Has Texas lost its pro-business mojo?

The state has dropped out of the top five in a ranking of the best states for business. Is it politics?

Texas postcard from 1940
When CNBC released its 2023 rankings, Texas came in at No. 6, behind North Carolina, Virginia, Tennessee, Georgia and Minnesota. 
(Image credit: Pierce Archive LLC / Buyenlarge via Getty Images)

"Politicians in Texas love to talk about how business-friendly the state is," Michael Marks wrote at Texas Standard. "And for years, the data has backed that up." Ever since CNBC started ranking America's top states for business, Texas has been in the top five, placing first or second every year from 2008 to 2019.

But like a bowl of queso or a float down a lazy river on a hot day, all good things come to an end. When CNBC released its 2023 rankings, Texas came in at No. 6, behind North Carolina, Virginia, Tennessee, Georgia and Minnesota.

The new business-friendly rankings were greeted with cheers up in St. Paul. Down in Austin, Texas Gov. Greg Abbott (R) suggested there had been some kind of mistake. "Texas remains No. 1 because people and businesses are choosing our state over any other for the unmatched competitive advantages we offer: no corporate or personal income taxes, a predictable regulatory climate, and a young, skilled, diverse and growing workforce," an Abbott spokesman told CNBC.

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CNBC said the numbers don't lie. Its rankings are "not an opinion survey" but rather a data-driven study of 86 metrics in 10 broad categories of competitiveness. Furthermore, "each category is weighted based on how frequently states use them as a selling point in economic development marketing materials," CNBC said. "That way, our study ranks the states based on the attributes they use to sell themselves." What's happening to the Lone Star State's vaunted pro-business mojo?

Why did Texas drop out of the top five?

Texas has been losing ground every year since CNBC last ranked it No. 1 in 2018, The Dallas Morning News noted. "It placed second in 2019, fourth in 2021 and fifth last year." (The rankings were suspended in 2020 due to the Covid-19 pandemic.)

What finally pushed Texas out of the top tier, Erica Greider wrote at the Houston Chronicle, were "concerns about its power grid, its aging water utilities, skimpy per-pupil school spending, rising housing costs and controversial social policies, including one of the strictest abortion bans in the nation and what CNBC called an ongoing 'crackdown' on LGBTQ+ rights."

Infrastructure was the second-most important category in this year's methodology, and Texas fell to 24th place from 14th last year, Scott Cohn explained at CNBC. The massive power outage during 2021's big freeze "exposed serious weaknesses" in the Texas power grid, and "at a time when advanced manufacturing companies are prioritizing reliable power, Texans are enduring nearly 20 hours without electricity per year," third worst in the U.S.

In education, Texas dropped to No. 35 from No. 21, and it's now 22nd in cost of living, from 14th in 2022. The state earned a C in business friendliness.

But "Texas' biggest weakness in 2023 is also its most controversial," Cohn wrote. "The state finishes dead last in Life, Health and Inclusion, dropping from No. 49 last year." Texas got just 53 points out of 350 in that category, giving it an F grade, the Austin American-Statesman noted. That means Texas did earn top ranking in one category, even if it's "on a not-so-pleasant list: the top 10 worst places in America to live and work in 2023."

So Texas dropped to No. 6 because of social policy?

Yes, "CNBC built its explanation of Texas' ranking on the idea that the state's culture war stances, including on transgender issues, was hurting its business climate," Ryan J. Rusak argued in the Fort Worth Star-Telegram. "On the margins, that's probably true," but using a decline in lifestyle and inclusion to boot Texas from the top five "has all the trappings of red state/blue state politics, Lone Star envy, and propping up sagging midsummer ratings and online readership."

How can Texas be below Minnesota when it "leads the rankings in access to capital and is second among workforces and overall state economies"? Rusak added. Texas is the "undisputed champion of job creation and business relocation," but CNBC "needed a new storyline. Words like 'still,' 'again' or 'unchanged' don't make for great headlines."

