Why Massachusetts saw a big drop on America’s Top States for Business list

Why Massachusetts saw a big drop on America’s Top States for Business list

Last year, Massachusetts was ranked among the top 15 states for business by CNBC. This year, the state dropped down from 14th to 24th.

Each year, CNBC creates its America’s Top States for Business list by scoring all 50 states on 88 metrics in 10 broad categories of competitiveness. These include categories like access to capital, infrastructure, education, workforce and cost of living.

Scott Cohn, a special correspondent at CNBC, explained Massachusetts’ fall in a panel hosted by the Massachusetts High Technology Council on Wednesday.

Unsurprisingly, Massachusetts scored highly for education, access to capital and tech and innovation. But the Bay State was nearing the bottom of the barrel for the cost of doing business and the cost of living. Massachusetts’ infrastructure ranking was not too hot either, Cohn said. The state has the nation’s fourth-longest commute to work and aging infrastructure like bridges and wastewater systems.

The top five states were North Carolina, Washington, Virginia, Colorado and Texas.

Massachusetts’ strengths

The Bay State has been among the top-ranking states for education since this list was launched in 2007, Cohn said. Massachusetts regularly sees students earn top K-12 test scores and there is a wealth of higher education avenues in the state.

There was one caveat: Massachusetts does not have a strong pipeline for training workers in technical education through certificate programs and community colleges. Cohn said 27% of participants in the state’s workforce training program were not employed after six months.

This impacted Massachusetts’ workforce ranking and made the state drop down from 9th to 24th in this category.

Massachusetts was also one of the top states for venture capital, with about $35.5 billion in VC funding going to companies in the state last year.

And, in the tech and innovation category, Massachusetts scored points for having the most patents per capita and its large number of research grants.

Cost of living sends talent elsewhere

Massachusetts ranked 47th when comparing the cost of living among states. The average Boston apartment rent was $2,730 in the second quarter of 2022. That’s a 16.6% increase compared to the same quarter last year.

Jane Steinmetz, managing principal of Ernst & Young’s Boston office, said during the panel that she’s seen more people making decisions about where they live and work based on their quality of life since the pandemic started. People were also made more “mobile” during the pandemic as remote work increased, she said, making it easier for people to leave a more expensive state like Massachusetts and live in Florida.

John Lee, president and CEO of Andover-based MKS Instruments, said his company has encountered challenges getting early-career employees to move to or stay in Massachusetts due to the high cost of living.

“The cost of housing in Massachusetts, if you’re not in it yet, it’s really hard to get in, especially when you’re early career,” Lee said. “So, it’s been a challenge for us many times to get early-career folks to find the affordability match.”

Rising costs of doing business

 The cost of doing business for companies in Massachusetts has also been on the rise. Cohn said that category includes measures like high wages, utility costs, office and industrials rents and taxes.

Steinmetz zeroed in on the opportunities Massachusetts could lose if its taxes drive away companies. She said state tax policy is “one of the most powerful tools that a state or government has to drive behavior.”

She said Massachusetts has tried very hard to overcome its reputation as “Taxachusetts,” but she thinks the state may not be doing enough.

Steinmetz said the state should look at whether it should have an estate tax, one of less than a dozen states to have one, and the upcoming vote on so-called “millionaire’s tax.” The ballot question will ask voters whether there should be a 4% surtax on income exceeding $1 million.

“You can debate the philosophy on that,” Steinmetz said. “But even proposing it is sending a message.”

 Is Massachusetts keeping up with innovation trends?

This list says Massachusetts may have some catching up to do. Cohn said that this year’s list took a look at how emerging technology trends, such as cryptocurrency, were fairing in states across the country.

“Massachusetts is not a big place for crypto mining and that hurts you in that category,” Cohn said.

Christopher Anderson, president of Massachusetts High Technology Council, said this likely refers to where the “center of gravity” for blockchain is going to emerge.

Massachusetts is one of the state’s vying for this role. Last year a group of Massachusetts organizations, including MassMutual, Vestigo Ventures and Brandeis University, launched the Mass Fintech Hub to boost the state’s financial services technology ecosystem. And local organizations like Techstars Boston are organizing crypto programs to support new startups.

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