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A Great Place but for How Long?

September 20, 2011 By John R. Van Hecke, Executive Director & Fellow

Despite our bone chilling winters, factors like high per capita income, relatively low poverty rates and the country’s highest homeownership rate make Minnesota one of the nation’s most livable states.

Using more than 40 factors, CQ Press consistently ranks Minnesota high on its most livable survey. It’s just one more measure of economic performance that helps negate the myth about low-tax climates being a state’s main job producer.

By the way, sunny, no-personal-income tax Florida ranks 28th in livability.

In ten other key economic and quality of life measures, Minnesota ranks among the top 20 states in the nation and is among the top ten in six of the measures. All of these make Minnesota a good place to live work and expand or start a business.

Studies examining business climate only through evaluating businesses taxes are flawed. These surveys typically measure government spending while ignoring benefits that businesses derive from public investments in education, health care and infrastructure.

Two of the more respected studies that avoid this simplistic approach are the State New Economy Index—which focuses on a state’s ability to compete in an information‐based economy—and the Camelot Index’s “healthy economy” ranking—which focuses on conventional economic performance measures (employment, population, and income growth, tax base, average pay, etc.).

Minnesota ranks 14th in the New Economy Index and 19th in the Camelot “healthy economy” index.

Another simple and frequently cited measure of business climate is the number of Fortune 500 companies. With 20 Fortune 500 companies, Minnesota ranks eighth in the nation. On a per capita basis, Minnesota has more Fortune 500 companies than any other state, excluding the District of Columbia.

As a partial result, Minnesota has the 14th highest per capita personal income in the nation and the 13th highest median household income. Moreover, Minnesota has the second highest labor force participation rate among the states—a good sign that the economy is relatively successful in creating jobs.

Minnesota’s economic success in creating income and jobs has kept Minnesota’s poverty rate among the nation’s lowest and boosted the state to the top of the list when it comes to homeownership.

Yet another way to gauge the strength of a state’s economy is through its ability to provide a high quality of life for its residence.

Minnesota is second in the nation in the Camelot Index’s “healthy people” ranking and 13th in the Camelot Index’s “crime‐free state” ranking.

However, while Minnesota still ranks above most states based on the most recent statistics, the trend over time is distressing. Since 2002, Minnesota income, employment, and GDP growth have all lagged behind the national average, according to measurements from DEED and other public sources.

Minnesota’s deteriorating economic performance has coincided with the decline in public investment driven by the “no new tax” agenda.

While Minnesota’s per capita personal income ranks a respectable 14th based on 2010 data, the state has slipped from 9th place in 2002. Since 2002, Minnesota’s income, employment, and GDP growth have all been below the national average. Furthermore, Minnesota was the “most livable state” in the nation each year from 1996 to 2003, before slipping to second place in 2004 and eventually falling to fourth place in the most recent study.

Minnesota is by no means an economic basket case, but the North Star has lost some of its luster over the last decade.

This declining economic performance relative to the rest of the nation corresponds with the decline in public investment during the “no new tax” era. This should serve as a cautionary note to those who automatically presume that lower taxes will produce a healthy economy and a strong business climate.

As reported in the Minnesota 2020 article evaluating educational performance, we must continue investing in the assets that have made Minnesota a leader in innovation, research and workforce development. Such public policy planning has no doubt lead to the positive outcomes highlighted in economic performance and quality of life rankings.

Providing companies with a well skilled workforce, strong public health care system, and solid infrastructure costs money, but it also produces jobs that keep people out of poverty, help them own their homes and have a much more livable community.

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