Bill Blazar, Minnesota Chamber of Commerce Executive
Redesign for better
service at lower cost to grow the state economy
Civic CaucusFocus on CompetitivenessInterview June 28, 2013
Summary of Discussion:
According to Bill Blazar, senior vice
president of public affairs and business development at the Minnesota
Chamber of Commerce, given the state budget's turmoil over the last 10
years, policymakers have three possible strategies to help develop and
grow the state economy.
The first, raising taxes to improve services, is
the strategy Gov. Mark Dayton and the Legislature embarked upon during the
2013 legislative session. Blazar says there are already considerable
reasons to question the wisdom of this strategy in the short run and the
The second, balancing the budget using existing
resources, was tried during Gov. Tim Pawlenty's time in office (2003 to
2011) and Blazar believes it was successful in the short run. But in the
long run, spending down the state's reserves, imposing higher fees and
cutting growth in the state budget resulted in slower growth--and actual
cuts--in higher education spending, which has a direct impact on the
quality of the workforce.
The third, redesigning services to deliver
better value, is the best strategy, Blazar says, in both the short and
long run. But it hasn't really been tried yet.
Bill Blazar is senior vice
president of public affairs and business development at the Minnesota
Chamber of Commerce. He has been with the Chamber since 1992. He directs
Grow Minnesota!, the Chamber's statewide business retention and expansion
program. This year, Grow Minnesota! completed retention visits with over
800 Minnesota businesses and provided direct assistance to 125 of them.
Blazar represents the Minnesota business
communities on several task forces and study groups, including the United
States Chamber of Commerce's Labor Relations Policy Committee. He is a
past member and chair of the board of the Minnesota Government Relations
Council. He currently serves on the board of the Metropolitan Economic
Development Association (MEDA).
Prior to joining the Chamber, Blazar was manager
of government affairs for Target Corporation from 1987 to 1992. Before
that, he was a freelance public policy analyst, specializing in state and
local fiscal policy, economic development and telecommunications. He
worked for the Citizens League from 1976 to 1980.
Blazar has a B.A. in political science from Northwestern University and
an M.A. in public affairs from the Humphrey School of Public Affairs at
the University of Minnesota.
Given that the state budget has
been in turmoil for the last decade, policymakers have three possible
strategies to help develop and grow the state economy. Bill
Blazar, senior vice president of public affairs and business
development at the Minnesota Chamber of Commerce, outlined the three
strategies and the justification for them:
Raise taxes to improve services
and have some economic
development incentives for businesses to locate and expand here,
until the quality of the business services makes Minnesota a highly
desirable location for businesses, despite the high price of being
Balance the budget with existing resources
, using a
combination of spending down the state's reserves, imposing higher
fees and cutting growth in the state budget. A stable or declining
cost of government will make businesses come here and want to stay
here. Over time, the bureaucracy will rise to the challenge and
figure out a way to deliver services with fewer resources.
Redesign services to deliver better value
quality services at the same or lower per unit price. This strategy
requires upfront money to invest in changing the services and
requires considerable backbone from policymakers.
Minnesota has tried the first two strategies
over the last 10 years.
Blazar contended that Gov. Mark Dayton and the 2013 Legislature
have embarked on the first strategy, raising taxes to improve
services. They have also "put tools in the economic development
toolbox to deal with companies that complain or are going to leave
and are considered significant to the economy."
Blazar said during Gov. Tim Pawlenty's eight years in office
(2003 to 2011) the governor and the Legislature pursued the second
strategy, balancing the budget with existing resources, using a
combination of spending down the state's reserves, imposing higher
fees and cutting growth in the state budget. "It's kind of an ugly
approach, but it worked," Blazar said. Minnesota came in fifth out
of the 50 states in a recent Brookings Institution survey on how
states are performing economically, comparing growth in gross state
product for the states over the last decade. "No matter how ugly, in
the short run the second strategy produced good results," he
said. But Blazar questioned what this strategy of cutting the
budget, depleting the reserves and raising fees would do in the long
run. "Slower growing and in some areas actual cuts in higher
education spending is a result of this strategy, which has a direct
impact on the quality of the workforce," he said. "Businesses do
expect high-quality services at a competitive price, much more so
now than ever in the past."
Minnesota really hasn't tried the third
strategy, redesigning services to deliver better value. "I think you
could get the dollars to invest in redesign," Blazar said. "The
problem is either lack of backbone or sufficiently creative
politicians to figure out how to get it done. It's not for lack of
ideas; there are plenty of ideas. I think we could find the money."
