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Why Mark Dayton is So Cautious About Pitching Amazon
Gov. Dayton, center, and legislators provided electronics distributor Digi-Key with a $4 million loan to expand and build a $200 million distribution center in Thief River Falls. (Photo by DEED)

Why Mark Dayton is So Cautious About Pitching Amazon

In going after Amazon's HQ2, Dayton has displayed a level of reticence that is at odds with his long history of courting companies to Minnesota.

It would turn any politician’s head: the ability to bring billions of dollars in investments, tens of thousands of new jobs and all kinds of related economic development for constituents. 
 
It certainly got Mark Dayton’s attention back in 1985, when General Motors started a nationwide hunt for the perfect city to build its new manufacturing plant for Saturn, the small car brand that would compete with cheaper imports from around the world. At the time, Dayton was in charge of economic development for Minnesota Gov. Rudy Perpich, and he went to Detroit to make an in-person pitch to the CEO of GM to make the move to Minnesota.
 
More than 30 years later, Dayton is facing a similar situation, this time as governor. Online retail giant Amazon is in the middle of a nationwide search for its second, $5 billion North American headquarters, and the governor and his commissioners are making the case that the company should put it in Minnesota. 
 
Scenarios like this have been a fixture in Dayton’s career, opportunities he’s usually eager to pursue. Over the years, Dayton, the department-store heir who went into politics instead of the family business, has aggressively sought out new businesses or worked hard to retain them as governor. He’s flown cross country and held sometimes-secret meetings with CEOs; created state incentive funds to attract companies; and worked with the owners of the Vikings’ and the Mayo Clinic to secure state subsidies for projects he believed would create thousands of jobs.
 
It’s a focus that has required him to unite with Republicans while — at times — alienating some members of his own party. “It’s part of a package, and it’s also part of a statement to a company,” Dayton said. “We really want you and we really want you to stay and grow in Minnesota and we are willing to provide you with what we can.” 
 
Now, in his final year in office, he’s looking at the biggest possible jobs generator anybody has seen in a long time. Instead of jumping in, though, Dayton is calling for “restraint” in going after Amazon, displaying a level of caution that is uncharacteristic for a politician who has never been all that shy about courting companies.
 

From Saturn to Rochester

In 1978, Dayton was brought in to lead Perpich’s Department of Economic Development after the previous commissioner unexpectedly resigned. He was already serving on Perpich’s staff, but the commissioner job was Dayton’s first major political post. 
 
Perpich was known for his wide-eyed approach to economic development, and Dayton would get plenty of opportunities to work on big projects. He learned a lot in the job, he said, including during the “high-stakes” bid for the Saturn plant.
 
General Motors had been wooed by virtually every major state because it promised to create 20,000 jobs, including 6,000 at a highly automated assembly complex, and thousands more at supplier firms that would locate near the plant.
 
“Governor Perpich came in, in the depths of a serious recession, and his campaign theme was ‘jobs, jobs, jobs,’ ” Dayton said. “He would do anything and go anywhere that would bring economic expansion throughout Minnesota. He really taught me how a governor needs to be proactive and do whatever you can.” 
 
Spring Hill, Tennessee, went on to win the Saturn bid, but Dayton brought the experience of wooing GM with him when he entered the governor’s office in January 2011, on the tail end of another bad recession.
 
On Dayton’s first day in office, there was already a push for the state to team up with the Minnesota Vikings to pass some kind of deal for a new professional football stadium to replace the aging Metrodome. There were threats that the franchise would move elsewhere without a new facility, and Dayton was interested in the thousands of construction jobs the project would create as it was being built, as well as permanent jobs when the facility was completed.
 
Dayton joined forces with the top Republican legislative sponsors to try to pass a bill in the 2012 session, but the proposal got little traction among DFL legislators. By April of that year, the bill seemed dead, so Dayton helped set up a meeting in St. Paul with officials from the NFL to put pressure on local lawmakers. Revived and passed in the final days of session, the bill came with a massive price tag: Of the $1 billion cost to construct the new facility, the state promised to pay about $500 million. 
 
Dayton earned both praise and criticism for his pivotal role in the deal. At the bill signing ceremony, a crowd of fans wearing Vikings jerseys was intermingled with a smaller group of homeless advocates who held signs and chanted “Shame!”
 
