More than a decade ago we asked if the state’s economic development strategy worked, what state would you want Michigan to look like?

Our answer was Minnesota. At the time the most prosperous state in the Great Lakes. And cold weather and non coastal so that mirroring their economy seemed realistic for Michigan.

As the murder of George Floyd made clear, the City of Minneapolis (and almost certainly the region and state) are not a model when it comes to policing and racial equity. Being a high-prosperity state, one with a broad middle class, does not guarantee an economy that provides equal opportunity to all or that benefits all.

More than a decade later Minnesota remains a high personal income state. As well as a high employment rate, high education attainment, and low poverty rate state. Far better on all these measures than Michigan.

The 2020 Census results reveal Minnesota also is the Great Lakes leader in population growth, growing this last decade by 7.6 percent, compare to 2.0 percent in Michigan.

That population growth largely occurred in metro Minneapolis. Metro Minneapolis grew by 10.7 percent, accounting for 88 percent of the state’s population growth. And the Twin Cities were big growers too: Minneapolis up 12.4 percent, St. Paul 9.3 percent.

And some of that population growth came from people moving into the region. The region’s Metropolitan Council estimates that “the region gained 116,000 residents from migration during the 2010s, compared with a net loss of -26,000 during the 2000s. (These numbers include both international and domestic movers.)”

In Michigan metro Grand Rapids and metro Detroit also accounted for almost all of the state’s population growth. But lagged metro Minneapolis’ growth. Metro Grand Rapids grew 9.5 percent, the city grew 5.8 percent. Metro Detroit grew 2.2 percent. The City of Detroit saw it population decline by 11.7 percent.

Minnesota’s population growth demonstrates that much of what passes for conventional wisdom when it comes to where people are choosing to live post pandemic is not accurate. So much for the conventional wisdom that people are fleeing cold weather places. So much for the conventional wisdom that people are fleeing high density places––particularly big cities. So much for conventional wisdom that people are fleeing high tax places.

Minnesota, of course, has been pursuing a much different economic development strategy than Michigan for decades. While we focused on being a low-tax, low-cost state, Minnesota has focused on making public investments in education from birth through college and creating high quality of living communities. Minnesota’s policymakers understood that this is an economy where talent attracts capital. So that preparing, retaining and attracting talent is economic development priority #1.

It is hard to look at the data and not conclude than Minnesota’s strategy has worked, while Michigan’s has not.

We have documented Minnesota’s economic development strategy in a case study written for us by Rick Haglund entitled State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help It Achieve The Best Economy Among the Great Lakes States.

Because, as the Census data demonstrates, so much of a state’s economic success is driven by their big metro(s), we also asked Rick to write a case study of the economic development strategy of metro Minneapolis. It is entitled Regional Collaboration Matters: How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States.

The Census data makes a strong case for a second look at both those case studies. It should be clear that it is far past time for Michigan to put in place a new economic development strategy. Just as a decade ago, Minnesota offers the state, and metro Minneapolis offers our regions, a model for what that strategy should look like.

The post Minnesota led the Great Lakes in population growth appeared first on Michigan Future Inc..

Dug Song, co-founder and general manager of Duo Security, in an interview with Crain’s Detroit Business, makes the case for higher Michigan taxes. Higher Michigan taxes to invest in education and transit. The two assets that Song believes Michigan needs most to be competitive for companies like his.

Crain’s writes:

Top of mind for the 44-year-old entrepreneur: the state’s struggling K-12
education system, the region’s lack of integrated mass transit and a
culture that he says inhibits a more robust startup community in the
metro Detroit area and the broader state.

Song is on record about his support of higher taxes to pay for some of
these items.

He points to Minnesota as a state that he believes gets it right when it
comes to funding education and infrastructure, while still being a
friendly state for big business.

“And yes, that takes taxes. And you know what? None of those Fortune
100 [Minnesota] headquartered businesses care,” Song said. “They love
it, right, because it’s great if you’re trying to hire people with families. It’s a huge opportunity. I mean, Minneapolis is an amazing city, right? We
just need to take care of our physical environment and take care of our
people and we’ll be good.”

Like Song, we at Michigan Future have long argued that Minnesota and metro Minneapolis provide the economic playbook Michigan should be using. Why? Because they are the Great Lakes best on all economic well being measures.