The redesign strategy has no downside in the
short run, he said, because the increase in taxes (if any) that we
might need to finance redesign would be relatively minimal. And in the
long run, businesses want high-quality services.
In the short run and the long run, the
redesign strategy is the way to go.
Blazar said manufacturers
are looking for high-quality public services, particularly a trained
workforce, and the redesign strategy will deliver that. "The quality
of the workforce keeps businesses here," he said. Companies having
difficulties finding skilled employees are more sensitive to the fact
they're paying high taxes and that, for example, it took them six
months to get a permit that they could have gotten in 30 days in South
Dakota. "As soon as the workforce begins to deteriorate, warts in the
state's business climate become much more pronounced," he said.
There is already considerable reason to
question how well the first strategy, raising taxes to improve
services, is going to work.
Blazar said even though this
strategy has been in place for just 60 days, there are a number of
examples of companies reacting negatively to the tax changes:
Red Wing Shoes has put on hold a possible new distribution
center in Red Wing because of concerns about the cost of locating it
in Minnesota. The owner is looking at the potential of the state's
adding sales taxes to business-to-business services, as Gov. Dayton
proposed at the beginning of the legislative session. (Because the
company would likely own the warehouse, it wouldn't be subject to
the new sales tax on distribution centers enacted during the 2013
Digi-Key, the fourth largest electronic component distributor in
North America, has about 1,600 employees in Thief River Falls. It
also owns land in Fargo, where it's going to locate a distribution
center and add a significant number of employees. "They've run out
of people," Blazar said. "They already run their own bus service to
get people to Thief River Falls. It's a growing business and they
need another location. They could have thought about Little Falls or
Bemidji or Grand Rapids. Instead they're going to Fargo. A big deal
was access to people, but these tax changes didn't help."
A large Minneapolis accounting firm merged with another firm
outside of Minnesota. Its headquarters is in Minneapolis, but
they've made it clear there will be no further growth in Minnesota
because of the new fourth tier in income taxes enacted by the 2013
A Twin Cities financial services company will likely take its
job growth of about 200 jobs to South Dakota because of the new tax
Ralco is an animal nutrition business located in Marshall that
tailors feed to the biological characteristics of swine, poultry or
cattle herds to improve their health. The company services herds in
20 countries and is currently expanding in Marshall. Ralco also has
another expansion in mind, a new manufacturing facility, but the
owner has written local economic developers that the current
political climate and current trends for taxation in Minnesota are
not favorable to further expansion in the state.
In the short run, then, there are real
concerns with the first strategy, raising taxes to improve services.
There are also concerns in the long run when the strategy is coupled
with two other changes over which we have no control: our aging
population and the world economy.
Blazar said the state's
aging population, which will leave every Minnesota industry looking
for people, and competition from the world economy raise serious
questions about the first strategy, "which is to raise taxes and
figure that in the long run the quality of services will be so high
that people won't be concerned about the premium they're paying and
will want to be here."
We've conditioned businesses that are
planning to expand to want public help.
In response to a
question, Blazar said the 2013 tax bill extended the life of lots of
tax increment financing (TIF) districts, which use the increased
property taxes that a new real estate development generates to finance
costs of the development. "The change in the direction of policy is
pretty dramatic," he said.
According to Blazar, the Minnesota Chamber
of Commerce supported the Legislature's decision to invest in the
expansion of the Mayo Clinic in Rochester, but didn't take a position
on a change in the allowed use of TIF to help finance the expansion of
the Mall of America.
"The Legislature created $90 million in
economic development tools in the state's toolbox," he said. "That's
the dough to grease the squeaky wheels."
"A lot of companies in Greater Minnesota
hear about the economic toolbox and say, 'Yeah. I'm going to pay
higher taxes so they can bring my competitor to town.' It really does
drive them nuts. Most of them figure they'll never benefit an ounce
from that stuff."
State policymakers have not had a good
discussion about competitiveness.
"We've not figured out how
to talk about competitiveness," Blazar said. "The Democrats this
session were so caught up in the fact of DFL dominance in government
and there was lots of pressure from service providers to reinvest to
where they were before the eight to 10 years of no state tax
increases. And the Republicans were so concerned with taxes. We've not
had a good discussion about competitiveness or, more importantly,
about what kind of spending rises to be a good strategic investment
that over time will really help the economy change and grow."
The 2013 Legislature enacted a number of tax
changes affecting businesses.
Blazar noted the unemployment
tax was scheduled to go back down next year, after a temporary
increase to replenish the unemployment insurance trust fund after the
recession, when we drew down those resources. It was scheduled to go
back down by about $400 million. The Legislature decided to move back
the date for dropping the tax by six months or a year.
