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Summary of Discussion with
8301 Creekside Circle
#920, Bloomington, MN 55437
May 14, 2010
Verne Johnson (Chair); David Broden, Janis Clay, Marianne Curry, Paul
Gilje, Jim Hetland, Ted Kolderie, Dan Loritz, Tim McDonald, John Mooty,
Jim Olson, Wayne Popham, Paul Taylor, Bob White
Despite the economic downturn,
Minnesota’s economy is sound
and strong; although not growing quickly enough. The economy is
diversified and clusters of like business teamed with a strong workforce
make the state attractive to business. But this message is not being heard
as it could be; in the media and with the consultants that make
recommendations to large companies on where to open operations. There is
promise for growth in new industries and reason to be optimistic.
A. Context of the meeting—
Minnesota will need a prolonged period of economic growth to create jobs
and begin generating revenue again during this time of contraction. Mr.
McElroy is in a position to understand the state’s assets and outlook.
is Commissioner of the Minnesota Department of Employment and Economic
Development, appointed by governor Pawlenty in January 2007. He formerly
served as the governor’s senior advisor on innovation, after serving
almost two years as chief of staff. McElroy served as commissioner of the
Minnesota Department of Finance from January 2003 until February 2004.
McElroy served in the
Minnesota House of Representatives from 1995 to 2003. During that time, he
was an assistant majority leader, chair of the Committee on Jobs and
Economic Development Finance and chair of the Legislative Audit
Commission. McElroy served as mayor of Burnsville from 1987 to 1994 and as
a member of the Burnsville City Council.
In the private sector,
McElroy was active in the travel agency business from 1979 to 1994 and in
the travel agency software and consulting business from 1994 until 2003.
C. Comments and discussion—During
comments and discussion, the following points were raised.
1. Introduction to Minnesota
Department of Employment and Economic Development--“Despite
all my background of government service,” McElroy said, “for most of the
last 40 years I’ve been running businesses. A serial entrepreneur—I didn’t
sell the last one until being tapped by Pawlenty.”
He said that he thinks of
himself as a policy wonk, not as an economist. “Which is good because
sometimes I ask people questions they don’t anticipate.”
Employment and Economic
Development are encompassed in a single agency McElroy said, because they
are so closely linked. Through automation of various services, staffing
was reduced from 1,900 to 1,600 people. The agency runs workforce
development and adult job training, operates the state’s unemployment
insurance system, assists local economic and community development
efforts, and operates the Minnesota trade offices. The agency also has
an information role; publishing two magazines and information about the
state online at
http://www.positivelyminnesota.com/. Almost everything they do is
is sound and diversified, but not growing--John
Adams (University of Minnesota) describes an economy as a mosaic with
different layers. Minnesota is the sum of different sectors and regions.
McElroy said his office spends an enormous amount of time bringing
different resources together. “Economic development is an umbrella thought
process on how, over time, to make a state more effective.”
The government can play a
role bringing people together. Some talk about silos McElroy said, but he
calls them policy systems. These systems form the foundation of economic
strength and are the fundamentals to a strong society: families,
non-profits, early childhood education, K-12 and higher education,
affordable housing, mental health, and transit.
In three months during
2007-2008 unemployment in Minnesota was slightly higher than national
average. This was due in part to the hit taken by particular industries
during the downturn; including housing and building components, primary
construction materials and mortgage finance.
“We’re back now to being
below the national average of unemployment.” It varies by region.
Fargo-Moorhead is at 5 percent; Brainerd 19 percent. “The people who have
been hammered in this recession are those who have little education.”
McElroy said that he is
cautiously optimistic. The number of people making new claims for
unemployment have been dropping and has been below 4,000 for two weeks in
a row—something not seen since 2007. The number of jobs on the state jobs
board has doubled.
3. There is no button that
government can push to jump-start the economy--“Recessions
are cycles,” McElroy said, and he is comfortable that we will come out of
this. Art Rolnick said to him, “You know, there is no button government
can push.” It is a combination of liquidity, confidence and time.
Liquidity started this mess with the credit crunch and high oil prices.
Consumer confidence is key to keeping the economy churning.
like-industries is important to the state. “A key is the size and
willingness of the workforce to work.” A member commented that the core
economy of Minnesota has been said to run from St. Cloud down through the
Twin Cities, to Rochester? “Some of the new projects have been outside of
that area,” he responded. Part of the reason why Faribault has done so
well is that it has had good partnerships with local government; it’s
rural enough that land is cheap but metro enough that there are a lot of
The legislature is making
efforts: The jobs bill passed this session included an angel tax credit
and there was an increase in R&D tax credit from 5% to10%.
He said that he is a
realist on the economy. “Over the long term I’m optimistic. The unit
of geography is the Midwest; we have the strength of a very strong
workforce from educational and cultural points of view; strong wind and
water; strong position in the middle of the continent.”
A member commented that it
seems to him to be inconsistent to be optimistic—that Minnesota has been
dropping relative to other states.
4. Is Minnesota's economic
the data doesn’t support that,” McElroy responded. “It is not as bad as
people say it is.” He alluded to the role of the media in pushing this
message and commented that “The Star Tribune is way off.”
