Virginia remains one of the top states for business thanks to its relaxed regulatory climate, while neighboring Maryland finished outside the top 15 because of its high labor costs, according to Forbes magazine's annual ranking.
The Old Dominion finished second overall on the list of Best States for Business for the third year in a row, placing behind only Utah once again. Virginia was ranked No. 1 overall in regulatory environment because of "its strong incentive offerings and business friendly government policies," the magazine said.
Virginia Gov. Bob McDonnell said he hopes to reduce restrictions on businesses even further with a new regulatory reform initiative he launched last fall.
"Our work is not done," McDonnell said. "Smart regulatory reform will produce a freer and better environment for citizens and businesses and allow the private sector to continue creating jobs and opportunity in the commonwealth."
Virginia also received high marks for its labor supply and quality of life amenities, helping to offset a lower ranking for its high cost of living and relentless traffic congestion.
Across the Potomac, Maryland ended a two-year skid in the annual rankings and jumped three spots from 19th to 16th. Maryland has the second-most-expensive labor force in the country, so it's more costly for businesses to locate there, the report said. But Maryland still attracts businesses because "employers are willing to pay up for one of the most educated labor forces in the U.S."
Gov. Martin O'Malley's office disputed the low marks Maryland got for the cost of operating a business in the state, pointing to studies from Ernst & Young and the Tax Foundation that show a low tax burden on Maryland businesses.
"This validates that the work we are doing on so many levels -- from investing in our workforce and nation-leading education system to programs that support and encourage job growth and development -- is working," said O'Malley spokeswoman Raquel Guillory.
The District was not included in the rankings.
Despite their differences, the bordering states have similar profiles. Virginia's gross state product is $52,700 per capita, compared with $51,500 in Maryland. Forbes calculated Virginia's job growth at 1 percent and Maryland's at 1.2 percent in the past year. Both states boast a triple-A bond rating.
Maryland, however, has a much higher median income: $70,943, compared with $62,936 in Virginia.