Ease of Doing Business

The analysis examined three dimensions of business climate:

1. Business climate
   
2. Regulatory environment
   
3. Quality of life
   

West Virginia has historically been perceived unfavorably on the overall attractiveness of its business climate as measured by Forbes Best States for Business, the Institute for Legal Reform (ranked 50 in both), and the US News Best States Rankings (ranked 41st). However, efforts during recent years have resulted in improvements in the State’s ranking and helped create an environment perceived as more business friendly, specifically in terms of the cost of doing business and the regulatory environment. These efforts include:

• Business climate: tax reform (e.g., elimination of the business franchise tax in 2015 and reduction of the corporate net income tax rate in 2014) that contributed to West Virginia becoming a top 15 US state on its cost of doing business (Exhibit 16)
  
• Regulatory environment: tort reform measures that included the new modified comparative fault standard
  

Based on findings from interviews in the State, the effort found that West Virginia could benefit from undertaking a rebranding effort to raise awareness of its recent changes to become a more attractive business climate and to market its other assets. Businesses outside the state were not broadly aware of the recent changes.

However, business leaders cited additional opportunities for West Virginia to further improve its business climate: 

1. Business climate: Although West Virginia's electricity costs are competitive compared to peer states (West Virginia has lower industrial electricity costs than MD and PA and is on par with VA and OH ^[52] ), an upward trend in industrial electricity costs has emerged over the past several years (7% annual growth in price of industrial electricity costs in last two years ^[53] ). This upward trend has contributed to the State's average industrial electricity price nearing the national average after historically being lower, and the State's average surpassing the national average during some months in 2017 (Exhibit 17). Though not the focus of the WV Forward effort, these trends likely can be explained by multiple factors, including reduction in electricity demand that led to loss of economies of scale, increased federal environmental regulations that contributed to rising costs of electricity generation using coal, and rising maintenance and operations costs from an aging plant fleet ^[54] ). Although 94% of the State’s electricity is produced through coal, 40% of coal is imported ^[55] ), likely due to the lower cost coal options from the western United States. Moreover, West Virginia's average price may continue to be higher than other states as other states add new lower cost natural gas based power plants. Although opportunities for businesses to seek individual credits for electricity costs may exist, the recent trend was perceived as concerning by the business community inside and outside the State, when discussed in interviews. The West Virginia Forward effort will work going forward to understand more deeply the drivers of the increase in industrial electricity costs.
2. Regulatory environment: West Virginia is one of only 10 states ^[56]  that still taxes business inventory as part of tangible personal property (TPP). It also taxes property and machinery, while neighboring states like OH and PA have eliminated both taxes. Although there are tax credits that could make these taxes not applicable for certain businesses, businesses and stakeholders noted that administrative process could be simplified for prospective companies, and that the presence of the taxes overall may affect the perception of the State by outside investors who are not aware of the waiver or tax credit process

   
   

   
   

3. Quality of life: West Virginia ranks unfavorably on education and health outcomes which are key markers of a region’s attractiveness and quality of life (Exhibit 18). In addition, the State ranks in the bottom five on indices like the AARP Livability Index, a data-driven assessment of livability that scores State and local communities across seven categories and 40 indicators. AARP’s Livability Index is a broadly used assessment, with an advisory board of leaders from government, philanthropy, and business, and is used by many businesses in making location decisions, by employees in choosing where to move, and by retirees in considering second homes and tourism. ^[58] Based on the Index’s findings, there are specific opportunities to improve engagement, housing, clean air and water, transportation, and neighborhood quality in West Virginia. Working closely with local development communities could help create initiatives across the different quality of life dimensions that address existing challenges in the State. Examples can include:
   • Housing: increase availability of and accessibility to multi-family units (14.2% of units are multi-family vs. 18.8% US median ^[59] )
   • Neighborhood: increase access to amenities and destinations and reduce current vacancy rates (14.3% vs. US median of 8.8% ^[60] )
   • Transportation: improve road safety (20.6 fatal crashes per 100K people yearly vs US median of 7.6 ^[61] ) and transportation costs ($11.3K annual household transportation costs vs. $10.8K US median ^[62] )
   • Environment: reduce exposure to contaminated water (4% of people exposed to at least one health-based violation in one year vs. 0.5% US median ^[63] ) and improve air quality (71.65 index of local industrial pollution vs. US median of 0; 8.1 index of regional air quality vs. US median of 8.0 ^[64] )
   • Health: create concerted efforts and campaigns to encourage healthy behaviors (40% higher than median prevalence of smoking ^[65] and 40% lower than median access to exercise opportunities ^[66] ) and increase access and quality of healthcare (higher than median healthcare professional shortage areas ^[67] , 64% more preventable hospitalizations than US median ^{[ 68]} )
   • Engagement: increase degree of civic engagement of the population (currently less than 50% of eligible people vote ^[69] )