Growth & Justice Blog

Can Minnesota learn from North Dakota's business model? Sure, if we strike oil.

As someone who grew up in oil sale country and spent two summers working oil rigs during college, I often cast a jaundiced eye over claims that combine "economic growth," "business-friendly regulatory and tax climate" and "oil and gas industry."

Chances are, the writer is about to praise a government that is only starting to enjoy its first oil and gas boom before all the social costs have come due. High paying jobs and environmental problems tend to get noticed first, but there are also  housing shortages, crime, new demands of roads, schools and other public systems that cost money (which oil companies cover somewhat) and aggravation, which is almost completely paid for by the residents.

Earlier this month, I ran across a breezy opinion piece in the Duluth News Tribune titled, "A view from North Dakota: Minnesota can learn from North Dakota’s business model," that set off my radar. It began:

My move (from Duluth) to North Dakota and position at the state’s chamber of commerce has allowed me to better understand how and why North Dakota is capturing the nation’s attention with record economic growth and low unemployment rates.

There's nothing like a regular paycheck to allow you to better understand your employer's point of view. But when you promote it in the newspaper, it's a good idea not to get too far outside the facts.

The op/ed has since slipped behind the newspaper's paywall, but it was posted as a comment at Minnesota Brown if you want to read the entire piece. I thought it worth questioning, and wrote the following response, which the newspaper published:

How nice that the CEO of the North Dakota Chamber of Commerce wrote a column for his hometown paper to cheer on Minnesota businesses to imitate North Dakota — or else to simply move there.

Before anyone pulls up stakes for the greener grass across the Red River, let’s look closely at Andy Peterson’s business-climate claims.

He declared the impact of the oil and gas boom is overblown. Why, “only 25 percent of the state’s tax revenue” comes from that industry. Compare that to Minnesota, where mining produced 0.5 percent of the state’s tax revenue in 2011, and where taxes from all corporations kicked in 4 percent.

Peterson wrote, “Of the more than 24,000 jobs available in North Dakota, nearly 66 percent are outside of the oil-producing counties.” Of course they are. The top five counties had barely 20,000 people before the boom began. And consider all the other sectors that depend on oil and gas expansion: trucking, construction, hospitality and even education and health services. How many of those support jobs could find a foothold in the small towns near the oil patch?

Then there was the claim that “North Dakota is a national leader in manufacturing growth.” According to the Bureau of Labor Statistics, the state had a 12-month, 4.6 percent manufacturing growth rate as of April, definitely beating Minnesota’s 1.7 percent rate, but that’s off a small base. Minnesota has 305,500 manufacturing jobs while our neighbor to the northwest just crept over 24,000 in December — up a total of 1,000 jobs compared to 10 years ago.

Take away oil and gas, which has been growing at a 44 percent rate, plus all the employment serving that industry, and the North Dakota miracle looks like nothing to write home about.

The author also made it sound like North Dakota's friendly business and tax climate had induced Minnesota's Marvin Windows and Doors to open three plants North Dakota. While it's true Marvin has expanded in the state, the company itself hasn't made the claim that tax and regulatory concerns drove it there. Back in 2008, when Marvin announced a plant expansion in Grafton, ND, I suggested some other reasons it made sense for the company.

We wish North Dakota good luck with its oil boom. Severance taxes are a great way to export a state's tax burden. But when those state boosters make distorted economic comparisons with Minnesota (even if they're disguised as Minnesota Nice helpful advice), we'll be there to set the facts straight.

—Charlie Quimby

 

Round-up of good news and commentary for practical progressives

Here's a round-up of some particularly good fodder for practical progressives in the news recently:   

