Jay Kiedrowski, University of Minnesota's Humphrey School of Public
Focus on state
economic fundamentals to grow, compete
Civic CaucusFocus on CompetitivenessInterview July 26, 2013
Dave Broden, Pat Davies, Paul Gilje (coordinator), Randy Johnson,
Sallie Kemper, Jay Kiedrowski, Dan Loritz (chair), Tim McDonald, Paul
Ostrow, Dana Schroeder, Clarence Shallbetter; by phone: Audrey Clay,
Summary of Discussion:
Focus on the fundamentals to keep
Minnesota's economy successful and competitive, says Jay Kiedrowski,
senior fellow at the University of Minnesota's Humphrey School of
Public Affairs. Focusing on the fundamentals means spending money on
developing human capital and infrastructure, rather than on the
gimmicks of economic development that provide inducements to specific
businesses. Further, he contends that economic development activities
are better suited to a regional approach, rather than limited
specifically to state concerns.
Many comparisons of states illustrate that
Minnesota has done quite well in national economic competition, but
still has problems to address. He cites Minnesota's many strengths,
such as productivity and human capital, and lays out his concerns
about the state's weaknesses, such as lack of business incubation and
some particular challenges in the area of human capital.
He believes use of tax-increment financing
and tax abatements by cities should be capped and that dipping into
the region's fiscal disparities pool to help pay for the expansion of
the Mall of America was "terrible." He says we must be careful about
funding things like the Mayo Clinic expansion in Rochester, so we
don't set a precedent encouraging others, who might be planning
expansions independently, to seek public subsidies. On the other hand,
he says there is no excuse for government not to be more efficient in
the processes where it interacts with business, such as zoning and
environmental impact statements.
Jay Kiedrowski is a senior fellow in the
Public and Nonprofit Leadership Center at the University of
Minnesota's Humphrey School of Public Affairs. Before coming to the
University in 2004, Kiedrowski was executive vice president at Wells
Fargo and Company. He served as Minnesota Deputy Commissioner and
Commissioner of Finance from 1983 to 1987 and budget director for the
City of Minneapolis from 1978 to 1982. He also served as a researcher
and committee administrator with the Minnesota State Senate between
1973 and 1977, specializing in tax and urban policy analysis.
Kiedrowski's board service includes the
State of Minnesota Investment Advisory Council, UCare Minnesota &
Wisconsin Health Care Insurance Board, Humphrey School of Public
Affairs, Carlson School of Management, Greater Metropolitan Housing
Corporation, Guthrie Theater and Minneapolis Schools Referendum
Kiedrowski earned a B.S.M.E. in industrial
engineering from the University of Minnesota and an M.A. from the
University's School of Public Affairs. He also earned an Ed.D. from
St. Mary's University of Minnesota.
Many state comparisons illustrate that
Minnesota has done quite well in national economic competition, but we
still have problems to address.
Jay Kiedrowski, senior fellow at the University of Minnesota's
Humphrey School of Public Affairs, laid out rankings of Minnesota vs.
other states on a number of economic factors from different sources,
indicating many strengths and things needing improvement as well.
"One word to describe Minnesota's economy is
productivity," he said. "Minnesota is more productive than other
state economies across the country." Comparisons indicate that
...ranked sixth in GDP per capita
growth in 2012/2011 (Bureau of Business and Economic Research,
...scored "A" for productivity and
innovation (Ball State, 2013).
...had the fifth fastest-growing
economy in the nation in 2012, with the state's GDP growing by
3.5 percent vs. 2.2 percent for the U.S. (USgovernmentspending.com,
...ranked 13th in State New Economy
Index (Information Technology and Innovation Foundation, 2012).
...ranked 20th in annual Best States
for Business survey (Forbes magazine, 2012)
Kiedrowski noted that Minnesota is strong in
human capital. He contended that the first thing companies think
about when they think about locating is the quality of the
workforce. Rankings show that Minnesota:
...scored "A" for human capital (Ball
...is one of the nation's leaders in
high school graduates. 91.5 percent of Minnesotans are high
school graduates vs. 85.3 percent for the U.S.; 31.5 percent of
Minnesotans are college graduates vs. 27.9 percent for the U.S.