He said the corporate tax alone went up by
$400 million and there was about a $1 billion increase in the personal
income tax. "This is a big deal to businesses," he said, "because most
of the businesses in the state are organized for tax purposes as
pass-through entities, which means anything on their bottom line flows
through to their owners' personal tax returns. So the personal income
tax is more of a business tax."
Many Minnesota manufacturing companies
struggle to find engineers.
An interviewer noted that Ed
Swallow, vice president at Northrop Grumman's Information Systems,
Caucus interview with Ed Swallow and Susan Lavrakas
of June 21, 2013) compared engineering training in Minnesota to
Virginia and Maryland. Swallow said the big gap in Minnesota between
high-tech jobs available and enough people to fill them is due to a
shortage of engineering training in Minnesota compared to other
Blazar responded that a lot of manufacturing
companies in Minnesota struggle to find engineers. They tend to find
them from engineering schools in North Dakota, South Dakota and Iowa.
"Why?" Blazar asked. "One plant manager said, 'The University of
Minnesota is a great engineering school. It's great at training
engineers who design things that can't be built. We struggle to find
practical engineers. When we find them, they tend not to be from the U
of M. We do need more of them.'"
We should be tracking how what the state
does for a living has changed and will continue to change.
interviewer commented that we're missing an accurate general picture
of what Minnesota does for a living now and asked who keeps track of
In response, Blazar said he doesn't think
anybody keeps track. "If we wanted to have a discussion about
competitiveness," he said, "the first thing we should do is to have a
discussion about how what we do for a living has changed over time and
how it will keep changing. That's why the first strategy (raising
taxes to improve services) is really a high-risk strategy."
"Tracking that and how it changes would make
for a very different policy discussion, he said. "Now it's the flavor
of the month or of the day. If you start identifying how the economy
is changing, you're more likely to hit on key policies that will
facilitate that change or capitalize on that change." The Minnesota
Chamber's analysis of how the economy is changing led it to support
the Mayo expansion. "Our analysis showed Mayo was a good investment
long term," he said.
Responding to a question, Blazar proposed
that over the last 50 years, no matter how much the state's economy
has changed, its outstanding characteristic has been its diversity.
"Diversity is worth preserving if you can," he said. "It gives you
protection against wild swings in the economy, if you run a good state
at a competitive price."
Minneapolis and St. Paul have decided light
rail transit (LRT) is part of the infrastructure we need to be a
In response to a question about LRT,
Blazar said that Minneapolis and St. Paul argue that having LRT is a
great way to attract bright young people. The cities have been
thinking strategically about what kind of infrastructure we need to be
a world-class region and they've reached the conclusion that LRT is
one of those characteristics. The cities might be wrong about LRT, but
they're doing the right kind of analysis and thinking.
An interviewer commented that John Cowles,
Jr., CEO of Cowles Media Company, the parent company of the
StarTribune until 1998, once said that LRT is economically irrational,
but civically necessary. The interviewer said that one of the state's
major strategies for economic development has been to concentrate
resources to generate an urban region big enough to be one of the top
15 in the country.
In the next 10 to 20 years, Minnesota should
focus on the quality of the workforce and the cost and reliability of
energy and electricity.
An interviewer asked where Minnesota
should focus for the next 10 to 20 years. Blazar said we should focus
on the workforce. "We should make sure it's as renowned in the next 50
years as it was in the last 50 years," he said. "Minnesota companies
think that's what they're buying. We must have a great workforce at a
competitive price." He said the redesign strategy could deliver that.
He said we must also focus on the cost of
energy and electricity and the reliability of the grid. "Electricity
is a much bigger cost of doing business than any of us would think,"
Blazar said. "Thirty years ago, we used to be able to say we had among
the lowest rates in the country." He said that claim is now at risk.
The Department of Employment and Economic
Development should focus more on what kinds of strategic investments
we should make, rather than oiling squeaky wheels.
interviewer asked about the objectives and activities of the Minnesota
Department of Employment and Economic Development. Blazar commented
that he would have the department do more strategic thinking: to work
more on understanding where our economy is headed and what kinds of
strategic investments we need to make to help the economy change and
grow. "Instead," he said, "the economic development portion of the
department is basically oiling squeaky wheels."
He said Minnesota's problem is that we'll
never have as many or as generous incentive programs to oil squeaky
business wheels as most other states have. "We're trying to fight in
an arena where we can't win," he said. "If we could focus on how the
economy is changing and what kind of strategic investments we could
make, we'd be taking a different path and one where we could win."
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