• Washington Post columnist Ruth Marcus is continuing to develop as a thoughtful centrist heir to David Broder and she really hit the mark with her recent commentary (headlined in the Star Tribune, "If taxes never go up, we go down''). Marcus nailed Gov. Tim Pawlenty for his recent statement implying that the U.S. has higher taxes than most other nations, pointing out that our overall effective federal tax rate is much lower than it was a decade ago, and lower than all but Mexico, Turkey and South Korea among the 30 major world economies. Marcus skewered conservatives for continuing to claim that tax cuts actually produce more revenue and for their perennial complaint that "whatever level taxes are at, they are too high.'' Just a couple weeks ago, Marcus took on liberals and Democrats for refusing to acknowledge that some entitlement programs might have to be trimmed.
• One of the most refreshing "good that government does'' stories in recent memory landed on the St. Paul Pioneer Press front page over the weekend. An article headlined "Minnesota air pollution:  It's not as bad as you think,'' emphasized the rather astounding good news that since the landmark Clean Air Act of 1970, emissions from industrial polluters and vehicles have been slashed by 62 percent nationally and by half in Minnesota.
• Refuting a lot of conservative anti-Europe propaganda recently, author Steven Hill placed an op-ed in the Star Tribune pointing out that Japan and Europe and their more egalitarian market economies are doing quite well compared to the United States. Hill is the author of "Europe's Promise: Why the European Way is the Best Hope in an Insecure Age.''
• Finally, we think we offered a strong rebuttal to the false claim by some conservatives that government can't create jobs, or more broadly, that government is a net drain on the economy and can only consume wealth. Our Star Tribune "Counterpoint'' piece reviewed a long history of business-building investment and job creation in the U.S. and Minnesota.

— Dane Smith

New Orfield book "Region," and new OPEN Society leadership, make the case for smarter growth and racial integration

"Region: Planning the Future of the Twin Cities,'' is an impressive new policy textbook, hot off the University of Minnesota Press,  that surveys the state of the metropolitan area and offers prescriptions for smarter growth and reducing racial and economic segregation. The book, co-authored by metropolitan governance experts Myron Orfield and Thomas F. Luce, Jr., belongs on the desks of Minnesota policy enthusiasts everywhere.   With its colorful maps showing racial and income disparities, and intriguing overlays featuring such factors as travel times and environmentally sensitive areas,  the book also works as a coffee-table conversation starter.   Orfield is a law school professor and he and Luce are directors of the Institute on Race and Poverty at the University of Minnesota. An unveiling and book-signing event Thursday evening, featuring a panel discussion on the issues raised, is set at Magers & Quinn. Orfield is among our  advisers at Growth & Justice and has been a leading force in the state for stronger efforts at regional planning and containing sprawl, with special focus  on the damaging effects of de facto economic and racial segregation, since his days as a state legislator in the 1990s.    Joining the authors for the forum will be Meg Tuthill, the new council member for Ward 10 in Minneapolis; Dave VanHattum of the nonprofit organization Transit for Livable Communities; and Jesse Mortenson of the nonprofit MetroIBA, which supports independent businesses in the Twin Cities. 

On another front in the fight for justice and integration, a 30-year-old civil rights organization, Fund for an OPEN Society, is moving it's leadership and headquarters to Minnesota. The new executive director of the group is Caty Royce, an experienced progressive leader from Minneapolis who headed the Community Stablization Project, was a leader for Catholic Charities and served in the Peace Corps. Royce says "she is convinced that we must attack residential segregation at the same time we address school segregation,'' and that the much deplored "achievement gap in education is just part of a much broader and more complex racialized opportunity gap.'' The website for Fund for an OPEN Society  is in the process of being updated  but Royce can be reached at [email protected].  Royce cites john powell (lower-case for the name is his preference), founder of the U of M's Institute on Race and Poverty, and his call for equalizing access to "structures of opportunity,'' as an inspiration for her group's work.

Dane Smith

Let the free market do it, not decide it

Tony Wikrent of Nation Builder Books spoke at Drinking Liberally in Minneapolis last week, and The Cucking Stool produced this video from the conversation that ensued.

His comments — on the respective roles of the free market, financial and industrial sectors and the political system — provide a critique of what happens when national goals are determined by theoretical economics and the free market, without enlightened guidance from the political system.

For example, he says, allowing the free market to set industrial policy — say, reducing national petroleum consumption — doesn't necessarily result in the best asset allocation to benefit society. The question, he says, is how do you re-regulate a financial system so that doing the important, productive work that needs to be done is what's profitable?

