Jodi’s Journal: In best states for business, S.D. drops to No. 24. What happened?

By Jodi Schwan

First, a disclaimer: I am not a huge fan of rankings for cities and states.

And I get bombarded with them. Best place to start a business. Best place to retire. Best place to buy a home. Best place for millennials. It truly is endless.

To be honest, most of these lists have an ulterior motive – often as a way to get free press for the organization putting out the ranking as those of us in the media tend to run them at face value without digging into the methodology.

That said, I consider the annual list of best states for business compiled by CNBC one of the more reputable ones.

So when I saw that South Dakota had dropped to No. 24 in this year’s rankings, I thought it was worth digging into the numbers a bit to see what happened.

In 2016, South Dakota was No. 19. For two years before that, it was No. 11.

And if anyone can remember back to 2013 – I couldn’t without looking it up – South Dakota topped the list.

Four years and 23 spots later, I don’t think that much has fundamentally changed about our business climate. Certainly not enough to explain such a drop. Here’s what I think happened.

First, back to transparency: Most states’ business climates do not change dramatically year to year. So to make an annual ranking at all interesting enough to generate an audience –the goal for all of us in media — the factors considered and the way they are weighted has to change.

That’s what happened this year, which emphasized workforce and infrastructure among 10 major categories and 66 metrics used in determining how states ranked.

In an explanation, CNBC noted the “skills gap across the U.S. labor market is big and getting bigger” and that as President Trump discusses a potential $1 trillion infrastructure plan, states are talking more “about the strength of their roads, rails, ports and utilities.”

What’s interesting about the CNBC approach, however, is that it looks at what states themselves consider important in attracting business.

The analysis weights categories by analyzing every state’s economic development marketing materials. The “more the states cite a particular category as a selling point, the more weight that category carries.”

So as states themselves talk more about their workforce, the more weight that carries as a category in the rankings.

“Most states point with great pride to the quality and availability of their workers, as well as government-sponsored programs to train them,” CNBC’s report said.

It rated states based on:

  • The education level of their workforce.
  • The number of available employees.
  • The states’ demonstrated ability to retain college-educated workers.
  • The concentration of STEM — science, technology, engineering and math — workers, increasingly in demand by business.

“We measure workforce productivity based on each state’s economic output per job,” it continued. “We look at the relative success of each state’s worker training programs in placing their participants in jobs. We also consider union membership and the states’ right-to-work laws. While organized labor contends that a union workforce is a quality workforce, that argument, more often than not, does not resonate with business.”

South Dakota ranked a somewhat concerning No. 39 in this category. It can’t be based on productivity, which is always strong, so I’m guessing our low unemployment and potentially comparatively low educational attainment might have hurt us.

Washington – home to Amazon, Boeing and Costco’s corporate headquarters —  topped the overall list of best states for business, helped by the nation’s largest concentration of STEM workers and the second-highest number of patents filed last year.

Georgia was second, followed by Minnesota. Our neighbor was helped by second-best finishes in the categories of education and quality of life.

“Minnesota has some of the best K-12 test scores in the nation,” CNBC reported. “However, the state is expensive. It finished No. 36 in cost of doing business and No. 31 in cost of living. The state also has the third-highest top individual income tax rate in the nation at 9.85 percent.”

The other major factors considered this year by CNBC were infrastructure and cost of doing business.

South Dakota ranked in No. 37 in infrastructure, where states were assessed on the vitality of the transportation systems and by the value of goods shipped by air, waterways, roads and rail. The category also considered the availability of air travel, the quality of roads and bridges, commute times to work and the condition of water and wastewater systems.

The state is a perennial high performer in the category of cost of doing business, which looks at thecompetitiveness of each state’s tax climate, as well as state-sponsored incentives that can lower the cost of doing business.” This ranking also includes utility costs, the cost of wages and rental costs for office and industrial space.

in 2013, when South Dakota came in top overall for business, it also led in this category. This year, the state was No. 14.

You can look into the rankings much deeper here, but I thought it was worth mentioning in the event we can learn something from states that outperformed us this year using these metrics.

We can’t gleefully run all the good rankings we receive without also acknowledging when we don’t quite appear to measure up.

But when it comes to workforce, in particular, this is the ranking I think needs to stay top of mind: Sixth.

That’s where South Dakota currently sits compared to other states, with a 3 percent unemployment rate.

Colorado currently has the nation’s lowest unemployment rate at 2.3 percent, followed by North Dakota, Hawaii, Nebraska and New Hampshire. Then, South Dakota is tied with Indiana. Idaho and Wisconsin follow at 3.1 percent.

That’s an awful lot of states that could be trying to attract more workers to support business development. I think we’re on the right track with many of our initiatives, particularly the concept of “cradle to career,” but what’s happening in states all around us clearly shows developing people needs to remain a priority.

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Jodi’s Journal: In best states for business, S.D. drops to No. 24. What happened?

South Dakota was CNBC’s top state for business in 2013. Four years later, it has dropped to No. 24.

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