What ALEC-Laffer’s State-Level Economic Index Report Means for Franchising

Franchise owners can harness the power of regional statistics to anticipate the financial success of franchisees and formulate more calculated strategies for franchise expansion.

By Luca Piacentini1851 Franchise Managing Editor

Updated 7:07AM • 07/03/23

This month, 1851 is taking an in-depth look at ALEC-Laffer’s 16th annual “Rich States, Poor States” Economic Competitiveness Index and how it can be useful to franchisors as they expand their footprints. The report’s creators use 15 economic policy factors to establish an economic forecast for each state. These factors have been consistently impactful in terms of state competitiveness and growth over the years. The forecasts in this report can assist businesses in identifying which states possess robust economies that will support brand prosperity in the forthcoming decade.

In July, 1851 will be conducting a comprehensive examination of all 50 states and engaging in discussions with the brands expanding within each state. We’ll closely scrutinize the data to help franchise owners comprehend how a state’s economic forecast can shape their growth plans.

ALEC-Laffer’s report offers two distinct rankings — Economic Performance and Economic Outlook. The former is a retrospective measure based on the past decade's state performance while the latter is a predictive measure based on the current status of 15 state-policy factors, such as gross domestic product growth, population migration, payroll employment, personal income tax rate, corporate tax rate, property tax burden, sales tax burden and state minimum wage.

Generally speaking, states that spend less (especially on income transfer programs) and states that tax less (particularly on productive activities such as working or investing in business) experience higher growth rates than states that tax and spend more. Although a lower outlook index rank doesn’t necessarily discourage franchise expansion, it does imply a need for more strategic planning in expansion rates.

So which states outperformed others this year?

Utah, quite predictably, holds the prime position in economic outlook for the 16th consecutive year, largely because of its uniform personal income tax, pension overhaul and creative property tax reform strategies.

North Carolina's continued achievement in maintaining its second position is mostly attributed to its momentous 2013 tax reform. Meanwhile, Virginia’s remarkable jump from the 24th to the 18th spot is a result of significant tax reductions and rebates implemented during its 2022 legislative session.

Contrarily, New York’s placement at the end of the list remains unaltered due to consistently high personal, corporate, property and inheritance taxes.

“This amazing repository of data on the competition among the states is the ultimate guide to economic growth and prosperity,” said Dr. Arthur Laffer. “‘Rich States, Poor States’ tells a clear story: states with low taxes attract more business investment and more workers. People move to where they have economic opportunities.”

According to the U.S. Census Bureau’s Vintage 2022 national and state population estimates that the south, the most populous region with a resident population of 128,716,192, was the fastest-growing and the largest-gaining region last year, increasing by 1.1%, or 1,370,163.

These individual state results are crucial for aspiring entrepreneurs wishing to launch their own business, but that should not deter them from investing in their dream franchise. If the market conditions are suitable and a brand addresses a problem within that market, franchisees can still expand and scale their operations. However, any entrepreneur in states that performed low for outlook should perhaps consider a brand with a low buy-in cost.

Jonathan Williams, ALEC’s chief economist and a co-author of “Rich States, Poor States,” highlighted the annual report's usefulness for entrepreneurs planning to start a business, as it indicates which states have the most competitive economies. Williams noted that a state's competitive standing "directly affects the success potential of individuals and businesses." Williams also mentioned to 1851 that although there are multiple ways to evaluate states and their economies, “Rich States, Poor States” is favored because it considers factors that represent public policy decisions under the direct control of state lawmakers.

In conclusion, the right opportunity remains the right opportunity. Even if a state has a low index ranking, it doesn't mean that a specific brand can't flourish there. It's crucial for franchise owners to consider all potential risks and hurdles related to expansion. Franchisees should feel assured about their investments and the decision to join the brand. Having complete information allows franchise owners to empower their franchisees to run the most successful operation possible.

While a state's performance is undoubtedly an essential metric for franchise owners to contemplate, the outlook is a more critical ranking to consider. The complete outlook rankings are available below, and we will be adding links to detailed analyses of each state throughout the month.

What ALEC-Laffer’s State-Level Economic Index Report Means for Franchising

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