Massachusetts is 2025’s Most Improved State for Business boosted by financial independence from D.C.

For 400 years, the spirit of independence has served the people of Massachusetts well. In 2025, it helped the state achieve a turnaround of sorts in CNBC's annual America's Top States for Business study.

The Bay State is America's most improved state in this year's rankings, rising 18 spots to No. 20 overall, after staging the biggest drop — falling 23 places — last year. Massachusetts was able to make that U-turn thanks to its relative independence from Washington. With federal budget cuts looming, this year's CNBC study considered their potential impact on each state's economy.

Economy is the most important category in 2025, and Massachusetts improved its ranking in the category to No. 15, from No. 40 last year.

According to the Center on Budget and Policy Priorities, federal funds comprised 30% of Massachusetts government spending last fiscal year. That made Massachusetts the 14th least dependent state on Washington (Wyoming was the least dependent at 19%; Louisiana was the most at 50%). In addition, Massachusetts' federal workforce of about 25,000 people makes up only about half a percent of its total workforce, according to data from the Congressional Research Service. That makes the state's federal workforce the eighth-smallest in the country relative to the total.

"We tackle hard problems in Massachusetts. Hard stuff. Wicked hard stuff sometimes," Gov. Maura Healey, a Democrat, said in her State of the Commonwealth speech in January.

She pointed to $1.5 billion in state funding for child care to make up for federal cuts after the pandemic.

"We were the only state to fully replace federal support that went away," she said.

Massachusetts still lags the nation in access to affordable child care, according to Child Care Aware of America, but it improved its performance this year, helping the state to an eighth-place finish in the Quality of Life category.

Since April, the Trump administration has moved to freeze $3.2 billion in grants to Harvard University and to terminate another $100 million in federal contracts with the 389-year-old institution, accusing the university of liberal bias and of harboring antisemitism. The school has sued to block the cuts, citing the First Amendment, and the university's own efforts to curtail antisemitism on campus.

But Christopher Anderson, president of the Massachusetts High Technology Council — a business organization that has been advocating for the state's tech industry since 1977 — said Harvard is not the only institution threatened by the federal cuts.

"We do have a large number of research institutions that are critically important to generating and contributing to our innovation economy here," he told CNBC. "Everyone's feeling the pinch," he added.

In May, the University of Massachusetts directed department heads to develop budget scenarios that include 3% and 5% cuts. As of mid-June, the university said it had already received $29 million less in federal research awards than at the same time a year earlier.

To blunt some of the impact of the cuts, the university established a matching fund that it says has committed more than $700,000 toward salaries and research funding that would otherwise be cut. But that money is a drop in the bucket, with the university normally receiving $180 million a year in federal research support, including $44 million in so-called "indirect" funding for facilities and administration that the administration has sought to sharply reduce.

"Unfortunately, the commonwealth is really not in a position to play the role of savior as perhaps it could if it had been managing its state budget more appropriately," Anderson said.

Anderson said that 15 years of what he called "unsustainable" growth in state spending have hobbled Massachusetts at the worst possible time.

"At exactly the time when the federal government is cutting back, we find ourselves unable to invest quickly or effectively in the key economic development projects that are driven by powerful innovations like artificial intelligence," he said.

Anderson also pointed to the Mass Leads Act, signed into law by Gov. Healey last year, which the High Technology Council supported. The four-year economic development bill purports to include hundreds of millions of dollars in funding for life science, climate technology, and artificial intelligence.

While the law sets a goal of $4 billion for economic development, Anderson said only $251 million of that is currently funded due to state borrowing caps.

"It doesn't allow Massachusetts to keep up," he said.

An analysis by the National Center for Science and Engineering Statistics found Massachusetts roughly in the middle of the pack when it comes to state support for research and development, ranking 22nd in 2023.

While Massachusetts improved its overall ranking in the CNBC study, it still has some serious issues beyond its budget pressures.

It is the second-most-expensive state to do business in, behind Hawaii. Wage costs are the highest in the nation; utility costs are the third highest. And the state ranks No. 42 for Business Friendliness, with a heavy regulatory hand.

Anderson said the long-term solution to the state's competitive issues might be to take that independent streak a bit further, encouraging research institutions to work more closely with the private sector rather than relying on state support.

"This could be the beginning of a new era of collaboration between private sector companies and these institutions," he said.

Join the conversation. Didn't see your state mentioned? You can see where it ranked overall, and in all 10 categories of competitiveness, in the full rankings of the 2025 America's Top States for Business.