A year later, the state was asked to chip in for another major project: The Mayo Clinic’s $5.5 billion plan to revamp downtown Rochester into the Destination Medical Center. Again, Dayton got on board with the project early, fearing in part that the Mayo Clinic had outgrown Rochester. He appointed his then-chief of staff, Tina Smith, to lead the administration’s efforts in striking a deal with the Legislature to move the project forward. That happened, though it came with another big tab: $585 million to cover the infrastructure costs related to Mayo’s expansion over several decades. The rest of the project would be paid for through private investments and by the Mayo Clinic itself.
 
But the Mayo expansion also fits in with another job priority, Dayton said: making Minnesota the stop state in the medical device industry. 
 
It’s all part of a strategy the governor thinks will have an “almost unimaginable” impact on the state’s economy in the future.
 
“We are going to be the Mecca for medical technology and all the high-paying and good-quality jobs that they provide,” Dayton said. “That will be, I believe, in 20 years, seen as the number one economic expansion driver for Minnesota, and we were able to get it started.” 
 

Using incentives to lure new companies

Dayton hasn’t always been reactive, though. During his decades in state politics, he eagerly courted new businesses and created programs to make it easier for the state to do so on short notice. As commissioner of economic development (now the Department of Employment and Economic Development), he created the Minnesota Investment Fund, an account that provides funding for the department if an opportunity crops up to recruit or grow a business, with a focus on manufacturing, technology or industrial sectors. As governor, Dayton also helped start the Minnesota Job Creation Fund, which has a similar goal.
 
Through those funds and other incentives, the state has courted a number of new businesses or expansions during Dayton’s tenure, including a new $60 million Shutterfly distribution center in Shakopee. The city, county and state offered about $3 million in tax incentives, and Dayton was criticized in news reports when he flew out to California to meet with the company’s CEO without disclosing the nature of the meeting in his public events calendar.
 
Under Dayton, Amazon also expanded a fulfillment center in Shakopee, added an Eagan delivery station and opened a technology development office in Minneapolis. Polaris also expanded its operations in Wyoming, Minn. and Plymouth.
 
Dayton’s administration also likes to tout various wins in Greater Minnesota: getting manufacturers like Daikan refrigeration and cooling and Viracon, an architectural glass fabricator, to locate in Owatonna and putting companies like Axis Clinicals in tiny towns like Dilworth. Dayton and legislators provided electronics distributor Digi-Key with a $4 million forgivable loan to expand and build a $200 million distribution center in Thief River Falls. The project, which broke ground last week, is expected to create 1,000 new jobs over the next decade. 
 
“When you think about a $250 or $300 million investment and 1,000 jobs over a decade in Thief River, I’m not sure the last time a project like that happened in Greater Minnesota,” said Kevin McKinnon, deputy commissioner of economic development who has worked with DEED for 12 years. “I know it’s not as large of a head count as something like Amazon, but these things really matter locally.”
 

Amazon wants room to grow — and a lot of help 

In all, Dayton’s office notes that since he took office in January 2011, the state has added more than 287,000 new jobs, replacing all the jobs lost during the recession. The state’s unemployment rate has also dropped from 6.9 percent in 2011 to 3.7 percent in August.
 
Enter Amazon, dangling the prospect of more than 50,000 jobs for a single project. 
 
In early September, the technology giant caused a stir when it announced plans for HQ2, a second national headquarters outside of Seattle. The company described it as a corporate campus that would eventually be home to a startling 50,000 jobs, including many with high-level executive pay. The company wants to locate HQ2 in a metro area with more than 1 million residents, access to a skilled workforce, a large geographical area for a cluster of office buildings and direct access to a major airport and transit. The company also favors “business-friendly” communities.
 
They’ve also asked for incentives or tax breaks from the state and city where they ultimately choose to locate. These big incentive packages have been in the news lately, with Wisconsin Gov. Scott Walker recently approving a $3 billion incentive package for Foxconn, a Taiwanese electronics manufacturer that plans to invest $10 billion in the state and build a factory that could someday employ 13,000 workers. 
 
