools for companies locating or expanding in the state. South Carolina increased funding for infrastructure to prepare sites for economic development projects. The state also created a multi-agency team to lead companies through the process of securing all necessary local and state permits required for a project.

In summary, these ten states have done an outstanding job of improving their business climates and technical and financial assistance programs to make their areas attractive to companies locating or expanding operations. At this point, these ten states are leading the pack, but the states behind them will continue to innovate in order to overtake them. As a result, these ten states must continue to take steps to maintain their current competitive advantage.

Larry Gigerich serves as Managing Director of Ginovus. Ginovus is a leading provider of national site selection, public policy development, community comparative analysis and economic development incentive procurement & management services to private sector, educational, governmental and not-for-profit organizations throughout North America. Ginovus is headquartered in Indianapolis, Indiana, and has a southeastern United States regional office located in Pensacola, Florida.