2015 Regional Report: The Midwest



A generation ago, business leaders in America’s old-line manufacturing centers faced a quandary: stay in what was increasingly derided as the “Rust Belt,” or depart for sunnier—and more business-friendly—climates down south. Many employers envied the lower tax rates and cheaper labor costs that prevailed in the Sun Belt, calculating they could run their businesses more efficiently south of the Mason-Dixon Line. That began a southbound exodus that continues to this day.

A big factor inflating labor costs was—and is—mandatory unionization, or state laws that force all hourly employees to pay union fees. Although common sense suggested that compulsory
unionization inflated costs, firm data was lacking.

“Right-to-work states grew 6% in per capita income over those without it.”

All that changed in 2010. That year, an Ohio State economist by the name of Richard Vedder released a landmark comparison study equating freedom from mandatory unionism alongside such birthrights of American citizenship as freedom of expression, freedom of association and freedom of belief. Included as well was empirical evidence equating mandatory unionization with economic stagnation.

Right-to-work states, the study reported, grew 6% in per capita income over those without it.

Prof. Vedder’s report provided ballast for the burgeoning right-to-work movement. After two decades in which the only state to pass right-to-work legislation was Oklahoma, in 2012, Indiana and Michigan became the 23rd and 24th states respectively to enact right-to-work legislation. In Wisconsin, Gov. Scott Walker signed a bill this spring making the Badger State the 25th state—exactly half the country—to pass right-to-work legislation.

Dick Resch, CEO of KI Furniture in Green Bay, counts himself as a Gov. Walker supporter—and believes the new labor rules will boost job creation. “The law is sensible,” he says. “It will allow our workers to keep more of their wages.”

The campaign in the Midwest is far from over. Illinois remains a union stronghold, as does Prof. Vedder’s home state of Ohio. In June, Missouri’s Gov. Jay Nixon vetoed a bill that would have added the Show Me State to the fold. Despite facing unerringly emotional and loud opposition, Midwest business leaders are too aware of economic growth across state lines to abandon the fight. The next round of right-to-work bills comes next year, the following year and likely for years to come. With grassroots supporters increasingly visible and outspoken, the movement against compulsory unionism seems unstoppable.

INDIANA | #6 | PEERLESS IN PROGRESS

“No state in the Midwest,” says site selection consultant Larry Gigerich, managing director of Ginovus, “has made as much progress as Indiana” in economic development. Two-thirds of the way through this year, over 200 commercial projects representing over $3.3 billion in investment have been completed.

“Last year was a record year in Indiana,” says John S. Taylor, president of the Indiana Economic Development Association. “And we are on pace to break that record this year.” Indiana continues to lead the nation in share of manufacturing employment per capita and highest manufacturing sector income share of total income.

As the state positions itself as the Crossroads of America, the need for new infrastructure funding mechanisms is top of mind. “We’ve reached the point where gasoline taxes and diesel fuel taxes are no longer keeping pace with inflation,” says Indiana Chamber of Commerce president Kevin Brinegar.

Chamber-spearheaded legislation has facilitated highway lease deals; last year a new lease for the Hoosier State’s toll road, touted as the “Main Street of the Midwest,” pumped over $4 billion into the state coffers. Gov. Mike Pence has championed such innovations as driverless cars, solar-powered roads and a second beltway around Indianapolis. Pence’s signing of the Religious Freedom Restoration Act in March was rebuked by CEOs of corporations like Apple and Salesforce, who contended the law created a hostile environment.

They threatened to pull out of the state and Pence backed down. The Tax Foundation ranks Indiana’s state and local tax burden 22nd highest out of 50 states and eighth in business tax climate. Indiana spends over $921 million a year on incentive programs.


WHY WE’RE HERE / INDIANA

WHO Scott Moorehead, CEO, TCC

WHERE Carmel, Indiana

SITE HISTORY TCC was founded in 1991 in Marion, in a small converted house next door to the CEO’s family-owned electric company headquarters. Seeking more space and a community environment more suited to attracting employees, the company moved its headquarters in August into a 55,000-square-foot building in Carmel, near Indianapolis.

