Administration basks in CNBC ranking, critics point to challenges

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Gov. Mark Dayton could have told you that Minnesota is a great state in which to do business on, say, Tuesday afternoon. But don’t take his word for it.

CNBC announced that Minnesota was its “top state for business” this year on Wednedsay, and Dayton dutifully called a press conference to inform the Capitol press corps of the good news the following morning.

The business-focused television station gave Minnesota credit for strong ratings across a variety of topics, so much so that the state’s “cost disadvantages” related to other categories “fade away.” Through nine years of rankings, CNBC reports that Minnesota is the first “high-tax, high-wage, union-friendly state” to rank first in its annual survey.

Dayton, as usual, gave the majority of the credit for the state’s economic performance to Minnesota entrepreneurs and employees. But he also held up the rating as an endorsement of state policies, saying it refutes the argument from conservatives that high tax rates and a strict regulatory climate make Minnesota unattractive to corporations.

“What the objective numbers confirm is that Minnesota’s on the right track overall, for business growth, for job creation,” Dayton said. He added: “Not that we don’t have our deficiencies, we do, which some people continue to emphasize. But overall … we’re on the right track.”

Minnesota leaped five spots from its 2014 ranking in the same study. In topping the list, the state bested Texas, consistently ranked at or near the top of CNBC’s rankings, which Dayton described as a “classic low-tax, low-services state.”

Each of Minnesota’s neighboring states also fared well in the study, though typically for different reasons: North Dakota (sixth place overall) ranked first in workforce and business friendliness, while Iowa (No. 10 overall) exhibited low costs for living and doing business. Asked about the common trope of interstate rivalry, Dayton said he did not think Minnesota was in head-to-head competition with Wisconsin.

“Although,” Dayton said, with a sly grin, “I did note that they ranked 15th.”

Department of Employment and Economic Development  (DEED) Commissioner Katie Clark Sieben said the ranking should give bragging rights to typically “humble, self-deprecating” Minnesotans, and said her agency would use the CNBC score “every way we can,” including wrapping the study into DEED’s recruiting pitch to new and expanding businesses.

“Does it mean that businesses are going to move here just because we got No. 1? No,” said Sieben, making one of her first public appearances since the birth of her twins. “But does it mean that you’re now on the radar of some companies that, maybe, previously, we were not? Absolutely.”

Sieben observed that the breadth of the study, which considered 60 different metrics across 10 categories, should help bolster the state’s claim.

The Dayton administration itself could hardly have designed a more generous methodology for Minnesota’s particular strengths. Categories like “workforce,” economy and quality of life were weighted for greater impact, while “business friendliness,” cost-of-living and access to capital counted far less.

Minnesota performed well overall despite ranking 35th in “cost of doing business,” one of the more heavily weighted measurements, a reflection of regulatory hurdles and the state’s 9.8 percent corporate income tax rate.

The state didn’t finish at the top in any one category, but was in the top 10 for infrastructure (ranking ninth), economy (fifth), quality of life (third) and education, where it finished in second place behind Massachusetts.

Over the past four years, Minnesota has added 189,000 jobs — a 7.1 percent increase, according to DEED. But the state’s high costs for business operations reinforced calls from business groups, which told lawmakers throughout last session the state needs tax cuts to keep investments rolling in.

CNBC highlighted a series of business tax breaks and other aid backed by Dayton, including a tax increment financing package to support Maplewood-based 3M Co.’s plans for a $150 million research facility. The governor also backed a quarter-billion dollars in breaks over 21 years for road and parking lot upgrades for expansion of the Mall of America in Bloomington.

But Republicans in the House and Senate have derided the Dayton administration for blocking tax cuts, including last session when the state had a $1.9 billion surplus on the table. A House tax bill that ultimately stalled out would have gradually eliminated commercial and industrial property taxes, effectively cutting billions of dollars from corporations’ operational expenses.

The study’s focus on one-off benefits obscures a broader tax-relief push, said Beth Strinden Kadoun, legislative director for the Minnesota Chamber of Commerce.

“These rankings seem to give a lot of weight to state incentives that help one business at a time,” she said. “We would give more weight to the overall business climate that’s impacting all businesses in the state.”

Rep. Pat Garofalo, R-Farmington, chair of the House Job Growth and Energy Affordability Finance and Policy Committee, said Thursday that he is not surprised that Minnesota ranks highly, crediting a “balanced” approach, arrived at through divided government.

For all but two of the previous 25 years, Garofalo pointed out, Minnesota has avoided one-party control, resulting in “reasonable, sensible” state policies.  But he warned that the CNBC ranking could seem like evidence that the state should rest comfortably on the current approach.

“One of the biggest concerns Minnesotans should have going forward is complacency,” Garofalo said. “We have to continue to modernize, and reinvent our public policies. Simply ignoring cost could cause a problem in the future.”

As one example, Garofalo said business costs and economic fallout related to rising health care expenses and MNsure, the state insurance exchange, would need to be addressed in the near future. Garofalo also said he doubted that any criticism from Republicans or economic conservatives would hurt the state’s business climate.

“I don’t think Minnesotans are so thin-skinned,” he said. “I think we understand constructive criticism.”

At least some of that criticism has come from people like Doug Baker, CEO of Ecolab and a founding board member at Greater MSP, a regional development agency, who joined Dayton and  Sieben to celebrate the news. Baker said business leaders acknowledge that there is a ceiling on how high the state’s tax rates could safely go before they have a negative affect.

But, Baker continued, Minnesota’s existing business taxes are not high enough to drag down the rest of its good qualities.

“The state [business] taxes run from, like, 12.5 percent to 0 [percent], and we’re in the upper end,” Baker said. He added: “You’ve got to keep this in perspective. We have fierce debates about whether we’re going to be at the 75th percentile, or the 80th percentile. Nobody’s arguing that we should be at the zero percentile.”