By John Alexander
In this day and age of state tax deficits, high unemployment, and our struggling economy there is new conversation about creating a healthy business ecosystem to create jobs, support the tax base and get things back to the way they were.
While the question of how we make our state attractive for businesses to expand and move to Minnesota is a good one, there does not seem to be agreement on how to make this happen.
Just like individuals, businesses (which BTW are made of individuals) constantly reassess whether what they do makes sense. While a family might look at the safety of their neighborhood, the quality of their schools, increasing property tax rates, likelihood of a layoff, and consider whether moving might be a good idea ... businesses look at tax rates, regulation, infrastructure quality, workforce quality, quality of schools for employees children, entertainment and amenities in considering whether adding employees, building a new plant or distribution center, expanding operations or facilities makes sense in one state over another.
Minnesota’s economic needs are straightforward: we need businesses of all sizes to start, expand, and relocate here.
To make Minnesota more attractive, and especially relative to other states, we voters and our government need to reassess a few things to accomplish this: tax rates, regulations, infrastructure, education, entertainment and amenities.
Taxes are a necessary evil we all contribute to to fund governmental services we all need and use and provide agreed upon safety nets. To support a healthy business eco-system taxes ideally need to be below those of states and countries we compete with. To be competitive with other states, Minnesota should drop its corporate tax rate in half from 9.8% to under 5%, its personal tax rate of 7.875 % by a third to 5.25%, provide for a capital gains exclusion so investments are not taxed as ordinary income, and cap property tax rates at no more that 1% of true market value.
Our current taxes rates took decades to achieve and will take time to rebalance. If our government were to strongly state a plan to achieve these levels and put real programs in place this would send a positive and reinvigorating signal to business which will cause reinvestment here over other choices.
Government needs to streamline regulations that impede a clear understanding of what it takes to operate in Minnesota. For example: as few as four water agencies (Board of Water and Soil, Health Department, DNR, Pollution Control Agency) regulating business is three too many.
And actually, there are another six agencies involved with water that are state-funded (Environmental Quality Board, Department of Agriculture, Public Facilities Authority, Minnesota Geological Survey, UMN Extension Service, UMN water resource Center).
Minnesota’s regulations could not be less favorable (basic safety aside) than those of other states. It is encouraging that the current legislature has a task force directed toward rationalizing regulations– but we have a long way to go to eliminate job impeding barriers.
Business needs well maintained roads to support commerce: movement of both people and goods. For mass transit, buses are good reliable technology, flexible and efficient, operating on roads which support transportation across a range of purposes.
Light rail is an impractical pretty dream too expensive per passenger-moved, demonstrably creating congestion, completely inflexible, and takes capital away from more valuable infrastructure projects and impedes commerce.
Well-maintained local roads and well designed highways support both mass transit and commerce.
Of further advantage is an airport that offers service and pricing that supports commerce, facilitates growth of a healthy business ecosystem and encourages immigration to Minnesota. Likewise utilities providing low cost power, water and communications support the economy by keeping the costs of operating business low. Our state budgets need to reflect both adequate infrastructure maintenance as well as expansion to meet anticipated needs.
A healthy economy requires a well-educated work force which creates value in the products they conceive and the services they provide. The more value generated through human creativity the more rooted business becomes in that locality and the more stable the economy.
Correspondingly, the more value created through low cost labor the more vulnerable it is to automation or another low cost region. America has led the world in creating of technology of all sorts that has changed the lives of people throughout the world for the better. Never have so many been so enriched by so few. Our nation’s loss of educational leadership has been well documented.
The old ways of teaching are inefficient, expensive, and constrain individuals to the learning speed of the group. Minnesota needs to look for more innovative and cost effective ways of educating to maximize the learning potential of individuals and obtain the leadership position which will support an efficient economy and draw talent to us.
We are blessed with more days of sunshine, plenty of water, and (mosquitos and below zero temps aside) four wonderful seasons. Minnesotans cherish the outdoors and wish it protected but this protection requires balance that allows use of our resources with reasonable protective regulation. By many measures we over regulate: Minnesota’s four water protection agencies represent an example of excessive regulation which impede businesses and work against a vibrant economy.
While the weather is the weather and we can’t do much to combat the image of the frozen upper Midwest, those of us who moved here from elsewhere know that Minnesota is the “toughest place to get people to move to and also the toughest place to get people to leave.”
To know Minnesota is to love Minnesota. Still, sports teams, music, theater, parks all enhance our way of life by providing attractions, balance and vibrancy to a community. But we have to be smarter about using tax dollars to keep and expand these offerings and not lay this all on the backs of taxpayers with most of the gains to a few private real estate or franchise owners or environmental groups which have no business ecosystem at all.
So how does this boil down? We need to keep large businesses here and encourage them to expand their operations here as well. We need to demand value from education so not only are our children educated to succeed but our superior system attracts executives of companies who want their children to benefit from it too. To do this, we need to demand our legislature get full value from our tax dollars, keep the tax rates low to support the economy and live within our means.
John Alexander is President of Business Development Advisors, Founder and Chair of the Twin Cities Angels, and business author of the Angel Investment Tax Credit.
Email him at: John@BusDevAdvisors.com