WHY INDIANA “The cost and quality of living for employees and their families is very reasonable. In Indiana, you can afford a home in a friendly neighborhood that you and your family can enjoy. Indiana also offers talented individuals who attended major universities including Purdue in Lafayette, IU in Bloomington, Notre Dame in South Bend and more.”

BOTTOM LINE “The cost and quality of living for employees and their families is very reasonable, We love all the city parks in Carmel for our family to explore and have fun outside and the access to great grocery stores. Personally I love Bub’s Burgers & Ice Cream!”


WISCONSIN | #12 | WORKING ON ITS FUTURE

Supporters of Wisconsin’s right-to-work legislation cheered when it passed in March. Since its passing, “we are getting more and more investors coming in and putting plants up,” says Green Bay-based KI Furniture CEO Richard Rensch. Wisconsin can use the boost after last year’s meager 1.5 percent private-sector job growth.

The Metropolitan Milwaukee Association of Commerce sees “a solid majority” of economic indices “point(ing) upward,” driven by rising employment; Manpower Group’s spring study says employers “feel bullish” about hiring. The Tax Foundation ranks Wisconsin’s state and local tax burden fifth-hghest out of 50 states and 43rd in business tax climate. Wisconsin spends over $153 billion a year on incentive programs.


WHY WE’RE HERE / WISCONSIN

WHO Dick Resch, CEO of KI Furniture

WHAT Furniture manufacturer

WHERE Green Bay, Wisconsin

SITE HISTORY Founded in Aurora, Illinois in 1941 as Krueger Metal Products, the company moved into an 180,000-square-foot factory in Green Bay’s Bellevue section in 1945 and changed its name to KI. The building underwent a $3.3 million, 100,000-square-foot expansion in 2012. KI operates eight additional plants around the world.

WHY WISCONSIN “The Badger State has implemented sensible right-to-work rules that encourage us to create jobs in Wisconsin, and allow our workers to keep more of their wages. Wisconsin’s workforce is welleducated. Our state is home to a quarter-million college students and more than 360,000 enrollees in technical colleges. We rely on this home-grown talent to fill KI’s ranks. And, Wisconsinites have a tremendous work ethic. That’s a big reason why manufacturing jobs are growing in our state.”

BOTTOM LINE “Green Bay has given us generations of highly skilled workers, without whom KI would not have grown from a $4 million company to a $700 million company over the past 50 years.”


IOWA | #13 | PROJECTING A PLATEAU

After several solid years of economic growth, Iowa began 2015 with a record-level workforce and employers expressing high confidence levels. Gem State economists expect the growth rate to slow down to a steady 1.1 percent annual growth over the next seven years. Projected occupational gainers are construction, computing, personal services, sales, healthcare and social services; growth clusters include office services, transportation and construction.

Signs of potential concern: the growth rate for personal income declined to 1.4% last year, down from a 3.1% average gain the past couple of years—and well below the state’s post-Recession high water mark of 9.2% growth. The Tax Foundation ranks Iowa’s state and local tax burden 22nd lowest out of 50 states and 19th in business tax climate.

Iowa spends over $43 million a year on incentive programs.


NORTH DAKOTA | #19 | ENERGIZING GROWTH

North Dakota ranked first in the ALEC-LAFFER State Economic competitiveness index, based on 150 percent cumulative growth over the recent 10-year period. The state also reversed a long run of negative or flat domestic migration, welcoming over 15,000 new North Dakotans in 2013. Oil, of course, is the driver.

While energy has bolstered the state’s economy coming out of the Great Recession, recent price drops make the future less sanguine. Still, JPMorgan Chase projects gross state product will continue steadily rising at about 6.5% a year through 2018; the “broadening of the state’s economy, built on its energy assets, (will) sustain the state’s supercharged growth rate for the next half-decade,” forecasts JPMorgan Chase economist James Glassman.

The Tax Foundation ranks North Dakota’s state and local tax burden 15th lowest out of 50 states and ranks it 25th in business tax climate. North Dakota spends over $43 million a year on incentive programs.


OHIO | #22 | MANUFACTURING MAVEN

Ohio’s GDP was $583.2 billion in 2014, making the Buckeye State the country’s seventh-largest economy. Ohio ranks fourth in the nation in value of manufactured products. After manufacturing, logistics is the state’s largest industry, followed by business services, education & health and real estate.

