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What does it mean to be 'business friendly'?

Posted at 11:06 AM on February 14, 2008 by Bob Collins (12 Comments)

What does it mean to be "business friendly?" That was the theme of Gov. Tim Pawlenty's State of the State speech yesterday, where he zeroed in on taxes, and sounded many of the same themes he sounded in a speech in Burnsville a few weeks ago when he appeared to suggest it means (among other things) spending less on health care and more on roads and bridges.

Senate ~~Majority~~ Minority Leader Dave Senjem picked up the theme, according to a story from MPR's Tim Pugmire, when he said, "If you expect to have a growing economy in Minnesota, you've got to look and ask why we're 44th in the country in corporate tax rate. What corporation would want to stay here with that kind of a tax rate?"

What corporation, indeed?

Let's look at the record:

Target Corporation - Made $19 billion in profit last year, almost $3 billion more than the year before.

General Mills - $4.4 billion.

U.S. Bancorp - Generated $4+ billion in income.

Xcel Energy - Had a 5.7% profit margin

Thrivent Financial for Lutherans is privately held.

PepsiAmericas Inc. - Made a $1.8 billion profit in 2007, higher than the year before.

The Valspar Corporation - Made a $971 million profit last year, higher than the year before.

Ameriprise Financial - Had a gross profit of $6 billion, higher than the year before.

The Travelers Companies, Inc. - Had a 17% profit margin last year.

3M - Made an $11 billion profit last year, higher than the year before.

Ecolab Inc. - $2.4 billion in profits last year, higher than the year before.

Securian Financial Group Inc. (Minnesota Life) -- Privately held.

Patterson Dental - $969 million profit last year, more than the year before.

Land O'Lakes Inc. - Lists a 1.25% profit margin.

Andersen Corporation -- Is privately held.

The Toro Company - No information available.

Donaldson Company Inc. - 18 consecutive years of earnings growth, the company says. $604 million profit last year, higher than the year before.

Holiday Companies - No information available

Thermo King Corporation - No information available.

Northwest Airlines - A $3.2 billion profit reported in 2007

Nash Finch Company - A $401 million profit in 2007, less than a year ago.

Other corporate headquarters here include:

Alliant Techsystems Inc.
Regis Corporation
Supervalu
C.H. Robinson Worldwide Inc.
Medtronic Inc.
General Mills
Pentair Inc.
CHS Inc.
St. Jude Medical Inc.
Polaris Industries Inc.
Cargill
UnitedHealth Group
Carlson Companies, Inc.
Petters Group Worldwide
Michael Foods
Imation
Best Buy
Deluxe Corporation

Those are the biggest companies, and the biggest employers, in Minnesota. The profits reported here are pre-tax. Most of the companies are reporting record profits. Many of the companies are doing so well, in fact, that they're able to pay their top executives millions in salaries and bonuses.

Senjem appeared to be citing the Tax Foundation's corporate tax index. But the Foundation's overall tax ranking for business puts the state at #42.

But let's look, not at the corporations who have stayed, but those who have left.

When Norwest Bank took over Wells Fargo, much of the operation headed west. California's ranking is 47th. When Allied Signal bought Honeywell, the headquarters moved to New Jersey, a state that is ranked 49th.

Now, it's clear Minnesota is about to lose Northwest Airlines to Georgia. But that has little to do with the corporate tax situation in Georgia (ranked 36th, just 8 spots higher than Minnesota).

In the last few years, some corporate headquarters have moved here. Xcel Energy, formed by the merger of Northern States Power and another company, for example, left a state -- Colorado -- that was ranked 13th.

Bemis Corporation moved to Neenah, Wisconsin, but that seems to have more to do with the fact the company execs live in Neenah.

As the debate unfolds, it might not be a bad idea to press the politicians for specifics when invoking the needs of business and the specific benefits to the state. How much help do Minnesota's corporations need?

Comments (12)

I thought about this a bit after hearing the story last night. Corporations choose where to locate primarily on proximity to workforce, resources and markets. For many modern businesses, particularly if their client base is global in nature, the latter two start to dwindle in significance. That leaves workforce.

Given the list of companies that exist here (as Bob helpfully lists), most of which have been headquartered here for a long time, and the MN tax rate has historically been higher than elsewhere in the country, it seems that perhaps they're headquartered here for reasons other than the tax rate.