As Song notes, at the core of the Minnesota and metro Minneapolis playbooks is investing in and paying for education from birth through college and in creating places where people want to live and work: providing 21st Century infrastructure; quality basic services; and amenities.

This is the basic message that Amazon delivered in their HQ2 location search. Talent and transit matter most. (As we explored in a blog entitled No talent, no transit, no Amazon.)

Like Amazon, Song is someone we need to be learning from about what it means for a state and region to be competitive. He is making decisions about where to locate high-wage jobs. In his Crain’s interview he reveals that Duo Security, although an Ann Arbor started and based enterprise, is now expanding most in Austin Texas.

Part of the reason for Austin, not Ann Arbor, is the anti-growth mentality of Ann Arbor policymakers.

The challenge with Ann Arbor, Song said, is a dearth of commercial office space and a governing mentality that the entrepreneur views as adverse to growth.

“Yes, we could have found more space in Ann Arbor, but Ann Arbor is not a city built for growth, and right now it’s dominated by the City Council that doesn’t understand how to do that right,” Song told Crain’s in an interview late last month.

“It’s a problem, and so we decided to move down to Austin just because they are building up. They’ve got room, they have a startup community to draw from. It’s been great.”

But the larger problem, as Song lays out in the Crain’s article, is a state and region that don’t understand that this is a talent-driven economy. That talent attracts capital, not the other way around. So the places that are creating, retaining and attracting high-wage jobs are those that have made preparing, retaining and attracting talent the core of their economic development strategy.

It is far past time for Ann Arbor, metro Detroit and the state of Michigan to learn the lessons of Amazon HQ2 and Duo Security.

The post The competitiveness case for higher Michigan taxes appeared first on Michigan Future Inc..

Examining the growth of income over the past century, we find growth was broadly shared from 1945 to 1973 and highly unequal from 1973 to 2007, with the latter pattern persisting in the recovery from the Great Recession since 2009:

• Faster income growth for the bottom 99 percent of families between 1945 and 1973 meant that the top 1 percent captured just 4.9 percent of all income growth over that period.
• The pattern in the distribution of income growth reversed itself from 1973 to 2007, with over half (58.7 percent) of all income growth concentrated in the hands of the top 1 percent of families.
• So far during the recovery from the Great Recession, the top 1 percent of families have captured 41.8 percent of all income growth.

More evidence that the preeminent economic challenge of our generation is finding ways to combat the Great Decoupling. Where economic gains are increasingly concentrating at the top. We structurally have an economy where way too many households are not sharing in the benefits of a growing economy. It’s why we have proposed that a rising household income for all be the mission of state economic policy. We need to stop assuming that a low unemployment rate or growing economy/strong domestic auto industry leads to an economy benefiting all. It doesn’t.

In this post I want to focus on the report’s state and metropolitan area data, specifically for Michigan and Minnesota and metro Detroit, Grand Rapids and Minneapolis. The income data in the report comes from tax returns. So it is a different definition of income that you get from per capita income or median household income. The big differences are that the IRS income data include capital gains and does not include government transfer payments or employer paid benefits. The IRS income data is probably far closer to what each of us think of as our annual income.

Turns out using this definition of income the gap between the average household in the 99 percent in Minnesota and Michigan is huge. And that is particularly true between the three big metros.

The average income for bottom 99 percent taxpayers in the U.S. is $50,107. In Michigan it’s $42,825. In Minnesota it’s $56,728. Michigan’s average household income is 15 percent below the national average, Minnesota’s is 13 percent above. And Minnesota’s bottom 99 percent since the end of the Great Recession have enjoyed greater income growth. Average real income is up 16.4% from 2009-2015 in Minnesota compared to 14.1% in Michigan and 10.3% percent nationally.

Metro Detroit’s average household income using IRS data is $47,344; metro Grand Rapids’s is $47,150; metro Minneapolis is $65,792. The big difference between Michigan and Minnesota is the difference in prosperity between the big metros in the two states. This is true nationally because big metros are where American’s mass middle class is concentrated. The average bottom 99 percent metro Minneapolis household in 2015 had roughly $19,000 more income than a similar household in both metro Detroit and metro Grand Rapids. Metro Minneapolis’ average household income is 31 percent above the national average and 39 percent above both metro Detroit’s and metro Grand Rapids’.

