2016 Regional Report: The Midwest

Indiana’s entrepreneurial community seems to be thriving. The Kauffman Foundation recognizes the Hoosier State as one of America’s best places to launch a business. Plus, Indianapolis has made the Top 10 of IT per-capita job growth rankings for most of this century, as calculated by New Geography.

Its economic-development chief talks of a record-setting economy two years running. In early summer, just days before being named Donald Trump’s vice-presidential candidate, Gov. Mike Pence announced a $1 billion plan to accelerate entrepreneurship over the next decade by addressing the innovation economy’s long-term growth needs: namely young workers and enterprise funding.

“We must build on this economic momentum and increase collaboration between educators, community leaders, industry partners and, most importantly, idea generators (so as) to further propel innovation.—Gov. Mike Pence, Indiana

Unveiling the plan to a business group, Gov. Pence said: “We must build on this economic momentum and increase collaboration between educators, community leaders, industry partners and, most importantly, idea generators (so as) to further propel innovation.”

The governor’s plan promises to double funding available to small businesses and growth companies over a 10-year span and to boost services. Goals include: idea-economy programs created at the high school level; advance research initiatives and best-practices sharing at the university level; money to build co-working spaces, incubators and innovation centers; scaling-up assistance for companies; support for industry-driven strategic initiatives; cluster-based company support and increased micro-lending to small businesses.

To line up funding, the governor plans to tap the state legislature, venture capital funds and Indy investment group Elevate Ventures. His big “ask” was for $500 million—representing half the plan’s total budget—from the Indiana Public Retirement System. The pension fund, whose mandate includes supporting Indiana businesses as well as optimizing investment returns, has not yet formally responded. In contrast to the usual state emphasis on corporate recruitment, the programs sketched out in the new plan are best described as talent nurturing, said Jim Schellinger, the IEDC chief who’s coordinating statewide efforts. “We’ve proven Indiana can be a destination for business. Now we have to make Indiana a destination for talent.”


NO.5 INDIANA:
MOST MANUFACTURING-INTENSE STATE

Indiana Gov. Mike Pence and president-elect Donald Trump touted the governor’s track record lowering taxes and creating jobs in Indiana during the presidential campaign. The new tax structure “puts Indiana at a much more competitive advantage,” says Indianapolis site selector Larry Gigerich. “It’s a very easy state for doing business, not a lot of bureaucracy to deter.”

As for job growth, the Hoosier State ranked 19th in the nation during Gov. Pence’s administration. Indiana job growth is “heavily dependent on the strength of the national economy,” observed the hometown Indy Star. “As the most manufacturing-intensive state in the nation, we make lots of things. When consumers and companies are buying those things, the factories run fast and hard and… need workers.” Workforce quality, said Gigerich, “is the biggest challenge Indiana faces.” State programs such as the Skills Enhancement Fund help bridge the skills gap, he said.

Business leaders describe a pro-startup culture and a business climate that favors quality of life and sense of place. After Salesforce’s 2013 acquisition of homegrown ExactTarget, many departing execs invested their payouts to launch small businesses near home. The growth of these startups “has been a huge part of Indiana’s renaissance,” said Tim Cook, CEO of KSM Location Advisors in Indianapolis. “Also, the low tax climate, balanced budget, strong incentives and solid business climate” add appeal.


OHIO / CEOs liken the cultural scene in Columbus to Austin’s a decade ago

NO.10 OHIO:
HELLO, COLUMBUS

On the campaign trail this spring, Gov. John Kasich touted Ohio’s manufacturing sector growth and overall job-creation success to mostly positive local reviews. Roger Geiger, head of the NFIB’s Ohio chapter, praised the governor’s tax reform policies, which lowered the top tax bracket below 5 percent and made Ohio more competitive with neighbors like Michigan and Kentucky. Tax reform has also encouraged entrepreneurs to start new businesses, Geiger said.

“Ohio is most definitely business-friendly,” said site selector Gigerich. Cities like Cleveland and Toledo are shedding Rust Belt images and attracting tech and financial firms. Columbus and Cincinnati are more aggressively using incentives to recruit CEOs. Quality of life is a major draw.

