Texas is CNBC's Top State for Business in America This Year

Thu, July 12, 2018

  • Texas claims the top spot in CNBC's 2018 America’s Top States for Business rankings.
  • The energy sector is helping to turbocharge the $1.6 trillion Texas economy.
  • Texas has added more than 350,000 jobs in the past year.
  • Texas is home to some of America's most important public and private companies, including giants like AT&T, ExxonMobil and Dell.

This is familiar territory for the Lone Star State, which becomes the first four-time winner in our annual study, now in its 12th year. But it has been a long time coming. This is the first time since 2012 that Texas has claimed top honors. Not coincidentally, West Texas Intermediate Crude Oil—the state’s most important export—peaked at just over $108 per barrel that year, a figure it has not seen since. But it has risen enough—around 60 percent in the last year, powering through the $70 per barrel mark in June—to turbocharge the $1.6 trillion Texas economy.

"The Texas economy remains in a broad-based expansion. The state’s energy sector continues to boom, and areas of the state tied to oil and gas are growing at their strongest pace since 2014."

-Christopher Slijk and Jason Saving, Dallas Federal Reserve Economists

Texas has added more than 350,000 jobs in the past year, with the largest increase in the energy sector. Put another way, 1 in 7 jobs created in the United States in the past year was created in Texas.

Texas is home to 39 companies in the Standard and Poor's 500 index, including AT&T, ExxonMobil and Texas Instruments. And it boasts some of the nation's largest privately-held companies, including supermarket operator H-E-B, Neiman Marcus Group and Hunt Oil.

With solid economic growth last year — including a torrid 5.2 percent state GDP increase in the fourth quarter — Texas finishes first in our Economy category this year. That is up from No. 25 last year, when oil was priced in the mid-$40s per barrel.

And rising energy prices have a ripple effect, according to Roger Guenther, executive director of the Port of Houston, which is seeing booming traffic in related products, like imported steel pipe. So far, at least, Guenther said tariffs have done little to stem the flow.

“As the price of oil goes up and more drilling occurs, it’s up from 3 million tons a couple of years ago to, we expect, 5 or 6 million tons of steel this year,” he said.

But Texas is no one-trick pony, notching top 10 finishes not just in Economy but in five of our 10 categories of competitiveness, including Workforce (No. 7), Infrastructure (No. 1), Technology and Innovation (No. 9) and Access to Capital (No. 3). The state finishes with 1,651 out of 2,500 possible points.

As always, we rank all 50 states on more than 60 metrics across our 10 categories. Using our tried-and-true methodology, we assign a weight to each category based on how frequently the states cite it in their sales pitches to business. That way, we rate the states based on their own standards. This year’s categories and point totals are:

  • Workforce: 425 points
  • Infrastructure: 400 points
  • Cost of Doing Business: 350 points
  • Economy: 300 points
  • Quality of Life: 300 points
  • Technology & Innovation: 225 points
  • Education: 200
  • Business Friendliness: 150 points
  • Access to Capital: 100 points
  • Cost of Living: 50 points

The Texas Formula

Since we introduced our rankings in 2007, Texas has never finished outside the top five overall, always following the same basic formula. It started under former Gov. Rick Perry, who is now U.S. Secretary of Energy, and has continued under his fellow Republican successor, Gov. Greg Abbott. The state prides itself on business-friendly regulations, smart spending and low taxes. Texas levies no individual income tax and no corporate tax.

“As far as I’m concerned, the only good tax is a dead tax,” said Abbott in his 2017 State of the State address. The state does not always meet those priorities. This year, for example, it finishes No. 18 for Cost of Doing Business, due in part to property taxes averaging around 1.9 percent — among the highest in the nation — and No. 21 for Business Friendliness because of a sometimes difficult legal climate.

Following the formula also means that Texas has some of the same weaknesses it had the last time it finished on top.

Texas finishes No. 37 for Education, with some of the lowest high school test scores in the nation. According to the U.S. Census Bureau, only about 82 percent of people over age 25 have a high school diploma — the second-lowest percentage in the nation.

And the state finishes No. 31 for Quality of Life. It is not that Texas is necessarily a bad place to live, but the violent-crime rate is high, with nearly 1,500 murders in 2016 — or more than 400 violent crimes per 100,000 residents, according to the FBI. And Texas also has the largest percentage of people without health insurance — nearly 17 percent, according to the Census Bureau.

The state also gets poor marks for inclusiveness. It is one of only five states with no public-accommodation law protecting its citizens against discrimination.

The Texas legislature, which meets every other year and is next scheduled to convene in January, has shown little wariness about venturing into social territory, despite warnings from business leaders about scaring away top talent.

In 2017 lawmakers considered a so-called “bathroom bill” that would have regulated transgender people’s use of public facilities. The bill died amid staunch opposition from business groups, but backers are promising to reintroduce it next year.

Another measure, which critics call the “Show me your papers” law, bans local sanctuary policies on immigration. The law went into effect earlier this year after surviving a federal court challenge.

Former Dallas County Sheriff Lupe Valdez, the Democratic nominee to unseat Gov. Abbott in November, said such measures are bad for business in Texas.

“This is the Texas brand that’s going out — the bathroom bill, the show-me-your-papers bill. I call them the job-killing bills,” she told CNBC. “We used to be called the friendly state. Let’s get back to who we really are.”

While the state’s finances are pristine on paper, balancing the massive Texas budget creates more accounting challenges every year. Already, the state budget director and the Legislative Budget Board have instructed agency heads to not only hold the line in their funding requests for the next biennium but also submit alternative budgets that include a 10 percent cut.

For now, Texas’ many attributes — especially that booming economy — are overshadowing those issues. But if the price of oil declines, hurting a key source of state revenue, or if the United States finds itself in an all-out trade war that curtails imports and exports, Texas’ status as Top State could be vulnerable.