In our Minnesota case study State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help It Achieve The Best Economy Among the Great Lakes States and in our metro Minneapolis case study Regional Collaboration Matters: How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States we detail the state and regional policies that have made Minnesota and metro Minneapolis the most prosperous in the Great Lakes.

At the core it is an understanding that human capital is the asset that matters most to economic well being, not being the low tax/low cost place to do business. So that preparing, retaining and attracting talent is what matters most to economic success. And that requires public investments in education and infrastructure as well as quality basic services and amenities. Minnesota has been on this path for decades. Michigan has chosen for decades the low tax/low cost strategy. These data are more evidence that it is time for Michigan to change strategy.

The post The 99 percent in Michigan and Minnesota appeared first on Michigan Future Inc..

But the Itasca Project serving Minnesota’s Twin Cities is different from just about any such organization in the country. This group of more than 60 corporate chief executive officers and community leaders spend little time on traditional business concerns, such as tax rates and government regulations.

Instead, Itasca takes on more controversial and complex issues, such as how to bring more minorities—the Twin Cities are home to Hmong, Somali, Cambodian and other minority populations—into the economic mainstream.

“Our overall mission is to raise economic competitiveness, improve the quality of life and expand prosperity for everyone,” said Justin Freiberg, a McKinsey & Co. executive who manages the Itasca Project.

Itasca operates as a virtual organization with no physical presence or staff. It receives operational and research support from McKinsey, one of the top management-consulting firms in the world, and outside financial support from several local foundations.

The group’s ground-level work is conducted in weekly Friday morning meetings by about a dozen CEOs who “go deep” to understand problems, and propose solutions, Freiberg said.

Itasca operates largely behind the scenes, but exercises an outsize influence. Its members aren’t afraid to push for a tax increase to pay for improved infrastructure that makes Minneapolis-St. Paul, already considered one of the most vibrant metropolitan areas in country, even better.

It did just that in 2008 after then-Gov. Tim Pawlenty vetoed a tax hike to fund road repair and public transportation. Itasca’s business leaders called Republican legislators and convinced them to vote with Democrats in overriding the Republican governor’s veto.

Itasca also conducted a study in 2012 that found 70 percent of Minnesota’s jobs by 2018 will require education beyond high school and used the study to push lawmakers to increase higher education funding.

The organization describes itself as a business-executive-led group that demands consideration for  “all other perspectives” and takes a long-term view, “peering decades into the future rather than just the next legislative session.” It prioritizes “regional vitality over business self-interest” and is willing to “take on issues that are inherently difficult to resolve.”

The Itasca Project was created in 2003 in response to a growing worry by business leaders that the region was losing its economic vitality. Minnesota’s share of initial public offerings and venture capital was slipping, as was its reputation for being a strong research-and-development hub.

An attempt by then-University of Minnesota President Mark Yudof to create an organization of more than 1,200 community leaders to address those and other problems failed. Participants “barely agreed on the shape of the table let alone a path to revitalize our competitiveness,” according to an Itasca history.

Rip Rapson, then the president of the McKnight Foundation (he’s now the president of the Kresge Foundation in Troy), convened a breakfast meeting of a small group of business leaders “who by now were convinced that something had to be done,” according to the history.

What emerged was Itasca, which takes its name from the Minnesota state park where the region’s business leaders gathered in the 1950s and 1960s to discuss economic issues.

Today the organization is focused mostly on talent and transit issues. Business leaders in metro Minneapolis have been strong proponents of light rail, viewing it as a crucial element in meeting the transportation needs of workers and as well as economic development.

And they believe the region needs to close racial and economic disparity gaps for the metro area to continue to thrive.

“We’re a historically white state that’s growing slowly,” Freiberg said. “We have pools of potential talent we’re not fully utilizing. And there are systemic barriers excluding that talent.”

An Itasca task force brought together private sector and nonprofit leaders to identify specific, short-term steps employers can take to close employment gaps between whites and people of color. Itasca and the Wilder Foundation also are working with about 100 CEOs and senior corporate leaders to help them develop more diverse, inclusive workforces.