“Columbus is like Austin was 10 years ago,” said Brian Billingsley, CEO of Klarna in North America, a payment-systems company. A transfer from New York and Stockholm, Billingsley finds the lower cost of living, local arts and culture scene, and vibrant downtown help sell the company to recruits.

A convenient benefit: Columbus is a popular test market for consumer product and service companies. Like many, he finds Ohio’s strength is the middle market. According to Ohio State University’s Fischer College of Business, mid-sized companies’ revenues grew nearly 11 percent between May 2015 and 2016, overshadowing the 6.3 percent national average.


NO.11 WISCONSIN:
GETTING MORE LOOKS

Wisconsin “has benefited from Right to Work legislation,” said site selector Cook. “That gets them looks they didn’t used to get.”

But the looks may not lead to deals. Insufficient job creation incentives, a weak entrepreneurial culture and misguided tax policies have produced a “shrinking middle class” (Pew Research), created a “shrinking manufacturing sector” (Think Progress) and turned the Badger State into “an economic basket case,” as the Wisconsin Gazette put it.

Some beg to differ. Noah Williams, professor of economics at the University of Wisconsin-Madison, argued that “the state of the economy in Wisconsin is strong and improving” in an editorial for the Milwaukee Journal-Sentinel.

Wisconsin’s middling 1.6 percent increase from May 2015 through May 2016 trailed Michigan, Indiana and Ohio, but outpaced Minnesota, Illinois and Iowa in the highly competitive Midwest job-creation market. Filling jobs can be more challenging than creating them.

“Our primary concern is access to talent,” said Jerry Murphy, executive director of the New North, an economic development organization serving northeast Wisconsin. Worker recruitment “is on everyone’s mind.”


NO.17 IOWA:
MORE THAN CORN

Well-trained workers—attracting them and retaining them—looms as the primary business challenge for Iowa employers. Nearly two out of three bosses polled by the Iowa Business Council this summer ranked staffing as their top priority.

Hawkeye cities like Des Moines and Iowa City “have their acts together” in terms of attracting business, said site selector Cook. Des Moines and other cities with vibrant downtowns, workplay-life appeal and a growing employer base are appealing to Millennials, a key job recruitment attribute, said Gregory Burkart, a specialist in negotiating incentive packages and a managing director of Duff and Phelps’ Detroit office.

“Companies choose to expand here because, number one, we have a very educated, productive workforce and second, the cost of doing business here is about 18 percent below the national average,” said David Maahs, executive vice president of the Greater Des Moines Partnership.

Recent expansions and new construction include buildings put up by Merchants Bonding, Holmes Murphy and Mercer Consulting and LightEdge Solutions.


NO.19 SOUTH DAKOTA:
ROSY OUTLOOK

SOUTH DAKOTA / Plans are under way for “megasite” Foundation Park

Last year’s robust third-quarter propelled South Dakota into the spotlight as the nation’s fastest-growing state. That ranking disappeared the next quarter, but the brief moment in the sun energized local business owners. Four out of five employers saw economic growth ahead over the next 12 months, according to a Minneapolis Fed poll last winter, signaling the rosiest outlook in the Great Plains.

Earlier this year, the state’s first-quarter 2.6 percent job growth rate led the region amidst labor market contraction; unemployment dropped to a barely-there, lowest-in-U.S. 2.5 percent. Business leaders agree the region must begin training and recruiting significant numbers of young workers.

Regionally, the Sioux Falls metro area keeps growing, as younger workers relocate and fill jobs in healthcare, financial services and biotech.

Earlier this year, grading and roadwork began on Foundation Park, an ambitious 800acre site aimed at high-tech, finance and other industries developed by a public-private partnership joining employers, municipal and state officials. Craig Anderson, CEO of DataSync, a local software engineering firm, plans to move in as soon as the park opens.

Anderson returned to his South Dakota roots after building his career in Silicon Valley; he calls Foundation Park the “latest in a series of initiatives that will stimulate the region’s economy by helping businesses grow.”


NO.22 NORTH DAKOTA:
QUIET TIMES ON BAKKEN PATCH

Thanks to the rigs pumping out over 1 billion gallons a day from the Bakken oil patch, North Dakota possessed the nation’s fastest growing economy through the early 20-teens. Since 2014, the bottom has fallen out of the oil barrel, erasing over 6,300 mining and natural resources jobs.