The American Legislative Exchange Council, or ALEC, ranks Ohio 23rd in the nation for in its Economic Outlook, and 49th in economic performance.

Unemployment compensation reform is high on the agenda of the National Federation of Independent Businesses, says Ohio state director Chris Ferruso. The Tax Foundation ranks Ohio’s state and local tax burden 18th-highest out of 50 states and ranks it 44th in business tax climate. Ohio spends over $3.24 billion a year on incentive programs.


SOUTH DAKOTA | #23 | SEEKING SKILLS IMPROVEMENT

South Dakota’s economy grew 0.6% last year, well below the national 2.2% rate. The pace left South Dakota ranked No. 41 in growth among the 50 states. A continuing agriculture sector slide hammered the economy; farm revenues fell 20% in 2014. Personal income limped along at a 1.7% growth rate, less than half the national average. Recent surveys show that industries are adding jobs: manufacturing (5.2% growth over past 12 months), logging, mining and construction (4.1% growth) and leisure/hospitality (3.8% growth).

The most significant issue among employers is workforce readiness. ”CEOs tell me they’re trying to get enough people with the right skills but there is a shortage,” says David Owen, president of the South Dakota Chamber of Commerce and Industry.

Ernie Goss, director of Creighton University’s Institute for Economic Inquiry and lead researcher in the institute’s monthly Mid-American Business Conditions survey, says indications “point to positive gains for the rest of 2015.” The Tax Foundation ranks South Dakota’s state and local tax burden 3rd-lowest out of 50 states and 2nd in business tax climate. South Dakota spends over $27.8 million a year on incentive programs.

NEBRASKA | #25 | HAMPERED BY LOW EMPLOYMENT

Nebraska’s stagnant labor pool reflects one of the nation’s lowest unemployment rates. Nebraska’s total labor force averaged just over 1 million people in June, up one tenth of a percent from the previous May. Underscoring workforce shrinkage is a weakening manufacturing sector. This year the state has lost jobs at a nail-biting 3.8% rate through the summer.

Bob Hallstrom, Nebraska state director for the National Federation of Independent Businesses, says employers would like to see more training programs helping resident develop skilled trades like welding.

“I know companies that would be expanding if they could hire welders,” he says. The Tax Foundation ranks Nebraska’s state and local tax burden 25th highest out of 50 states and ranks it 29th in business tax climate. Nebraska spends over $1.4 billion a year on incentive programs.


MISSOURI |#26 | TRAILING IN GROWTH TREND

Missouri’s GDP surpassed $284 billion in 2014, 21st in the country and third largest in the Midwest. The total represented an increase of 2.8% from 2013 to 2014; the rate trailed the overall U.S. GDP growth rate by 1%.

Manufacturing represents 12.5% of the state’s economic output; government takes second place with 12.1%.

“Missouri’s economy grew more slowly than the national economy for the past 15 years, and the same theme is present in the recovery,” observes JPMorgan Chase economist James Glassman. The Tax Foundation ranks Missouri’s state and local tax burden 18th lowest out of 50 states and 17th in business tax climate. Missouri spends over $96.5 million a year on incentive programs.


KANSAS | #27 | TAX TAKEBACK

Kansas’ growth has slowed after several months of expansion. Payrolls are growing less quickly than the national average and high-paying industries have shrunk over the past 12 months.

Economic development leaders fret that most of the new jobs are in low-wage industries. Business leaders cheered Gov. Sam Brownback’s tax reform initiatives, which included eliminating the small business tax and phasing in lower personal income taxes.

“Tax reform has been very positive. Kansas is now regarded as low-tax state, very easy to do business with,” says site selector Gigerich. Recent revenue shortcomings—the pre-reform $380 million budget reserve is now a two-year $700 million gap—have prompted some tax policy reversals; business leaders hope the governor sticks to his promises.

MINNESOTA | #31 | SHINING ON

Despite some slowing down in the manufacturing sector and diminishing energy production in the Bakken, the North Star State’s economy shines on.

