Thought Minnesota's economy was rosy? Report says think again - Bring Me The News

Thought Minnesota's economy was rosy? Report says think again

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While much was made of Minnesota's successful recovery from the economic downturn, things aren't as great as they would appear in the Land of 10,000 Lakes.

That, at least, is the opinion of former Department of Commerce chief economist Joseph Kennedy, who on Monday released a report for the Center of the American Experiment think-tank that says the Twin Cities metro and the state as a whole has had "average at best" economic growth the last 15 years.

"Many Minnesotans believe that their state’s economy performs well above the norm, and therefore vindicates the 'blue state' policies that, for the most part, have prevailed in Minnesota for a number of years," he writes.

"Unfortunately, a systematic review of the facts does not bear this assumption out. On the contrary, the data show that Minnesota’s economy has been average, at best, over the past 15 years."

Here are some of the key points from the report from the conservative think-tank, which were compiled using official figures:

  • Minnesota's GDP, historically better than average, has been average since 2000.
  • Minnesota has ranked 30th in income growth and 28th in job creation since 2000.
  • The Twin Cities is "average" or "below average" when it comes to economic growth and job creation, ranking 9th out of 15 major urban areas in economic output growth and 8th in job creation.
  • Minnesota has a higher than average per capita incomes compared to other states, but this has been driven by Minnesotan "work ethic" as more people are in the labor force, rather than a high number of well paid jobs.
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State is creating low-paying jobs

Worryingly for the coming years, Kennedy argues that Minnesota's job growth "has centered on less productive jobs," while industries including mining and utilities have seen jobs stagnate or even fall.

Any hopes of Minnesota becoming the next Palo Alto have also suffered a blow, with the report finding that the state now has fewer people working in high-tech jobs in 2015 compared to 15 years earlier, "both in absolute numbers and as a percentage of the workforce."

Investment is also stagnating, with the report finding the state is suffering a "dangerous decline in entrepreneurial activity" with fewer new businesses being created, while venture capital is also declining.

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Bear this in mind

Kennedy warns that "numerous danger signals indicate an even weaker future" for Minnesota, which could be realized "unless policy changes are made."

Throughout the report, there is a theme that puts some of the blame for the slower growth of Minnesota since 2000 to its higher taxes on wealthier residents, enacted by Gov. Mark Dayton during the economic crisis which has contributed to large budget surpluses at the state level.

The Center of the American Experiment is a right-wing think-tank (dubbed a "pressure group" by Sourcewatch) and naturally wants the state to re-think its taxation policy.

Kennedy says that the state doesn't have "any other obvious weak points" other than its higher taxes, adding: "Minnesota's tax and regulatory burdens are among the only suspects at the scene of Minnesota's mediocre economic performance."

But state officials aren't so sure. During a budget forecast in late 2014, Minnesota's number crunchers were indeed predicting that Minnesota would have slower growth, but they attributed this to a combination of a slowdown in homebuilding and house sales as a result of the state's aging population.

College debt is also having an impact, with Millennials "burdened with high college debt that keeps them out of the real estate market," the Star Tribune reported.

The report is also blaming current taxation policy on the state's slower-than-average economic growth over the past 15 years, during which time Minnesota has had Jesse Ventura (Independent – 1999-2003) and Tim Pawlenty (Republican – 2003-2011) as governors as well as Gov. Dayton.

If you look at this chart from the report detailing Minnesota's GDP growth, it shows that the state actually fell behind the national average around 2005, but in recent years has closed the gap to the point it's almost back to the average.

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Are taxes causing Minnesotans to leave?

The report also suggests the high taxes are behind the higher-than-average levels of outward migration – Minnesotans leaving for other states – with the report saying many of these head to lower-tax jurisdictions.

But a report by the Minnesota State Demographic Center in January 2015 highlighted that the main reason Minnesotans leave the state – accounting for two-thirds of outward migrants – is to go to college.

The Star Tribune's columnist Ross Levin wrote a year earlier that the state's taxes make it easy to leave, turning Minnesota into a "rental state" where people are discouraged from laying down roots.

But the Tax Foundation's Richard Morrison pointed out to MPR that plenty of Minnesotans were migrating to states where taxes are actually higher – like California.

"There are a bunch of financial reasons [why people leave], and the tax burden might be one of them," he said. "But there are different things, like whether this is a place where you want to retire, this is a place you want to move because it has nicer weather, whether you want to be closer to family."

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