Hawaii, New York and Alaska are the most expensive states for businesses, maintaining the top three spots for the second consecutive Milken Institute Cost-of-Doing-Business Index. All three states increased their year-over-year overall costs. A major factor in the rankings is the cost of electricity.

South Dakota, meanwhile, maintained its position as the least-expensive state for business, decreasing its costs to 30 percent below the national average. The Cost-of-Doing-Business Index measures wage costs, taxes, electricity costs and real estate costs for industrial and office space. The biggest mover in this year’s index was Maine, moving up 11 spots to 17th from 28th, thanks in large part to higher electricity costs, which jumped from six percent above the national average in the 2006 rankings to 43 percent above the national average in this year’s rankings.

Mississippi, which moved up eight places, also had an increase in electricity costs. Mississippi’s change in its ranking reflects other states’ abilities to contain or even decrease electricity costs during the same period.

Of the states that moved down the rankings most, Michigan leads the pack in reining in its costs, moving from 13th place in the 2006 rankings down to 20th. Michigan had a slight increase in all of the rated factors, but dropped down because those states ranked near it had more pronounced increases.

The Cost-of-Doing-Business Index indicates each state’s comparative advantages or disadvantages in attracting and retaining businesses. Each state is measured on the five individual categories, and those weighted scores are compiled to make the overall index. An index score of 100 means that the state is equal to the U.S. average in that particular category.

The 2007 Cost-of-Doing-Business Index is sponsored by the California Manufacturers and Technology Association. The Milken Institute is grateful to CBRE for supplying the real estate information for this index.

The 2005 and 2006 Cost-of-Business Indexes are available here.

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2007 Cost-of-Doing-Business Index
2007 Cost-of-Doing-Business Index State Level Data