(U.S. Census Bureau, 2012). Kiedrowski pointed out that
Minnesota is not a leader in people with advanced degrees, but
...excels in ACT scores, with an
average of 22.8 vs. 21.1 for the U.S. (ACT, Inc., 2013). He
noted that 70 percent of Minnesota kids take the ACT test, so
the scores represent a broad cross-section of students.
Kiedrowski said we can never rest on
our laurels in the area of human capital, but indeed must meet
several human capital challenges:
(1) Diverse students are a greater
percentage of our students and they are lagging.
(2) We need to expand apprenticeships
and non-degree training.
(3) We need to resurrect the idea of
vocational education. We shouldn't go to the European two-prong
approach, but we should strengthen vocational schools for those
who learn by doing.
(4) We need to improve learning and
outcomes for college students. "We have an excellent college
system, but we clearly can make it better," Kiedrowski said.
(5) We're going to need more workers
in the future. They're likely to be more diverse than our
current population in Minnesota. We need those workers to keep
our human capital strong.
(6) We need immigration reform, in
part because we need additional foreign high-tech workers for
the industries we have in Minnesota. We're being hurt by not
having enough Green Cards to offer them.
Women in the workforce.
In Minnesota, 67 percent of women
are in the workforce, compared to 58 percent across country. (U.S.
Census, 2010). "That's been one of the reasons behind our strong
human capital," Kiedrowski said.
Minnesota ranked sixth as a 2010
magnet city for young and talented workers (Rebecca Ryan,
2012).Kiedrowski said this ranking reflects quality of life factors:
approval of gay marriage, support for the arts, major league sports,
healthy environment, recreational opportunities, safety, easy access
and educational opportunities.
Community. "There's something special about the broader
Minnesota community," Kiedrowski said. Studies indicate
Ranks fourth in volunteerism, with Utah ranked first. The Twin
Cities ranks first in volunteerism among major metropolitan areas.
(National and Community Service, 2012.)
Ranks first in voter participation.
Has strong philanthropic and nonprofit sectors.
Has a strong work ethic and low poverty. "We want to take care
of everybody in our community, which is not true everywhere,"
Kiedrowski said. "It adds to our humaneness and quality of life.
Research and innovation. Minnesota ranked 12th in inventor
patents (Information Technology and Innovation Foundation, 2012).
Kiedrowski said we need the University of Minnesota to be stronger
in research. He noted that the University's share of federal
research dollars has grown dramatically over the last five years.
Because of sequestration, the federal money will be drying up, so
the University must work with the private sector on research. The
private sector also must pursue research and development.
Kiedrowski said Minnesota has a problem
in the area of business incubation. Minnesota:
Ranked 35th in business incubation (Beacon Hill Institute,
Ranked 44th in entrepreneurial activity (Information
Technology and Innovation Foundation, 2012).
Ranked 40th in business creation rate (Corporation for
Enterprise Development, 2013).
Receives less than two percent of the venture capital funds
invested in the U.S., even though the state was once a national
center for venture capital. (Caux Roundtable, 2013)
In contrary evidence, had one of the highest years on record
in 2012 for new business filings. (Minnesota Secretary of State
Mark Ritchie, 2013)
"We do need to worry about business
incubation," Kiedrowski said. "We need capital access, reduced
regulation and research transfer-transferring the research at the
University of Minnesota easily and economically so that it can be
used to develop new businesses."
Infrastructure. Minnesota ranks
10th in infrastructure (Beacon Hill Institute, 2012). Kiedrowski said
the state needs:
(1) Transportation funding, because we
will be behind soon in the quality of our roads and bridges.
Minnesota is getting less from its per-gallon gas tax with
increasingly fuel-efficient cars.
(2) Better broadband access across the
(3) A productive capital budget. As an
example, he pointed to state funding for building regional
convention centers in St. Cloud, Mankato, Rochester, and
elsewhere. "All they're doing is competing with each other for
regional conferences," Kiedrowski said. "We need to be putting the
capital budget where it's going to improve the infrastructure
needed for a productive economy, not into things that allow us to
compete with one another."