Minnesota’s unemployment rate rolls along at 3.7%, well below the national average. Business investment “remains strong, with plenty of commercial construction underway” says Michael T. Wolf, a senior economist at Wells Fargo. Singling out the state’s burgeoning medical equipment manufacturing business, he declares: “Minnesota’s economy remains a real standout.” Those considering expanding or relocating to the state may find that “Minnesota nice” applies, but not “Minnesota speedy.” Government services are “very slow and bureaucratic,” assesses site selector Burkard.

The Tax Foundation ranks Minnesota’s state and local tax burden 6th highest out of 50 states and 47th in business tax climate. Minnesota spends over $239 million a year on incentive programs.


MICHIGAN | #43 | STILL UNDER PRESSURE

Is Michigan’s economy back on track? The economic glass, says Michigan State University economics professor Charles Ballard, is both half full and half empty. While the state added half a million jobs since its economy bottomed out in the winter of 2010, it was only this spring that the unemployment rate caught up with the national figure. Michigan still lags its centennial peak by 400,000 jobs, and in the ensuing years income inequality has expanded.

“Looking back at how far Michigan has come economically over the past five years, it’s easy to breathe a sigh of relief and think, ‘good, now that’s behind us,’” says Doug Rothwell, CEO of Business Leaders for Michigan. “The alarming truth is it’s not behind us at all. We’re still very much in a come-from-behind position as we build jobs, income and productivity.”

That couldn’t start too soon. As measured by economic performance, Michigan finished 50th—dead last—in this year’s American Legislative Exchange Council’s (ALEC) rankings. Energy costs rankle. “Michigan electric rates are higher than the national average,” observes Greg Burkart, managing director of Duff & Phelps, a site selector based in Southfield, Michigan. The Tax Foundation ranks Michigan’s state and local tax burden 21st-highest out of 50 states and ranks it 13th in business tax climate. Michigan spends over $6.65 billion a year on incentive programs.


WHY WE’RE HERE / MICHIGAN

WHO Andra Rush, CEO, The Rush Group Family of Companies

WHERE Detroit, Michigan

SITE HISTORY Andra Rush founded Rush Trucking in 1984, and formed the Rush Group in 2001. The Rush Group moved into its present headquarters, a 482,000-square-foot facility in the Gateway Industrial Center in Detroit’s Brightmoor neighborhood, in 2012.

WHY MICHIGAN “In Michigan, we can move any raw material by water, by train or by truck, and move finished goods in a multi-modal situation. By adding the international gateway Detroit Metro Airport, we cover every mode of transportation to move products across the world very efficiently.”

BOTTOM LINE “Detroit endured a steep decline for 50 years and then filed for Chapter 9 protection, the largest municipal bankruptcy in U.S. history. Instead of viewing the situation as the end, I saw it as the beginning. To be part of shaping a major city and creating what you would hope or imagine it to be is exciting, not only for me but also for our team members. How often do you get that chance to have a significant, dramatic, positive impact?”


ILLINOIS | #48 | NOT NEIGHBORLY

He’s mad. Boy, is Illinois Gov. Bruce Rauner mad. So mad, he told the Chicago Tribune in April, he wants to “rip the economic guts out of Indiana” and will target Hoosier employers to rebuild the Prairie State’s languishing economy. Bad feeling between the Midwestern neighbors goes back at least to 2011. That year the Indiana Development Corp plastered billboards with posters asking residents if they felt “Ill-innoyed by higher prices.” The campaign prompted—or reflected, depends who you ask—a steady stream of corporate migrations across state lines.

The exodus continues. In March, Caterpillar announced 230 layoffs in Joliet as production of a line of oil pumps and valves was moved to Monterrey, Mexico. Over the summer such manufacturers as Hoist Liftruck, DESTA-CO, General Mills and Mitsubishi announced they were either closing their Illinois plants or relocating to lower-cost states.

Indiana is not the only state to welcome Ill-annoyed CEOs and business owners; Missouri, Iowa and Wisconsin attract disgruntled employers too. The Tax Foundation ranks Illinois’s state and local tax burden 13th highest out of 50 states and 31st in business tax climate. Illinois spends over $1.5 billion a year on incentive programs.

Warren Strugatch :Warren Strugatch is a writer, speaker and consultant based in Stony Brook, NY. He covers economic development, global business, management and marketing.