Minnesota has gone from 18
to 21 Fortune 500 companies, “the greatest number per capita, by a lot.”
Students continue to be at the top in ACT and SAT scores. The state will
need to pay attention that it remains a place of innovation.
“The one I worry most about
is growth in personal income—the energy states have blown us away; smaller
states with large energy resources.
Responding to the public
perception that Minnesota is not competitive, McElroy said that there are
ways to improve competitiveness—comparative tax rates between C-corps, for
example. “We’ve done some smart things about the R&D tax credit; foreign
investment credit. Ernst & Young says we’re around 18th in
smartness of our tax structure.”
5. Minnesota’s economic
appeal is weaker than it should be--Minnesota
does not make the finals with the location consultants used by major
companies when they are considering a re-location or development. Those
consultants do not have Minnesota on the top of their list.
He told a story that after
one conservation technology company located a 160,000 square foot facility
here, Deloitte remarked, “We’re just shocked. Minnesota’s not an
attractive state. Minnesota’s not a right to work state (http://tinyurl.com/yc59dx)
and utility costs are high. But this company wanted to come “because of
the strength of the glass cluster.”
The time frame on the
environmental review process is too long and utility costs are going to be
an issue. “The decision to be early into renewables was a good decision
over the long term, but will cost more now.”
Minnesota’s workers comp
rates are higher than Western states, but this may not be all bad, McElroy
said. “We provide better benefits and we have more generous unemployment
pay. Culturally I don’t think we’re ready to (or want to) change them.
6. How well is Minnesota
“You’ve read a
lot of good news that I haven’t seen before,” a member commented.
“Consumer confidence depends on information. What are you doing to
publicize the state’s strong points?”
McElroy said that he gives
150 or more speeches per year—spends a lot of time with the media. “It’s
hard to get good news on the front page.” Minnesota won a competition for
a plant, and he called their HR executive to ask what it was that closed
the deal. “She said it is our workforce—hard working, honest, innovative.”
It’s hard to make that a news story.
7. There is both a need and
an opportunity to save money in state services--
As you listen to
the candidates for governor, a member asked, do any of the discussions
alarm you to the future of the state?
“I don’t get alarmed easily;
I get excited. The two critical questions are whether we can slow the
growth in the cost of health care and can we continue to engage people,
non-governmental organizations and others to take services off government.
I think the strategy Ted Kolderie, Joe Graba and Clayton Christensen are
working on in education is on the track here.”
He continued: “I get
horribly frustrated with Tom Dooher and his office who are good people,
but change averse. Joe Graba (a former union leader) said it best when he
said everyone wants our schools to be better but nobody wants them to be
different. I think there is a consensus now nationally that schools will
have to change.”
8. Concern over growth in
What is going on with medial
costs? “A state employee group insurance program targeted six disease
clusters for intensive monitoring and oversight.” He is convinced about
the power of incentives. “A co-pay mechanism in my insurance plan was a
significant part of why I lost weight—100 pounds and kept 85 off. I became
convinced it was a health investment.”
We cannot rest on
our laurels, he followed. We are competing now on labor with countries in
the developmental stage of their economies. We have got to lead by staying
ahead on innovation.
10. State's main economic
A member asked
where Minnesota makes its living—doing what, selling to whom—and what are
the major movements in those areas?
McElroy responded that the
big industry clusters continue to be manufacturing (high-tech, glass,
building components); health care and medical device; two heritage
industries—agriculture and food processing, retail and distribution is
enormous; transportation including the port of Duluth and rail roads.
Financial services continues
to be healthy as well: “US Bank, Wells Fargo, TCF didn’t do a lot of
stupid things” leading up to the crash.
11. Possible change in the
economy in the future--
Where is the
change going to be?
There may be pickup in
alternative energies. “Offshore wind potential in Lake Superior is
amazing.” Visual impact and ice issues are going to be challenges, but he
emphasized that the potential in the water far surpasses anything on land.
This can be a new sector for growth. And, biofuels: Liquid biofuels will
also benefit from Minnesota’s high tech and agricultural cluster.
“Companies and entrepreneurs
come to Minnesota for the cluster strength. We don’t have the financial
incentives others have, but we do have diverse industries and a strong
Strategies for economic development--
has four strategies for economic development:
1. Help Minnesota businesses stay and grow
2. Help entrepreneurs
develop businesses here
3. Help existing
businesses become more productive and competitive here
4. Help business relocate
“Think of economy in terms
of layers.” The industrial revolution affected the foundational
manufacturing layer. As layers get more productive it makes room for more
layers; others build on top. Minnesota has got to recognize that more and
more, other economies may be doing the first layers. We can stay ahead
by being the highly productive and innovative in both existing and in new
1. Essential steps for the
The chair asked Mr. McElroy
whether he had any messages he’d like to leave with. “That Minnesota
continues to be a strong state and that we cannot rest on our laurels.
“Minnesota needs to makes
investments in infrastructure and the workforce without creating
disincentives. We don’t have to be the lowest tax state, but we need to be
wary of where the hindrances are to business.” He agreed with a remark
made by Governor Pawlenty that the state needs to improve the value of
services, improving on the line of cost per unit.
Thanks to Mr. McElroy for
the visit today.