North Dakota’s 11.4 percent GDP decline last year was the biggest statewide drop in the U.S. In Williston, a quintessential oil-boom city located near the patch’s center, nearly one-sixth of the city’s population has recently departed.

The economic carnage has decimated municipal and county budgets, a pattern playing out in dozens of small and mid-sized cities. In Bismarck, the governor and legislators face a looming billion-dollar deficit. Al Anderson, Commerce Department commissioner, says most employers will wait out the cycle.

Until then, “We emphasize keeping the business environment friendly, keeping taxes low and balancing regulatory restraints with the needs of economic development.” His office continues to foster entrepreneurship and encourage exporting, he added.

Click on chart to enlarge

NO.26 KANSAS:
GETTING BACK ON TRACK

Gov. Sam Brownback’s highly touted 2012 tax reforms first delighted business leaders and then disappointed them. Last year, the Sunflower State’s economy essentially flatlined, losing ground to archrivals Nebraska and Missouri.

Overall, Gov. Brownback’s reform raised taxes slightly for the poor and working class, slashed taxes for the rich, and cut back on education funding. The result was stagnation. In June, Kansas’s GDP dipped below end-of-2011 levels.

“You’ve got policymakers at this point who are unable to embrace the fact that… a mistake was made,” Annie McKay, head of the Kansas Center for Economic Growth, told the Washington Post this spring. Others disagree, citing historic new-business formation rates and pointing to a 3.7 percent unemployment rate as proof of success. Historic aerospace, defense and food-processing clusters remain vital. Site selectors give thumbs up to state and local economic-development programs but note local community opposition can torpedo expansion and new-construction projects.

“The area where we see the greatest economic activity is metro Kansas City on the Kansas side,” said site selector Gingerich. “There’s been a build-up of telecom, fintech and insurance companies moving into the area.”


NO.27 NEBRASKA:
OPTIMISTIC ABOUT GROWTH

The strength of Nebraska’s services sector, largely concentrated in the Cornhusker State’s three most populous counties—Douglas, Lancaster and Sarpy—helps masks a more brackish rural economy.

On the surface, Nebraska’s labor market enjoys excellent health, boasting the nation’s third-lowest unemployment rate and its fourth-highest labor force participation rate (70 percent in the spring). Business leaders polled by the Greater Omaha Chamber feel optimistic about revenue growth, but worry where the new workers will come from. Another concern: most of the new crop of jobs are low-wage positions in hospitality, education and health services.

“Economic growth in Nebraska has become increasingly unbalanced,” said Nathan Kauffman, assistant vice president and Omaha branch executive of the Kansas City Fed. “Some industries are growing while others are less robust.”

Last year, job growth slipped 1 percent in rural areas and along the previously-vibrant Interstate 80 corridor. GDP has been hurt by slumping global agricultural markets. University of Nebraska economist Eric Thompson forecasts net farm income will drop about 11 percent this year, after a 39 percent plunge in 2015. The rebound, he said, comes next year.


NO.29 MISSOURI:
SHOW ME THE OOMPH

Is Missouri a hotbed of entrepreneurialism? Kansas City-based Kauffman Foundation says yes indeed. In fact, the Show Me State paces the nation in business startups.

Missouri business leaders applaud the entrepreneurial instinct; many also call for increased investment in education and infrastructure as well, hoping to bolster mediocre payroll expansion. “Job growth is lousy. The state economy is among the nation’s weakest,” complained the Kansas City Star in February. “Missouri is in a world of fiscal hurt in so many ways right now.”

Site selector Burkart likes Missouri’s business climate and its workforce and says their incentive programs are pretty good. Seeking to bolster efforts to retain home-grown companies from leaving the state, legislators are weighing a bill that would reduce capital gains taxes when a business owner sells to employees rather than out-of-state investors. Legislation could reach Gov. Nixon’s desk for signature this winter.

NO.34 MINNESOTA:
FORMERLY FACING RECESSION

Minnesota entered the fall facing recession, declared Twin Cities Business magazine. TCB editors made their forecast in September, based on poll responses from 228 business leaders around the state. Local economic pessimism has reached a five-year high in the Gopher State, said Dale Kurschner, editor-in-chief.

