Good DEEDs Gone Unnoticed
It’s an organization you see mentioned in just about every story about a business relocating or expanding in Minnesota. It’s frequently cited for an assist, but never for scoring on its own. Yet collectively, the support it gives to hundreds of projects each year is a story in itself.
I’m talking here about Minnesota’s Department of Employment and Economic Development, which is perhaps best known for being the source of state labor statistics. About 80 percent of its budget goes to labor-related issues including workforce development, managing the state’s unemployment system, vocational rehabilitation services and disability determination services. These all help the economy, but the Business and Community Development (BCD) division, where the rest of the DEED budget goes, focuses directly on economic development—and it’s the agency’s crown jewel, getting the most out of the dollars it has to work with.
In 2016, BCD invested $139 million in 464 projects that created more than 7,000 new jobs and retained more than 14,000 existing positions. If the new jobs alone paid an average salary of $20 an hour, it amounts to $298.2 million in wages Minnesota would have otherwise gone without. If the retained jobs, paying the same average wage, had gone away, Minnesota would have lost more than a half a billion dollars in annual wages. These state dollars also were leveraged to produce a total of $4.2 billion in overall business investments including building and expanding facilities. There are many ways this benefits our economy. There’s the increase in property use and taxes, increased demand for transportation, local services and hospitality. But perhaps most significant of all are the jobs produced or maintained—and what they pay.
To figure that out with absolute certainty, one would need to look into more than two dozen funds or programs within BCD, as well as how it leverages other DEED programs. But my analysis of its largest, stalwart job-creation and -retaining tool— the Minnesota Investment Fund (MIF)—provides a good snapshot. Since 2011, BCD has provided $452 million in MIF loans to 88 projects that created nearly 8,000 jobs paying an average of $24 an hour.
There’s quite a disparity between the highest and lowest wages. On the high end, there’s Jack Link Snacks. An $850,000 MIF loan supported 85 new jobs that will pay a whopping average wage of $51.43 an hour—the highest supported by any MIF loan during this period. On the astonishingly low-paying side, there’s Hearthside Food Solutions of Lakeville ($450,000 for 36 jobs at an average $11.46 an hour).
But that comes with the territory. “As much as we’d love to have more high-paying jobs in various parts of the state, it doesn’t happen that easily,” says Kevin McKinnon, DEED’s deputy commissioner of economic development. “The number of jobs plays a role in the amount of the [state backing] someone gets. But the wages and private investments are beyond our decisions.”
And other factors come into play beyond wage levels. Cirrus Industries of Duluth, for example, wanted to build a new facility at an airport and had several opportunities nationally. A MIF loan of $4 million helped land that expansion project here. However, the 150 jobs it supports are expected to pay an average hourly wage of only $12.69.
“They’re growing rapidly, we want them to continue to grow, and for that to occur in Minnesota,” McKinnon explains. As for the low wages, “once they get people into these opportunities, they move up with the skills pretty quickly,” and wages rise as a result.
Taking things a step further, I estimated how much MIF-related jobs generate in annual income tax proceeds, and compared this with how much was lent to get those jobs up and running. I found that since 2011, at least 16 of 88 MIF loans have helped create wages whose tax revenue provided the state with a return on investment of 100 percent on its loan within the first year; three loans yielded returns of three times the initial amount, one four times and one six times the loan amount within the first year. That one pertains to Tata America International of Bloomington, with a $232,000 loan to create 302 jobs paying an average of $32 an hour.
On the flip side, 10 projects will require two years’ worth of promised new-wage payments to produce income taxes that will equal their loan amounts; eight, three years; 10, five years; and 20, more than five years. The longest to generate an ROI is a loan to Action Manufacturing of Marshall ($215,349 to create five jobs paying an average $13 an hour).
Either way, these are new, reoccurring tax revenues generated not by cash outlays, but by loans! And DEED has a very strong record ensuring they’re repaid with the types of return rates mentioned above.
Meanwhile, the newer Job Creation Fund (started in January 2014 to provide grants) is beginning to show similarly solid ROI numbers. Only about 8 percent of the 74 projects it has funded supported jobs that will produce wages with income taxes equal the grant amount within a year. But 46 are expected to do so within five years. And again, these awards produce new tax revenues that will reoccur long after they reach the initial award amount.
I could go on, but suffice it to say, I spent several hours looking over BCD numbers, as well as other parts of DEED, and came away impressed. And there are two takeaways.
One is that, while it’s a rarity for me to say something like this, I encourage more taxpayer dollars to support this state government agency. Minnesota legislators considering cutting state funding can do so elsewhere perhaps, but it would be detrimental to do so here, especially when an increase could literally translate into more decent-paying jobs and tax revenues.
The second takeaway is that DEED’s excellent delivery on its promises, performance tracking, and tangible results in job creation and retention provide a refreshing example of how economic development entities can, and should, demonstrate returns on the time and dollars they spend.