— Charlie Quimby

Infrastructure investment could raise its sights

A recent commentary by Chip Halbeck, executive director of the Minnesota Housing Partnership, asks: what is infrastructure?

If it means the basic physical makeup that enables a community to function, I argue that housing fits the definition. Fortunately, for the most part the free market has provided communities with the needed housing component of infrastructure. But there is a sizable and growing segment of the population for which the market cannot provide homes that are both affordable and safe.

Halbeck's piece suggests a new federal stimulus package that would fund local government grants to make low-income housing safe and more energy-efficient. He argues that such rehab work would also provide more low-skilled and entry-level jobs in more places than would large scale infrastructure projects. (Architecture 2030 has proposed a similar national stimulus buy-down program for residential buildings and an accelerated-depreciation program for commercial buildings.)

Whatever you think of his proposal, the larger point is apt.

The nation's financial woes are rooted in a housing catastrophe that has dumped thousands of foreclosed homes on the Twin Cities market alone. Vacancies and abandonments threaten the fabric of neighborhoods. Yet, instead of recognizing this impact, there's a transportation-centric coloring to our view of infrastructure spending. Roads, bridges, transit and auto companies dominate the discussions.

Moving people and goods more efficiently from place to place is a worthy economic goal — but we cannot ignore the condition of those places. And we know that more lanes and extensions into exurbia  can ultimately increase energy use and environmental impact.

What's more, transportation only consumes 29 percent of the nation's energy, while more than 51 percent goes to electricity generation and residential and commercial heat and power. Increasing the energy efficiency of our building infrastructure could provide long-term paybacks for building owners, renters and the environment.

It can also provide long-term savings for the public.

One recent example is the recently built Schaar's Bluff Gathering Center in Dakota County’s Spring Lake Park Reserve. The structure is 90-95 percent more energy efficient than comparable parks facilities, and ranks within the top 1 percent of all sustainable structures as compared to the U.S. Green Building Council's registered buildings.

It generates its own power with an onsite wind turbine, reuses rainwater to flush its toilets, and incorporates wood reclaimed from a sawmill that park employees once operated on the site.

The building is designed to react to current weather conditions. Its HVAC system is linked to operable windows so that the two don’t work against each other; automated shading devices react to the sun’s path. It even feeds local animals with its edible landscaping.

[design: MS&R photos: Andrea Rugg]

The designer, Meyer, Scherer & Rockcastle, was the first Minnesota architecture firm to sign on to Architecture 2030's standards for meeting fossil fuel, greenhouse gas emission and energy consumption goals.

The project began as a conventional building, but evolved through a design process that tapped  an inspiring site, a parks manager's passion for sustainability and the County Board's openness to a non-traditional approach.

Conventional procurement would have focused on managing the design/build budget and been leery of innovation. The major difference at Schaar's Bluff was a county staff dedicated to the environment who felt secure enough to encourage the unconventional and take it to the public for their input.

Starting from a carbon neutral "energy budget" helped lead to a building that stayed within the fiscal limits while delivering a long-term a balance of economic, aesthetic, environmental and social values.

In the desire to create economic stimulus, we should not labor only to lay rebar and concrete. Dakota County has shown how visionary government can render enduring beauty and public utility in difficult times.

— Charlie Quimby

Will tax breaks for green investment bring green jobs?

Gov. Tim Pawlenty introduced yesterday his proposed package to encourage green job creation in Minnesota. His "Green Jobs Investment Initiative," extending a variety of tax credits to businesses and investors, has been called "Green JOBZ." 

That nickname is unfortunate.

It's true, part of what he's offering is just JOBZ warmed over — not a concept that will excite JOBZ's many critics. But he's also suggested some other positive steps to encourage private capital investment, expand infrastructure for alternative energy, raise awareness of energy conservation and discourage greenhouse gas emissions.

It's good he's getting out front on the issues of jobs and clean technology development, but he also got out ahead of a legislature-sponsored Green Jobs Task Force that has been laying out how to tackle the green jobs issue. The bipartisan group, which includes legislators, executive branch agencies, business and environmental representatives, had scheduled to bring out a legislative action plan in December and a report in January.

This political maneuvering aside, our question is whether longer-term tax credits will actually have much impact on creating jobs today.

