Top rankings in technology and innovation and access to capital weren't enough to get California out of neutral in CNBC's annual report on the top states for businesses.
The Golden State finished at No. 32 for the second straight year in the report. Virginia finished No. 1, and Texas, the 2010 winner, fell to second place.
Despite California's obvious strengths, it finished dead last in business friendliness and a dismal 48th in cost of living.
“No state presents more contrasts than California," said CNBC Senior Correspondent Scott Cohn. "The state can’t be beat for Technology and Innovation or Access to Capital. But the Cost of Doing Business and the Cost of Living are among the worst in the nation.
“While costs are high, California’s tax burden is not the highest in the country. In fact, it falls roughly in the middle. But high wages, high utility rates and among the highest rents in the country mean if you want to do business in California, you will pay dearly for the privilege.
What's more, “California’s legal and regulatory regimes are downright unfriendly to business," Cohn said.
The state continues to be hamstrung by severe budget problems. While the world's top tech companies call the state home, Gov. Jerry Brown has found few choice for digging out of the budget hole, Cohn noted. Announcing plans for higher taxes earlier this year, Brown was blunt with his message for business.
"The alternative is not good," Brown told a group of business leaders, explaining that state services will see painful cuts absent taxes. "Help me and I'll help you."
"I will try to first charm them, then inform them and then finally challenge them to rise above their predilections and their customary way of looking at things and pull together as Californians," Brown said before the speech.
Rounding out the top five best states for business were: North Carolina, Georgia and Colorado. Rhode Island fared the worst in the nation, below Alaska, Hawaii, Mississippi and West Virginia.