About 28 percent of How TCB readers expect conditions to weaken in the months ahead, more than double the percentage from one year ago. There’s another side to the picture: Minnesota is a thriving state with low unemployment and a growing rate of new business filings. Unemployment lingers at near record lows, while overall wage payments continue to rise. “They’ve got a very well-educated workforce and a high quality of life in the Twin Cities and elsewhere,” said site selector Cook.

Traditionally passive users of incentive programs, the state has restructured several, making them easier to use, said site selector Gigerich. There’s still room for improvement.

A Brookings Institution report calls for the governor and legislature to cooperate in setting a clearer vision for economic growth, better align existing programs and improve coordinating investments in innovation, trade and training. While they’re at it, said Brookings, they can fix the state’s benchmarking programs too.


NO.40 MICHIGAN:
WELCOME TO GILBERTSVILLE

MICHIGAN / Downtown Detroit’s revitalization continues to gain momentum

Michigan’s economic rebound continues. The Great Lakes State has averaged 74,200 new jobs a year for seven years running, generating professional, construction, trade, transportation and utility positions. Employers are more optimistic than they’ve been in a long time.

Gov. Rick Snyder’s administration has cut back on the red tape, said Michigan Chamber CEO Rich Studley, who praises the governor’s fiscal stewardship—along with previously-passed Right to Work legislation—for the sunnier business climate. A prolonged auto sales boom generated positive ripples through the economy, although the boom began fizzling out this past summer.

In Detroit, the great municipal comeback continues as Quicken Loans chairman and founder Dan Gilbert sweeps up once-derelict Motor City commercial properties while giving rise to Detroit’s newest nickname: Gilbertsville.

Detroit’s “bankruptcy and recovery are really a model for other cities in other states,” said Studley. In Grand Rapids, buoyant economic growth has led George Erickcek and Brian Pittelko, labor market analysts at W.E. Upjohn Institute for Employment Research, to declare: “It may not get any better than this.”

In Midland, however, business leaders fret that the proposed $122 billion merger combining DuPont with local global giant Dow Chemical will produce vast layoffs. For now, the deal’s status remains uncertain as European regulators step up antitrust efforts.

In the state’s western region, unemployment has dipped below 3 percent, the lowest in recent memory. In Kent County, economic-development officials lured Las Vegas data-processing giant Switch Ltd with a vast bundle of tax exemptions and other incentives. It wasn’t enough; this spring, local officials ceded an additional $1 million in exemptions.


NO.48 ILLINOIS:
FACING OFF FOR TAX CUTS

Moody’s Analytics labels Illinois’ economy “the weakest of the underperforming Midwest.”

Poor financial stewardship, a cratered downstate economy and undesirable demographics hamper recovery. The Prairie State started the summer burdened with the nation’s highest unemployment rate. Job-loss data “show Illinois’s economy remains stagnant… with a net job loss and significant workforce dropout,” according to Illinois Policy, an independent research and advocacy organization.

Producers here feel the full impact of the national manufacturing slump, as well as fallout from low crop and livestock prices. Employers are speed-dialed by economic-development officials from six neighboring states. Business climate? Don’t ask. “When you say ‘Illinois,’ emphasize ‘annoy,’” half-jokes a Midwest site selector.

Business leaders coalesced last year around second-term Republican Gov. Bruce Rauner’s efforts to slash taxes, cut spending and overhaul liability funding. Those efforts have floundered due to partisan bickering in the Legislature. Increasingly, the state’s manufacturing sector shows its age. Notes Moody’s: “The manufacturing slump has been pushing to export-oriented manufacturing centers, such as Decatur, Peoria and the Quad Cities.”

Chicago has largely skirted the economic headwinds, thanks to long-standing reputation and association with services rather than goods or agriculture. Recently such firms as ConAgra Foods, Oscar Mayer and Kraft Heinz moved into Chi-town from suburban outposts; the moves did nothing to expand the Illinois economy.

With that in mind, business leaders can only watch the Republican governor they overwhelmingly supported face off yet again with Democratic legislators, with no resolution imminent.

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