Minnesota used to be one of the leaders in
low electricity costs in the country, Kiedrowski said. "Now we're
back with the pack." Minnesota does continue to compare favorably in
commercial electricity costs at $9.18/ kilowatt-hour compared to
Kiedrowski said Minnesota ranks as healthy, but
costly in the health care area. Minnesota:
Ranked fifth in overall healthiness in 2012 and first for
Had health care costs in 2009 of $7,409 per capita vs. $6,815
per capita nationally. Kiedrowski thinks our costs may be higher
because we provide more care for the indigent than other states,
but that our costs per medical procedure are competitive, if not
Has a high percentage of volunteerism, a high percentage of
creditable drug coverage and ready availability of home health
care workers (United Health Foundation, 2013.
Has a history of health care reform success.
Has more capitated care. "That's the future, whether we like
it or not," Kiedrowski said. "The only way to control costs is to
put someone in charge of trying to manage the cost for a given
Has both the University of Minnesota medical complex and the
Minnesota has low corruption, active
citizen participation, good basic services, more services and more
taxes. But Minnesota received an "F" for tax climate for business
(Ball State, 2013). Kiedrowski said that was not surprising, because
we've always been a high-tax state.
We have an upcoming dependency problem:
There will be fewer people working than people not working by
2020. "That's the challenge of being an older state," Kiedrowski
said. We are adding young people and still growing in population,
though. Iowa, in comparison, is actually losing population.
Minnesota needs more professionalism in
government, bipartisan support for good management, more focus on
outcomes and more tax balance. "We're over-dependent on the income
tax," he said. "We need to use the sales tax more."
Kiedrowski said the state desperately
needs a state planning function again. He noted that Rep. Paul
Marquart had an excellent bill three years ago, The Minnesota
Civic Compact: Planning, Innovation, and Results Act, which would
create a North Star Council, made up of 17 people who would
oversee the state planning effort, data collection and performance
During the rest of the discussion, prompted
by questions, Kiedrowski made the following points:
State funding for the Mayo Clinic's
expansion in Rochester is a complicated issue. "We clearly want
the Mayo Clinic and the medical industry to grow in Minnesota,"
Kiedrowski said. "It's been very good for us, but we need to be really
careful. Now that we've done it for Mayo, what's to say if Target
wants to expand, they shouldn't get additional dollars? Or General
Mills? Where does it stop?" He said the University of Minnesota or
Fairview Hospitals might expect a public subsidy for an expansion they
would have otherwise done naturally. "It's a tricky question; I'm not
sure if it was a good or bad decision," he concluded.
Clustering, that is, development of a
critical mass of similar industries in an area or region, is good, but
it must be balanced by a diversified economy. "I don't think we'd
want to be centralized or clustered to the extent of Rte. 128 in
Boston or the Silicon Valley in California," Kiedrowski said. "If we
have a tech bust as we had in 2000, then we're in trouble. Minnesota
has traditionally had a very diversified economy, which is a strength
for our economy."
"Clustering is a great idea, but how do you
pick the cluster?" Kiedrowski asked. "Which cluster is going to be hot
in the future? Did we know in advance that medical technology would be
where we wanted to be as medical spending grew faster than at any
point in our history? I don't think we knew that. I don't think we
were that smart." He said it's even hard for the University of
Minnesota to know where to put its research dollars, because it's
betting on what the future is going to hold.
We should spend money on developing human
capital and infrastructure, rather than on the gimmicks of economic
development that provide inducements to specific businesses. Kiedrowski
recommended capping the amount of tax-increment financing (TIF) that
communities are allowed to use and doing the same with tax abatements.
"We should have some economic development tools when we do get into
competition, when a major employer is thinking about possibly moving,"
he said. "But we have to be responsible and we have to be really smart
The state is probably not the appropriate
economic development entity; the region is more logical, because we
really are part of a region. Kiedrowski noted that the Twin Cities
is the hub of a region that includes South Dakota, eastern North
Dakota, northern Iowa and western Wisconsin. He said, for example,
that the oil industry in North Dakota is good for the Twin Cities and
that, in the broader scheme of things, it's good for Minnesota to have
Looking at a number of factors indicating a
strong, growing economy (Ball State, 2013), four states that are doing
well are Utah, Texas, Washington and Indiana. "Some states I would
have thought would look better didn't, like North Carolina, Wisconsin,
Oregon and Massachusetts," Kiedrowski pointed out.
