Davids of the Dakotas worry Goliath Minnesota

ST. PAUL - More than five million people live in Minnesota, 673,000 in North Dakota and 814,000 in South Dakota.

Minnesota state government spends about $30 billion a year, North Dakota $4.5 billion and South Dakota $4 billion.

Twenty-one of the country's 500 largest businesses call Minnesota home, North Dakota hosts one and South Dakota has none.

It is easy to see who the Goliath is here.

Or is it?

Republicans who took control of the Minnesota Legislature this month appear afraid of the dual Davids of North Dakota and South Dakota, repeatedly warning that if Minnesota laws are not changed the state will lose firms to its western neighbors.

"You may not be able to quantify the numbers, but the reality is it is happening," said Rep. Dan Fabian, R-Roseau, in office three weeks and author of House File 1, a bill Republicans put on the fast track to speed the state's permitting processes so businesses can expand quicker.

No one keeps track of how many businesses are moving west, or to any other state for that matter. But so far in the young legislative session the main thrust has been to help Minnesota businesses, with an eye toward keeping them in the state, helping them expand and attracting new ones.

House Speaker Kurt Zellers - a Devils Lake, N.D., native -- often mentions that one reason Republicans push pro-business bills is that North Dakota and South Dakota offer businesses better business tax climates and other incentives to move there. He and others in the GOP say they want to counter the Dakotas by lowering business taxes, streamlining regulations and giving firms speedy permits.

The Washington, D.C.-based Tax Foundation confirms Republican tax claims. It annually looks at how states tax businesses, and the latest rankings show Minnesota in 43rd place. South Dakota has the best business tax climate, the Tax Foundation says, with North Dakota No. 20. Minnesota's other two neighbors, Iowa and Wisconsin, rank close to its position.

South Dakota and North Dakota economic deployment leaders said their states do things much like Minnesota Republicans want in Minnesota, such as giving businesses a stable environment.

Executive Director Bryan Hisel of the Mitchell, S.D., Area Development Corporation said consistency in business-related policies, such as taxes, is vital.

"If you are constantly changing policies and taxes ... that instability causes a lot of problems," said Hisel, who after 30 years in the business is widely accepted as a South Dakota economic leader.

Words coming out of Director Paul Lucy of North Dakota's economic development office sound a lot like what Minnesota Republicans and business leaders say.

"They have some level of certainly regarding their future tax liability," Lucy said about businesses.

As one of three states without budget deficits, North Dakota can afford tax cuts thanks to a rapidly expanding oil industry that pumps dollars into the state's treasury.

While Lucy can boast a good economy and state budget, he cannot boast that his state has attracted a lot of businesses from its eastern neighbor. He guessed that North Dakota averages fewer than two takeaways a year.

Minnesotans know of one major North Dakota victory: Warroad-based Marvin Windows and Doors has opened North Dakota plants in Fargo, West Fargo and Grafton.

Marvin's John Kirchner explained why the firm expanded to North Dakota in the last several years: "The regulatory and tax climate in North Dakota ... tend to be more friendly toward the business."

Also, Kirchner said, it takes too long to get state permits, delaying expansion plans.

While pledging that "we are not going to walk away from Minnesota" and saying Warroad will remain Marvin's home and biggest factory, North Dakota is a good location for company manufacturing plants, he said.

Lucy said North Dakota has no program to recruit Minnesota firms, adding that a strong Minnesota economy helps North Dakota, too.

South Dakota aggressively has sought new businesses, advertising on Minnesota broadcast stations and billboards and operating a Web site that provides an instant comparison that does not make Minnesota look good.

Lucy has some arguments that Minnesota business recruiters cannot make. One is the state-owned Bank of North Dakota, which provides money to funnel through private banks for low-interest business loans.

Lucy and Hisel also can offer prospective businesses something else not always found in Minnesota: personal contact with the state's highest politicians.

"We have unparalleled access to our congressional delegation and our senior (state) elected officials," Hisel said.

While new Minnesota Gov. Mark Dayton promises to "go anywhere, any time" to help recruit businesses, Hisel said that could be difficult because Minnesota's population and government are much more demanding on officials' time.

Fabian said Minnesota needs to make several changes to look better to business.

"There is no one single issue that compels a business to locate," he said.

Business tax climate impacts

Minnesota business leaders agree with Republican desires to lower taxes and make it easier to do business in the state, but Bill Blazar of the Minnesota Chamber of Commerce threw in a third factor that he thinks drives many firms elsewhere.

Iowa, with a business tax climate about like Minnesota's, landed some businesses because it offers lower electric rates, Blazar said.

"Iowa, to its credit, has invested substantially in building state-of-the-art coal-fired facilities and they added wind technology," Blazar said, while Minnesota bans new nuclear and coal power plants.

Still, power is only one of three major factors businesses consider, he said. "Businesses clearly worry about taxes. That is the most immediate cost concern."

While Dayton supports efforts to streamline regulations, such as finding ways for the state to issue a variety of permits quicker, Democrats generally do not feel the urgency of making massive law changes.

"It is not like these companies all are marching across the border," said Sen. LeRoy Stumpf, DFL-Plummer, saying that Republican rhetoric is driving up interest in the bills.

South Dakota tries to inspire that western march via its advertising campaign and Web site that makes the state look pretty attractive to businesses.

The South Dakota state Web site shows Minnesota's corporate income tax at 9.8 percent, compared to zero in South Dakota. Personal income tax rates are as high as 7.85 percent in Minnesota, while South Dakota collects nothing.

Bottom line? The average per-person taxation in South Dakota is the country's lowest at $1,643 a year. The average Minnesotan pays $3,509 in taxes to the state, the seventh highest.

It is not just the Dakotas that concern Minnesota GOP and business leaders.

Texas, South Carolina and North Carolina are becoming major threats, Zellers said. And he need only look to Wisconsin and Iowa as closer competitors.

In Iowa, a newly elected Gov. Terry Branstad, starting his fifth term after several years out of office, used his inaugural speech to promote business-friendly laws. He promised to work to trim regulatory costs and reduce business taxes, as well as cutting the commercial property tax.

In Wisconsin, new GOP Gov. Scott Walker and a new Republican legislative majority are pushing several business bills.

For one, Wisconsin Republicans want to give small businesses $4,000 for every job they create, and would allow companies that relocate to the state to avoid business income tax for two years. Other business tax credits also are flying through the Legislature, including one that would make it harder to sue businesses.

Annette Meeks of the conservative Minnesota Freedom Foundation does not worry much about Iowa and Wisconsin.

"We can trim around the margins and compete with Wisconsin or we can be really bold and compete with states like Texas," said Meeks, who was Republican governor candidate Tom Emmer's runningmate last year.

Zellers also is not as concerned about Wisconsin and Iowa. And he does not even expect Minnesota to become competitive with other states right away; he just wants to make progress.

"If we don't do it, we will not be part of the discussion," he said of making pro-business changes.

Blazar is concerned about Minnesota's neighbors on three sides.

Minnesota competes with its neighbors because businesses can benefit from being near Minnesota but can avoid what he sees as a bad business climate, Blazar said.

"Companies that are looking for locations will analyze Minnesota vs. other communities because they can be in the region and have good access to our markets ... and avoid some of the premium it costs to locate in Minnesota," Blazar said. "They get the best of both worlds."

Don Davis reports for Forum Communications Co. The Herald is a Forum Communications newspaper.