In Minnesota, though, the prospect of major tax breaks has already earned plenty of criticism from people who liken incentives to corporate welfare, spending state dollars to attract wealthy corporations that can afford to pay their own way, with money that could be better spent elsewhere. Dayton was pictured in the satire publication “The Onion” alongside a headline that read: “States Now Offering Millions In Tax Breaks To Any Person Who Says ‘High-Tech Jobs.’ ”
 
“We should not and need not offer tax breaks to huge corporations that give them further advantages over Main Street businesses,” state Rep. Tina Liebling, DFL-Rochester, said in a statement after Dayton announced plans to pursue Amazon. 
 
Liebling is part of a six-person DFL field vying to replace Dayton when he leaves office in 2019. “Governor Dayton has done many good things for Minnesota,” she said. “But this situation demonstrates the need to elect a true progressive to follow him and continue a more toward prosperity for all, not special breaks for huge corporations like Amazon.”
 
Dayton has pushed back on the criticism.
 
“It’s a nice intellectual debate usually conducted by people who have jobs, usually secure ones,” he said. “In the real world every other state is involved in this, it’s competition. It’s like business, and the benefits far exceed the cost.” 
 

A ‘pragmatic’ approach

Dayton said his administration will certainly court Amazon, touting Minnesota’s highly skilled workforce, educated citizens and major airport. But this time, he wants to offer a “restrained” package of incentives to Amazon, a bit of circumspection that could hurt the state’s overall chances in winning the bid.
 
It’s also not necessarily how the governor has operated in the past. So why the sudden restraint?  
 
Dayton says it’s because Amazon’s pitch is different from others he’s sought, particularly because Minnesota is already home to 17 Fortune 500 companies, including Best Buy and Target. Together, those two companies employ 34,000 people in Minnesota, and Dayton said it’s not appropriate to offer massive tax breaks for a new employer that haven’t necessarily been offered to companies already here, especially when those companies are competitors.
 
He called the CEOs of Target and Best Buy personally to talk about the possibility of Amazon moving here and made sure they knew they were “important” to state leaders (Target was formed as a division under the Dayton-Hudson Corporation in the 1970s but was rebranded as Target Corporation and divested itself of the department store chains in the early 2000s). 
 
Charlie Weaver, a former chief of staff for Republican Gov. Tim Pawlenty and current head of the Minnesota Business Partnership, which represents CEOs and executives across the state, said Dayton “understands the importance of good jobs, but he’s tempered that with a pragmatic approach to the deals that are appropriate and those that aren’t.”
 
But Weaver also says the state should spend more money trying to get local companies to expand here, “and less time trying to lure the big dogs.” “Every day other states and countries are calling our companies and asking them to move there,” he said.
 
Dayton has also been careful to make sure the “juice is worth the squeeze,” said Weaver, doing a cost benefit analysis before offering incentives. If the companies don’t hold up their end of the bargain and meet the minimum requirements, the state doesn’t give out the incentives. “Minnesota does pretty well in use of those funds; they’ve set pretty clear parameters,” Weaver said. “If they haven't lived up to the deal, if they haven't done what they said they would do, they don’t get the money.” 
 
The state has had bad experiences with incentives before, including the case of Northwest Airlines, which got $761 million in public funds in the early 1990s for expansion even as the company was teetering on the brink of bankruptcy.
 
And while some see Dayton as aggressive in his business dealings, others say his incentives pale in comparison to what other states and governors have offered over the same time period.
 
“You could argue that given the rules of the game, Dayton has mostly had a defensive policy in terms of keeping companies here,” said Art Rolnick, former senior vice president of the Federal Reserve Bank of Minneapolis. “We haven’t been aggressive in trying to steal Wisconsin companies and bring them across the border. I probably would have done the same thing, and I’m a big critic of these kinds of subsidies.”
 
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With just one year left until Minnesotans elect his successor, Dayton said he’s looking more broadly at making Minnesota attractive to businesses, expanding on things he’s worked on throughout his time in office. In particular, he’d like to put more funding into education and workforce development, as well as a more robust transportation funding bill, areas Minnesota needs to invest it to be attractive to business like Amazon well into the future.
 
“Our unemployment rate is so low now that businesses are saying one of the major impediments to their expansion in Minnesota is we don’t have the workforce and the skills needed to expand,” Dayton said. “Those are the kind of broad areas where the state can have the maximum effect on the businesses that we don’t even know about yet.”