California ranks worst ... again.

ARNOLD SCHWARZENEGGER came to Sacramento three years ago, proclaiming a mandate to change the political culture of California, and recently he reprised that with a vow to move past party politics and partisan divide. Business leaders in his state are not impressed, however. For the third year running, California ranked dead last in Chief Executive's annual survey of CEOs, 356 of whom participated, who were asked to rate states as places to do business. They did not lay all the blame on the governor, but they cited California's high taxes, onerous regulations and litigiousness the most burdensome compared to all other states and the District of Columbia.

"California is a taxation and regulatory nightmare; do something to fix it," responded a CEO when asked what message he would like to convey to the governor. "If you want to help folks on the lower levels of the economic ladder, create a more friendly environment for employers that will put those folks to work. Not everyone is going to be a movie star or a software engineer," sniffed another. "Business is not the enemy!" thundered another CEO.

New York and Massachusetts join California as the second and third worst states respectively in which to do business. Both also finished accordingly in 2006 and 2005. High taxes and "heavy-handed" regulation was the battle cry of CEOs from both states' business leaders. "Too much concern over national politics and not [enough] about growth," complained a New York CEO. "Taxachusetts still lives regardless of the PR," said a Boston chief. "Fix it for real."

At the other end of the survey, Texas, Nevada and Florida swept all competitors aside as the best states in which to do business for the third year running. Most business leaders praised these states for controlling taxes and spending, but also urged leaders to "invest in public education." The differences between the best and worst tended to lie with taxation and regulatory burdens and quality of living and infrastructure. Differences in workforce quality between the two groups proved slight. Not surprisingly, the "best" states had superior growth rates but not necessarily superior unemployment rates to "worst" states.

Since first conducting the survey in 2005, CE has been able to track "hot" states, those that have been able to advance an average of at least 8.5 positions in the rankings, as well as "cold" states, those whose ranking has slipped markedly over the same period. North Dakota, Idaho and Montana have enjoyed the most rapid advancement in the estimation of business leaders while Illinois, Ohio and Maryland have experienced the greatest declines.

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Overall, CEO Confidence fell in January two points to 162.0. All components of the index also fell as well. The only bright spot was a mild increase in employment confidence, which rose two points. What are CEOs saying about their future outlook? Most remain optimistic about the future. About 65.3 percent expect the economy will see growth in the next quarter; 36.3 percent expect to increase employment at their business. For more details on both CEO Confidence and Best States, go to www.chiefexecutive.net.

The Best and Worst States to Do Business in the U.S. in 2007

     The Best
2007  2006  State

1     1     Texas
2     2     Nevada
3     4     Florida
4     3     North Carolina
5     6     Arizona

    The Worst
2007  2006  State

51    51    California
50    50    New York
49    49    Massachusetts
48    45    Louisiana
47    38    Michigan

Best and Worst States to do Business in the U.S. in 2007

               Average Position    Rank*   GDP Growth Rank, Growth Rate
Best States    Change Per Year   '07  '06  (5-yr. avg.)

Texas          N/C                1    1   20  3.2%
Nevada         N/C                2    2    1  5.7%
Florida        N/C                3    3    2  4.8%

Worst States
California     N/C               51   51   24  2.7%
New York       N/C               50   50   36  2.1%
Massachusetts  N/C               49   49   45  1.6%

Hot States
(Largest Rank
  Increase)
North Dakota    10.0             21   28   12  3.5%
Idaho            9.5             14   18    4  4.5%
Montana          8.5             27   37   10  3.6%

Cold States
(Largest Rank
  Decrease)
Illinois       -11.5             40    8   46  1.5%
Ohio           -11.0             42   22   49  1.2%
Maryland        -5.5             36   21    6  3.8%

               Employment Rank,              Work     Living
               Unemployment      Taxation &  Force    Environment &
Best States    Rate              Regulation  Quality  Infrastructure

Texas          32  4.7%          B+          B        B
Nevada         22  4.2%          A-          B-       B
Florida         9  3.3%          B+          B-       B+

Worst States
California     30  4.6%          D           B-       B-
New York       22  4.2%          D           B-       C
Massachusetts  37  5.0%          D           B,       C+

Hot States
(Largest Rank
  Increase)
North Dakota    9  3.3%          B+          B+       B-
Idaho           9  3.3%          B           B+       A-
Montana         3  2.8%          C+          B-       C-

Cold States
(Largest Rank
  Decrease)
Illinois       19  4.1%          D+          B-       C+
Ohio           45  5.4%          C-          B-       C+
Maryland       16  3.9%          D           C+       C

* Includes Washington, D.C.
Source: U.S. Bureau of Labor Statistics; the states' ranking and the
letter grade assessments of states all derive from the CE survey of 356
CEOs.