Population projections for the Twin Cities region show that the white working age population will decline over the next 20 years. All of the growth will come from people of color. Metro Detroit is facing a similar trend.

The Itasca Project is built on the belief that for metro Minneapolis to remain vibrant, its economy must work for everyone. That’s a mindset Michigan leaders must adopt.

Check our new report, Regional Collaboration Matters, How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States, for more stories and lessons from the most successful state in the Great Lakes.

The post Metro Minneapolis business leaders promote an economy that works for everyone appeared first on Michigan Future Inc..

But regional collaboration is on steroids in Minnesota’s Twin Cities, where a unique entity called the Metropolitan Council provides key services, including transit and wastewater treatment, for the seven-county metro area.

Another innovative regional program in metro Minneapolis, known as Fiscal Disparities, captures 40 percent of the annual increase in commercial, industrial and public utility tax bases in the region, and distributes it to nearly 200 taxing entities in the region.

The Met Council, as it’s known locally, and Fiscal Disparities are seen as national models of regional cooperation and key elements in making metro Minneapolis one of the most livable regions of the country.

Studies have shown that the Met Council has generally delivered services more efficiently and at a lower cost than local communities could do it on their own. And it has been a key driver in developing the metro area’s highly regarded public transit and regional park systems.

Fiscal Disparities is credited with reducing competition among local governments for development, helping less wealthy communities provide quality government services and allowing for better land-use planning.

“The program ensures that all residents enjoy a minimum standard of service for important local services, like public safety,” University of Minnesota professors Myron Orfield and Nicholas Wallace wrote in a 2007 study of Fiscal Disparities.

“By reducing the need for local governments to ‘steal’ revenue-generating land uses from each other, such policies allow them to engage in more thoughtful and beneficial land-use planning,” Orfield and Wallace wrote.

Regional planning agencies similar to the Met Council popped up across the country in the 1960s in response to the federal government’s requirement that planning be done on a regional basis in order to receive federal highway money.

But Minnesota political leaders decided to give the Met Council extraordinary powers in response to a critical need for better transit, improved wastewater treatment facilities and rapid growth that was gobbling up pristine natural areas many wanted to see preserved as parks and open space.

In 1967, Republican Gov. Harold LeVander signed legislation passed by the Republican-controlled Minnesota Legislature creating the Met Council.

In appointing the council’s first members, LeVander said the Met Council “was conceived with the idea that we will be faced with more and more problems that will pay no heed to the boundary lines which mark the end of one community in this metropolitan area and the beginning of another.”

The Met Council’s has 18 members, all appointed by the governor. None can be local elected government officials, an arrangement designed to head off parochial battles among local governments.

Over time, the Met Council took on responsibility for operating the regional sewer and transit systems, and administering federal low-income housing vouchers. It also has purchased tens of millions of dollars worth of parkland and open spaces for a regional park system, created in 1974, that now includes 53 parks and 340 miles of interconnected trails.

Fiscal Disparities grew out of concerns in the 1960s about widening disparities in local tax bases among various municipalities in the metro Minneapolis area.

A 1969 report by the Citizens League, entitled “Breaking the Tyranny of the Local Property Tax,” concluded that communities were paying widely different tax rates for a similar level of services. It also found that a growing number of communities with low tax bases were struggling to fund those services.

In response, the state Legislature in 1971 passed the Charles R. Weaver Metropolitan Revenue Distribution Act, named for a suburban Republican Minneapolis lawmaker who authored the law. It’s now known simply as Fiscal Disparities.

While Fiscal Disparities hasn’t eliminated the gap between communities with the highest and lowest commercial and industrial tax base, the program has greatly narrowed it.

In 2016, there was a 5-to-1 ratio between communities with the most and least commercial and industrial tax base per person. Without Fiscal Disparities, that ratio would have been 12 to 1, according to the Met Council.

“For the vast majority of  (metro Minneapolis communities), the sharing program has meant lower taxes and better services,” Bruce Katz and Elizabeth Kneebone of the Brookings Institution wrote in 2015.

Orfield, who has extensively studied Fiscal Disparities, acknowledged that regional cooperation “is not an easy proposition. But if a region is faced with growing educational and economic disparity, there are two viable options: either allow the disparity to deepen, or work to find solutions that can benefit all.”