Perhaps they're here because we've historically had a better educated workforce than most of the country. It seems to me that focusing on an educated workforce has the potential to both attract business investment AND raise the standard of living for plain old average everyday Minnesotans. Why don't the legislature and governor focus on that?

Posted by bsimon | February 14, 2008 2:05 PM

Let's talk about that. Why do corporations locate where they locate?

Let's take Dave Senjem's theory that the key is the corporate tax rate.

The #1 location, then, according to the Tax Foundation... is Wyoming.

This would be followed by South Dakota, Nevada, Alaska, Florida and Montana.

Even with South Dakota's well-documented ability to get financial services firms to locate there, there's no real "there there". Alaska? Second highest unemployment rate in the country.

Posted by Bob Collins | February 14, 2008 2:23 PM

What do businesses need? bsimon is right about the workforce. What has Pawlenty done to build the workforce - he has not focused on schools both secondary and post secondary have gotten the short end of the funding deal. Stories indicate the U will be charging of $10K in tuition for the first time next year.

The colleges have been challenged to reform over the past several years and each has done so. Its time now to study the funding. Secondary schools have not reformed at all (with the except of a few like St. Paul). Why do we need as many school districts as we have? No reason anymore. As is mentioned in the above posts communication is not the issue like it may have been when the districts were set.

Why not develop 7 to 8 districts in the state (serving similar geographic areas), which can then work with the post secondary schools to develop curriculum so the students flow more seemlessly from secondary schools.

I am not suggesting that school buildings should be closed or consolidated, I am talking about central administration functions that could go away thus sending those positions back to teaching students and reducing the teacher student ratio.

It could also allow for more specialty type magnet schools since the interests could cover a broader area of the population.

After that lets start looking at other artificial units of government, especially counties. Minnesota has 87 and Arizona has 6. I am not suggesting 6, but maybe we could pick a number halfway in between. Think of the buying power both the school and county situation would present. Instead of bidding for 3 sheriffs cars a larger county may be asking for bids on 20 or 25.

A school district could be asking for bids on 15 to 20 times the number of textbooks. Lets start getting innovative in government like we have been innovative industry here in Minnesota.

Posted by Al Anderson | February 14, 2008 2:45 PM

According to a report I heard recently on MPR, Cargill profits were up 44 percent for the last Quarter reported, credited to increasing prices of commodities (grain) related to ethanol demand. Cargill is building new offices in Hopkins, so that's a good indicator they're not planning to move elsewhere, though as a worldwide entity, it seems they could choose to go just about anywhere.

The 'top states' like Wyoming and South Dakota have to have low tax rates for corporations in order to attract any, since they have less resources, markets, and workforce than a more 'populous' state like MN.

Yes, I agree the leaders should concentrate on the education for the upcoming workforce, and the corporations can take care of themselves.

Posted by Nancy | February 15, 2008 3:40 AM

Why look at the top of the food chain? Why not the bottom?

How are little corporations faring under our tax burden? You know the ones who have to compete with the big-guys, China, and firms from South Dakota?

Posted by GregS | February 15, 2008 8:03 AM

Why look at the top of the food chain? Because that's the claim Sen. Senjem was making in wondering why companies would keep their corporate headquarters here. And the state's unemployment rate was cited as attributable to the state "unfriendliness" toward business., and that would be most reflected in the state's biggest employers, not the smallest ones.

One small corporations do you have in mind, Greg? We can take a look at their numbers.

But, on the whole, if a politician says ABC exists, it should be provable by the numbers.

If there IS a relationship between low corporate taxes and the willingness of corporations to move there, where EXACTLY is the proof of that.

If the assertion is that Minnesota corporations are leaving for the most "business friendly" states, where is the proof of THAT?

I'm not asking for much, I'm just asking for a politician to prove it if he's going to use a situation as the basis for public policy.

Posted by Bob Collins | February 15, 2008 8:38 AM

"If there IS a relationship between low corporate taxes and the willingness of corporations to move there, where EXACTLY is the proof of that."

Absence of taxes gives South Dakota businesses an edge-South Dakota's favorable business climate is luring dozens of companies from neighboring states.

