North Dakota, South Dakota on Minnesota's business-climate radar

ST. PAUL - More than 5 million people live in Minnesota, 673,000 in North Dakota and 814,000 in South Dakota.

Minnesota state government spends about $30 billion a year, North Dakota $4.5 billion and South Dakota $4 billion.

Twenty-one of the country's 500 largest businesses call Minnesota home, North Dakota hosts one and South Dakota has none.

It is easy to see who the Goliath is here.

Or is it?

Republicans who took control of the Minnesota Legislature this month appear afraid of the dual Davids of North Dakota and South Dakota, repeatedly warning that if Minnesota laws are not changed, the state will lose firms to its western neighbors.

"You may not be able to quantify the numbers, but the reality is it is happening," said Rep. Dan Fabian, R-Roseau, in office three weeks and author of House File 1, a bill Republicans put on the fast track to speed the state's permitting processes so businesses can expand quicker.

No one keeps track of how many businesses are moving west, or to any other state for that matter. But so far in the young legislative session, the main thrust has been to help Minnesota businesses, with an eye toward keeping them in the state, helping them expand and attracting new ones.

House Speaker Kurt Zellers - a Devils Lake, N.D., native - often mentions that one reason Republicans push pro-business bills is that North Dakota and South Dakota offer better business tax climates and other incentives to move there. He and others in the GOP say they want to counter the Dakotas by lowering business taxes, streamlining regulations and giving firms speedy permits.

The Washington, D.C.-based Tax Foundation confirms Republican tax claims. It annually looks at how states tax businesses, and the latest rankings show Minnesota in 43rd place. South Dakota has the best business tax climate, the Tax Foundation says, with North Dakota No. 20. Minnesota's other two neighbors, Iowa and Wisconsin, rank close to its position.

South Dakota and North Dakota economic deployment leaders said their states do things much like Minnesota Republicans want in Minnesota, such as giving businesses a stable environment.

Business-related policies, such as taxes, are vital, said Bryan Hisel, executive director of the Mitchell (S.D.) Area Development Corp.

"If you are constantly changing policies and taxes ... that instability causes a lot of problems," said Hisel, who after 30 years in the business is widely accepted as a South Dakota economic leader.

Words coming out of Director Paul Lucy of North Dakota's economic development office sound a lot like what Minnesota Republicans and business leaders say.

"They have some level of certainly regarding their future tax liability," Lucy said of businesses.

As one of three states without budget deficits, North Dakota can afford tax cuts thanks to a rapidly expanding oil industry that pumps millions of dollars into the state's treasury.

While Lucy can boast a good economy and strong state budget, he cannot boast that his state has attracted a lot of businesses from its eastern neighbor. He guessed that North Dakota averages fewer than two takeaways a year.

Minnesotans know of one major North Dakota victory: Warroad-based Marvin Windows and Doors has opened North Dakota plants in Fargo, West Fargo and Grafton.

"The regulatory and tax climate in North Dakota ... tend to be more friendly toward the business," said Marvin's John Kirchner, explaining why the firm expanded to North Dakota.

Also, Kirchner said, it takes too long to get state permits, delaying expansion plans.

While pledging that "we are not going to walk away from Minnesota" and saying Warroad will remain Marvin's home and its biggest factory, North Dakota is a good location for company manufacturing plants, he said.

South Dakota has aggressively sought new businesses, advertising on Minnesota broadcast stations and billboards and operating a website that provides an instant comparison that does not make Minnesota look good.

North Dakota's Lucy has some arguments that Minnesota business recruiters cannot make. One is the state-owned Bank of North Dakota, which provides money to funnel through private banks for low-interest business loans.

Lucy and Hisel also can offer prospective businesses something else not always found in Minnesota: personal contact with the state's highest politicians.

"We have unparalleled access to our congressional delegation and our senior (state) elected officials," Hisel said.

While new Minnesota Gov. Mark Dayton promises to "go anywhere, any time" to help recruit businesses, Hisel said that could be difficult because Minnesota's population and government are much more demanding on officials' time.

Fabian said Minnesota needs to make several changes to look better to business.

"There is no one single issue that compels a business to locate," he said.

Where states rank

The Tax Foundation, a Washington, D.C.-based organization, rates Minnesota's business tax climate as the 43rd best in the country. However, South Dakota and North Dakota rate far better for businesses. The index takes into account tax rates such as corporate income, individual income, sales, unemployment and property tax.

1. South Dakota

20. North Dakota

40. Wisconsin

43. Minnesota

45. Iowa

Don Davis works for Forum Communications Co. He can be reached at (651) 290-0707 or ddavis@forumcomm.com