Check our new report, Regional Collaboration Matters, How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States, for more stories and lessons from the most successful state in the Great Lakes.

The post In Minneapolis, strong regional collaboration is key to success appeared first on Michigan Future Inc..

The lesson from the Gateway job contraction is that even in South Dakota, the state with the lowest state and local tax collections per capita in the nation, the Gateway factory couldn’t survive. Ditto Tennessee. When Americans, no matter how “skilled” they may be in factory work, have to compete against $4 an hour labor overseas, they lose the competition. End of story.

This means any state seeking to compete for factory jobs as the basis of its economy is doomed to failure. Sure, some factories may survive and hire. But they will pay less and less – GM is trying to drive down the $13 an hour pay for new workers at its battery factories – and every year, productivity gains will almost guarantee there are fewer of the jobs at almost any plant.

Yet, that’s exactly the strategy every one of the gubernatorial candidates is following. All are saying we need to cut taxes and reduce state services to attract more jobs – factory jobs, primarily. But it has been proven time and time again, cuts in services like mass transit, higher education, police protection, museums and the like, drive away young talent needed to attract knowledge industry jobs.

Right next door to South Dakota is Minnesota. Minnesota has attracted a lot of college grads (highest percentage in the Midwest) and thus has the lowest unemployment and the highest per capita income in the Midwest — and relatively high tax burden. South Dakota has relatively few college grads, and much lower per cap income.

If Michigan follows the low-tax, low-service strategy, it will get low-tax, low-service results…a few low-paying factory jobs may come, but they will be at the expense of public policies that attract young talent, and our economy will never return to prosperity.

The post The Gateway Lesson We Need to Learn appeared first on Michigan Future Inc..

No one asked that question for the past century when we paid special attention to high paid factory workers. And for more than a century as we continue to pay special attention to farmers. We did both because we thought their success enriched us all.

Today the role that high paid factory workers played for the past century is now being played by mobile talent. Young professionals will do fine wherever they go. But if they choose not to live and work in Michigan its the rest of us who are the losers. Because, to quote Forbes publisher Rick Karlgaard, “where they go, robust economic activity will follow”.

So the overly simplistic answer to why pay special attention to young professionals is: its the economy stupid! We close all our presentation with the tag line: either we get younger and better educated or we get poorer.

Michigan’s demographic trends are that we are aging far quicker than the country and that we are stuck in the mid thirties in college attainment. In a knowledge-based economy, that is a recipe for being one of the poorest states in the nation. An important reason – and the most promising way to reverse those trends – is we have not created the kind of places where our college educated kids and grand kids – and their peers from across the planet – want to live and work.

Some facts from our Young Talent in the Great Lakes report make crystal clear the magnitude of the challenge. Metro Detroit and Grand Rapids have fifty percent fewer young professional households than metro Chicago and Minneapolis. That is a 35,000 household gap in metro GR and a 140,000 in metro Detroit. Its hard to imagine any other demographic group with that kind of disparity.

Why do metro Chicago and Minneapolis matter? They are the most prosperous regions in the Great Lakes. With per capita incomes roughly twelve percent higher than metro Detroit and twenty five percent higher than metro GR. And the major reason for that gap: the proportion of adults with a four year degree. Its by far the single best predictor of prosperity.

The maps in the report dramatically depict why vibrant central cities matter. Young professionals – the most mobile of all demographic groups – before they have kids are increasingly concentrating in central city neighborhoods that are high density, mixed use and walkable. When they have kids they move to the suburbs. But because mobility declines dramatically as you get into your thirties and have kids, its the suburbs of the city they live in, not Michigan’s, where most will raise their kids.

The numbers: in the City of Chicago there are 226,000 young professional households; 43,000 in Minneapolis and St. Paul combined; in Detroit 15,000 and in Grand Rapids its 10,000.

So young professionals are the group we are having the most difficulty getting to live here and they are the most important to future economic success. That is the reason to make them a priority. Somehow we have failed to understand what seems like common sense, that if we don’t create a place where our own college educated kids want to live, we will not have a vibrant economy in the future. Its that simple!

The post Why Young Talent? appeared first on Michigan Future Inc..