JOBZ's tax breaks were aimed at increasing employment in communities where economic growth was stagnating. It's debatable how many new jobs overall were created. As much as two-thirds were part of planned expansions or simply moved from one place to another.

Green JOBZ faces another hurdle. It's trying stimulate job creation in a relatively young sector that has already received a lot of venture capital scrutiny. Although investment in green industry has been growing, there have also been signs that venture funds have not found enough compelling opportunities to invest in green industry.

A 2007 study by New Energy Finance found that venture capitalists had spent only 73 percent of the funds that had been raised for green technology, and several green tech funds closed their doors that year. More recently, the research group calculated that global investment in clean-energy projects fell by almost 25 percent in the third quarter 2008, and it will likely fall further by year end.

Persuading those investors to put more money into clean technology is a laudable policy goal, but it's a very different challenge from getting a machine shop to locate its new facility in Long Prairie instead of Bloomington.

Gov. Pawlenty's plan offers tax incentives for regional investment funds to invest in Minnesota (only 50 percent of the credits will be targeted for green industry, however). Using tax breaks to boost expected investor returns seems like a good move, but it's also a move any state can duplicate.

Of the more than $13 billion in public and private investment in U.S. clean energy in 2007, nearly $9 billion was made in wind energy, a sector where Minnesota has some advantages. Venture capital funds favored solar energy development, though, with $1 billion of the $2.7 billion they invested in renewable energy technologies. By virtue of geography and technology base, Minnesota will be less competitive for these funds.

Green industry by any name will be good for Minnesota, and it seems churlish to question any well-intentioned effort to grow jobs and lessen our dependence on fossil fuels. But we also should look for the most effective role government can play in encouraging future industry — while addressing jobs today.

For the thousands of Minnesotans who are out of work or underemployed, "offer tax incentives and the jobs will come" won't offer much encouragement. Let's hope the Green Jobs Task Force has more about ideas about creating jobs than Green JOBZ.

Will low-tax Colorado drive away drill-baby-drillers?

I spend parts of the year in western Colorado, where the oil and gas boom is causing the local economy to behave in ways that don't always track the rest of the nation's. For example, the housing boom is only starting to tail off here, and local businesses have a hard time finding employees because the oil patch pays much higher salaries for minimally skilled positions.

But in one respect, Colorado is like everywhere else: It has businesses complaining that higher taxes will drive them to other states. And no one cries louder than... the high-paying energy industry!

Now, even in this "drill, baby, drill" age, it should be apparent that oil and gas producers are not going to pull up stakes and head for New Hampshire or Indiana. If they want to drill, they have to go where the resources are.

For now, those untapped oil and gas deposits are in Colorado, Wyoming, New Mexico, Utah and Montana. And guess what? Colorado has the lowest effective tax rates on energy production among those states.

According to a study by Montana-based Headwaters Economics, an independent nonprofit research group, as of 2006, the rates ranged from 6.2 percent in Colorado to 15.9 percent in Wyoming.

So in effect, the companies that have been flocking to Colorado to bid for new oil leases are saying, don't raise our taxes or we'll leave — for states with the same or higher tax rates. (The industry says wells in high-tax Wyoming are more efficient and productive, so they can still better afford to operate there.)

It remains to be seen whether the companies will pull their rigs if their taxes go up. But the impact is clear when states pursue low-tax policies to attract more energy development. It has been... well, it's been lower taxes and lower state revenues — not more drilling.

According to a news report on the Headwaters Economics study:

Wyoming considered reducing its production tax rate to attract more industry investment, but decided against it. Yet the state is experiencing an energy boom, and reaping the benefits of keeping its taxes higher, [Headwaters staff member Mark] Haggerty said.

Montana, in contrast, cut its energy taxes, but there’s no evidence that increased energy production resulted, and it gave up about half a billion dollars in tax revenues in the process, he said.

Meanwhile, the states pay higher costs — for schools, road maintenance, environmental impacts and law enforcement driven by the influx of energy development.

No state should discount the potential impact of taxes on economic development, but as the energy boom shows, taxes are only one factor in determining where businesses locate.

— Charlie Quimby