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Friday, August 13, 2010

South Dakota Attracting Minnesota Jobs? If Only!

Minnesota gubernatorial candidate Tom Emmer is fanning those good old Perpich-Janklow flames with billboards warning Ole and Lena about the great economic menace to the west, South Dakota. His billboards say, "Don't Lose Another Job to South Dakota." Emmer's ag issues webpage says "Minnesota’s increased regulations and taxes have pushed many producers to relocate in South Dakota." (I sure hope they bring their nice topsoil and not just Rick Millner's ill-managed cows.)

South Dakota could certainly use an infusion of good Minnesota jobs. Alas, there is no hard evidence to support Emmer's claim that Minnesota is losing jobs to South Dakota. For some economic straight talk, we turn to Art Rolnick, currently at U. of M., formerly head of research at the Minneapolis Fed:

"If you just look at taxes, business taxes, South Dakota has a much different structure, a much friendlier business structure," Rolnick said.

But Rolnick said Minnesota has a bigger, stronger economy than South Dakota -- the per capita income is 10 percent higher than in South Dakota and Minnesota is one of the top states for the number of Fortune 500 companies. It also has a highly educated work force and can attract businesses looking for a place that will attract good workers.

"I'm not saying taxes don't matter, but you have to look at the full picture," Rolnick said. "Over all these years when this debate has gone on, Minnesota's economy has done quite well" [Elizabeth Dunbar, "Rolnick: No numbers support claim of jobs leaving Minn. for South Dakota," Minnesota Public Radio, 2010.08.12].

Rolnick recognizes that Minnesota's higher taxes pay for public goods that improve the quality of life and add more value to the business climate than the taxes take away. That's why outside observers can rank five Minnesota cities in the top 20 best small cities while ranking Sioux Falls back at 77th. That's probably related to why Minnesota universities can provide a better return on your tuition investment than South Dakota universities.

Minnesotans in general aren't fooled by our "no taxes!" marketing ploys. Minnesota radio host Matthew McNeil recognizes that relocating a business purely for tax reasons is a "reckless business decision" that "could bankrupt a company" as it struggles to transfer machinery, recruit and train new employees, and deal with increased shipping costs.

A look at the South Dakota migration map also shows that attracting residents (you know, the folks who make business possible as workers and customers) is much more than our statewide tax policies. From 2000 to 2007, ten South Dakota counties saw net in-migration. The other 56 counties saw more folks move out than move in, despite having the same no-tax/low-tax business climate as the gainers. (See also my March article on Census data showing 90% of our population growth happening in just five counties.) Recruiting businesses and residents requires much, much more than letting corporate raiders off the tax hook.

Candidate Emmer's effort to bogeymanify South Dakota as the great Minnesota business sucker has no evidence to back it up. It's also not likely to play well with Minnesotans, who will find the suggestion that they should be afraid of South Dakota risible.


  1. Great post. I hear this all the time. Thanks for the stats!

  2. Michael Black8/13/2010 9:55 AM

    Do you think that just by raising taxes in SD that we will improve the quality of life?

  3. Matt: you're welcome!

    Michael: Of course not. Merely raising taxes would generally make my life and yours more difficult. But invest those tax dollars in better schools, parks, roads, and other public goods, and you end up with... Minnesota.

    Of course, my focus is more on disproving the thesis Emmer is offering, that just by lowering taxes, you'll improve the quality of life and business. Emmer is making an affirmative claim (the same bushwa the SD-GOP makes to defend their shoody management of our state) but has no evidence to back it up.

  4. Michael Black8/13/2010 12:01 PM

    My friend Barry Smith once asked me, "Can you be 10% more efficient at your job?"

    Gov't needs to be more effective using the dollars that they already have instead of always searching for more ways to tax its citizens.

    Isn't technology supposed to give us increased efficiencies?

  5. All the studies that purport to show South Dakota's favorable business climate are anchored on two factors: low taxes and cheap labor. They never acknowledge the fact that, while companies look at tax rates, they look at them in light of what kind of infrastructure those taxes buy, and they look at the quality of the labor force.

    While the claim that Minnesota is losing jobs to South Dakota is without foundation, we have huge statistics showing that we lose talent to Minnesota as people look for good jobs. The Twin Cities and Denver are major destinations for the people we graduate from college. The flow of those factors that make a vital business economy goes out of South Dakota, not into it.

    The data is huge and compelling. Good workers and good companies simply do not want to be in a state where the primary values are cheap taxes and cheap labor.

  6. Cory, I think that the formula is far more complicated than simply a matter of tax levels and cost of living.

    South Dakota lacks one big thing that Minnesota has, taxes or no, high cost of living or low: The Twin Cities!

    Texas offers an example of a low-tax, tech-sector powerhouse. It has Dallas/Ft. Worth, Austin, and Houston. Washington State has no income tax, yet it has the Seattle area for high-tech. Florida has no income tax, and while their high-tech prowess can be debated, one cannot for a moment deny that Miami is a vibrant place, in large measure because of Hispanic immigrants from Cuba (but that's fuel for another conflagration!).

    California has the Bay Area and Orange County. Massachusetts has Boston (my nephew is going to Harvard grad school this fall to study science history). They're heavily taxed places, but at the same time offer high-tech power and promise, and lots of people would love to live in any of them (including part of me).

    Big cities like the foregoing attract vital, creative minds in a way that rural places such as South Dakota simply cannot, and could never, unless someone got it into their head to put a two-million-resident megalopolis right about where Vermillion sits today ... but I ain't gonna hold my breath for that.

    Meanwhile, I'll enjoy the low crime rates, relatively low population density, low cost of living, general thrift and honesty of the people and the high-tech promise of this state (note the Sanford Laboratory) as a good place to live, and a great place to bring up children (even though I'll never have any).

  7. I'll definitely agree, Stan, that the formula is more complex than that. It certainly is for most workers: I don't know anyone who, facing a move, did nothing more than the math I did for this post and said, "Pack up the kids, honey! We're moving to the Promised Land!" But I will challenge the Republicans who try to use that overly simplistic formula as their justification for constantly shorting education funding and teacher salaries.


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