And while Iowa and Minnesota offer incentives to draw and retain businesses, they don't have South Dakota's not-so-secret weapon: the absence of a corporate or personal income tax.
By: Jay Kirshenmann Sioux Falls Argus Leader

Fleeing their higher-cost home state, more than 20 businesses from Minnesota alone have set up shop in South Dakota since 2000. Dozens more from other states either have relocated or expanded into South Dakota in recent years.

"In Minnesota, I think they feel that 'profit' is a dirty word," said Jim Lampy, president of American Concrete Products. He moved his entire operation from Fergus Falls, Minn., to Rapid City two years ago. "I love the business climate here."

An Iowa company, AmeriPharm, a subsidiary of Vet Pharm Inc. of Sioux Center, opened this week in Sioux Falls. It fills prescriptions by mail and serves as an information provider for maintenance drug recipients.

For years, companies have made similar moves, and references to home echo in their names: Twin City Fan, Minnesota Rubber, Luverne Fire Apparatus and 3M (Minnesota Mining & Manufacturing).

The border battle is heating up as a new biotechnical industry develops in the region.

Iowa, home to Trans Ova Genetics in Sioux Center, is offering incentives to keep the biotech company's business as it plans for significant growth.

Trans Ova is looking for a location to build an animal biotechnology center, which could cost up to $100 million. David Faber, president and co-founder of the company, said it's too early to tell which state will be home to the new center.

continued....

Posted by GregS | February 15, 2008 11:13 AM

South Dakota's ability to attract business is well documented (and was mentioned in the original post).

I note a Jason DAvis piece on Luverne the other day. It's a JobZ zone, and yet they still lost business across the border. Was it because of taxes? If it was, the JobZ should've kept them there.

Instead, they were chasing population.

To hear politicians talk, the state makes no concessions to business. You'll note, of course, that the entire property tax structure was changed here a few years ago to give businesses a break. JobZ gives businesses a break. TIF districts give businesses a break.

So, again, where's the evidence that Sen. Senjem has to ask his rhetorical question?

We should be asking these questions rather than seeking to embrace a dogma that we desperately want to be true to enhance one's political standing.

There's one question that all businesses should be asked, "Why are you here?"

And it shouldn't be rhetorical.

Posted by Bob Collins | February 15, 2008 12:11 PM

Senjem is minority leader not Majority - and the MN Senate now has a Veto overriding Majority. After the 2008 elections The MN House will have the same and we won't have to listen to Tpaw's threats anymore. Enough with the veto happy executive branch already!

Posted by Perpich | February 15, 2008 12:58 PM

"To hear politicians talk" That statement speaks for itself.

On the other hand, all too often when people speak of "corporations" they are thinking big, with wide profit margins. They are rarely thinking of that odd little building at the end of the block.

Posted by GregS | February 15, 2008 12:58 PM

Of course, there are corporations large and small as you point out.

I'm thinking of one woman who runs a tire shop in LuVerne. She stayed when everyone headed to Sioux Falls and now she's added on and added on.

"If I'm paying taxes, I'm making money," she said to Jason Davis.

Greg, I think your point is a valid one. And put me down as a guy who would rather see people in business than out of business. But if we're going to re-examine the entire tax structure at the Capitol this session. Wouldn't be a good idea to actually get the picture right and make public policy based on an accurate assessment of where we are, rather than -- I think it's safe to say -- overreaching (and inaccurate) proclamations that are little more than campaign slogans to the base?

One of the things I want to do here over the next few months is profile a few small businesses. So, small business-owners: if you're out there and you want to tell me what your life is like, I'd be thrilled to pass it along.

Doesn't seem that long ago, does it, that the big complaint around here was businesses couldn't find enough workers.

Posted by Bob Collins | February 15, 2008 6:34 PM

I think the you may be missing the point here, there are many places attracting new businesses while Minnesota seems to be unattractive any new businesses coming here.

The businesses that you have listed have been here forever and many of them like 3M have started outsourcing much of their work to other places.

If Minnesota wants to continue growth I think it would be a smart idea to be a little more competitive. We have a lot of good people here which is really our only upside right now but with continuing tax increases it hurts the workers of this state more than anything.

Posted by Brian | April 15, 2008 7:33 PM

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