CNBC did ding Texas for its "attacks on inclusiveness, reproductive rights and voters rights," but it "also noted the state's weak worker protections and poor access to health care, as well as its '13th-highest violent crime rate' in the nation" and efforts to limit cities' self-governance, the San Antonio Express-News said in an editorial. Texas has "landed in the bottom half of the quality-of-life rankings for a decade while maintaining its spot in the top five for business, but this year's rankings are a sign that Texas' politics are bogging down the state's economic engine."

"We're not here to fight Mickey Mouse," quipped North Carolina Gov. Roy Cooper (D), referring to restrictive social policies and anti-business culture war fights in Florida (No. 8) and Texas. "We're here to fight for jobs in North Carolina."

North Carolina and the other states in the top five have "adopted a lot of what Texas had been doing in the 2000s, 2010s" in terms of economic development and job creation, the Chronicle's Grieder told Texas Standard. When CNBC started its rankings in 2007, Texas was run by business-first Republicans, but since then "there's been a bit of shift in priorities," and "we're hearing a bit more about things like culture war issues," and "I would say business in Texas has less clout than it once did."

How does Texas stack up in other rankings?

Abbott noted in April that Texas has been ranked the best state for business by Chief Executive magazine for 19 straight years and has been awarded the Governor's Cup for 11 straight years by Site Selection, a magazine that covers corporate real estate and expansion. But Site Selection awards multiple Governor's Cups every year, and it's hardly the only credible source for business rankings, Politifact said. For example, "the Tax Foundation ranked Texas No. 13 in its most recent State Business Tax Climate Index and has consistently ranked Texas outside the top 10."

"There's no one measure that can capture everything about a state's business climate, but there's no denying that Texas is highly competitive, with low taxes, low regulatory burdens, and a strong economy that attracts many businesses and individuals," the Tax Foundation's Jared Walczak told Politifact. "Unsurprisingly, governors across the country tend to highlight the rankings on which their states do the best."

Texas is slipping in other surveys, too, the American-Statesmen said. The Austin area was named the "best place in the country to start a career" in one poll this year, but it has also dropped to "40th place on U.S. News & World Report's Best Places to Live in 2023-2024 list," from No. 1 in 2017 to 2019. That survey considered desirability, value, job market, quality of life and net migration, and while Austin continued to drop positions, it was still the highest-ranked city in Texas.

Can Texas learn something from CNBC's demotion?

"Informal rankings such as this one from CNBC are subjective, but they also raise concerns that shouldn't be ignored — is Texas still a place where entrepreneurialism can thrive?" the Express-News editorial board said. "What entities and people will the state lose as it continues to pursue an agenda of regressive policies?"

Dropping out of the top five is embarrassing for Texas politicians, but it could also be "a wake-up call to say, 'Hey, you know, why don't we focus as a state on what we have done well in the past'" and then "maybe head more back in that direction"? Grieder suggested at Texas Standard.

"Where CNBC gets it right, sort of, is the long-term effects of decades of relentless growth," Rusak wrote in the Star-Telegram. Texas needs more doctors, more housing, upgraded infrastructure, a reliable power grid and better schools. "In other words, CNBC could have written that Texas has been so strong for so long that its problems are actually symptoms of its wild success," he added. "But then, that's not much of a headline, is it?"

The CNBC rankings are useful as a "Rorschach test" for Texans, Chris Tomlinson wrote at the Chronicle. "Describe your politics, and I'll tell you what you think about the economy and the purpose of government." Abbott and other conservatives "celebrated the state's A+ grade for the economy," while liberals "found confirmation of their critique in the F given to Texas for life, health and inclusion."

But after 20 years of studying the low-tax, low-regulation "Texas miracle" of business-friendly success, "we know there is nothing miraculous about Texas' economy," Tomlinson added. It is and long has been "driven more by high oil prices and geography than its blustery politics." And that's not much of a headline either.

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