It's important to work on the fundamentals. Kiedrowski
said in many ways, the answer to the question of what makes for a
healthy economy and business growth remains a relative mystery.
"Minnesota seems to grow in spite of surveys that say we shouldn't,"
For example, he noted that when Norwest Bank
merged with Wells Fargo, Wells Fargo had 12,000 employees in Minnesota
and people were worried about what would happen. Today there are
20,000 Wells Fargo employees in Minnesota. "In spite of our taxes and
in spite of all the negatives we sometimes think about, 8,000
employees were added in Minnesota," he said.
"We have some things to work on and we
should continue to be good at the things we've been good at. In the
long term, the fundamentals really matter. I'm a fundamentalist. I
think over time we'll do just fine focusing on the fundamentals."
Minnesota's weather has done us a favor,
because we've never had a period of extremely rapid growth. Kiedrowski
said the Twin Cities have never been viewed as a Mecca like Chicago
was or New York or the Silicon Valley or Austin, Texas. "The weather
has given people pause," he claimed." "To come here you have to want
to be here. From my experience at Wells Fargo, it's hard to get people
here, but once you get them here, they don't want to leave the Twin
Minnesota has traditionally had a
progressive tax system, but we should be concerned that we not reach
the tipping point on taxes for the wealthy, so companies decide to
Kiedrowski doesn't think we've reached that
point. "This year's income tax increase puts us back to where we were
for the wealthy in 1998, but it's worrisome," he said. "We need to
think practically about that, as opposed to thinking emotionally or,
in an equity sense, that it's not fair. You're right, it's not fair,
but you have to be practical about growing the economy."
It'd be useful to get some data on what
industry clusters we have. Kiedrowski agreed with an interviewer
that we could try to strengthen the weak spots in the supply chains of
major companies as a way of beefing up the clusters that we now have.
State efforts at economic development should
provide information, help displaced workers find re-employment or job
training and provide emergency assistance to try to keep companies
that might be thinking about leaving.
Using tax-increment financing for the Mall
of America expansion is not a good investment and dipping into the
region's tax-base sharing pool (fiscal disparities) for the same
project is "terrible."
Former Minnesota Governor Rudy Perpich had a
real vision for Minnesota's economic success. According to
Kiedrowski, Perpich was clear about the importance of human capital
and the need for a competitive tax structure. "He really did believe
in fundamentals," Kiedrowski said. "But there was another part of Rudy
that tried to do deals. [Now-Governor] Mark Dayton was Commissioner of
Economic Development at that time doing the deals. I'm afraid Mark
learned too much about doing deals, as opposed to focusing on the
The University of Minnesota has spent money
on key developments, such as the research centers on University
Avenue, that have been very solid, and has also attracted increased
research funding. The University looks at demand, Kiedrowski
argued, so the business community must speak up about what their needs
are. "It's unfortunate that the business community is so loud on the
tax issue that their other advice gets drowned out," he said. "We need
a more civil discord among all of the parties to make that kind of
Any strategy to improve business incubation
in Minnesota must include looking at regulation.
"There's no excuse for us not to be more
efficient in the processes where we interact with business, such as
zoning and environmental impact statements," Kiedrowski stated. "We
just need to be better and work for continuous improvement."
It's good that the Civic Caucus is
broadening its focus from looking at redesign of government to
thinking about competitiveness. Civic Caucus chair Dan Loritz said
that we're now thinking about competitiveness because we've decided
that redesign is important, critical, but insufficient by itself. "I'm
pleased that you're not just focusing on government," Kiedrowski said.
"We must work on government, but it's not the most important factor."
Companies making decisions on location look at the quality of the
workforce and access to suppliers, before looking at taxes. "Taxes are
often third, fourth or fifth on the list, but not first," he said.
The Civic Caucus
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David Broden, Janis Clay, Bill Frenzel, Paul Gilje,
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