Is Minnesota friendly to small businesses?

cliff1066™/Creative Commons
The survey ranked Minnesota 11th among all states in business-friendliness, and the Twin Cities 17th among 57 metro areas.

When owners of Baldinger Bakery decided they needed to expand and modernize their commercial baking facility located on St. Paul’s West Side, they considered multiple sites in the city, the suburbs, outstate Minnesota and western Wisconsin.

However, despite taxes, regulatory concerns and other considerations, the 125-year-old bakery ultimately settled on Beacon Bluff, the 62-acre redevelopment area on St. Paul’s East Side that once was occupied by 3M and other industrial firms.

To Louis Jambois, president of the St. Paul Port Authority, the Baldinger experience once again demonstrated the importance of “location, location, location.”

“Baldinger still had to deal with Minnesota taxation and St. Paul regulatory requirements,” said Jambois, whose agency acquired the 3M site and prepared it for redevelopment. “But they were willing to do those things in order to expand at a location where they could get their raw materials in, their product out and retain their high-quality workforce.”

These were no small considerations for a firm that counts McDonald’s, Arby’s and Famous Dave’s among its customers – and now is capable of producing 65,000 buns an hour in his new state-of-the-art bakery.

A recent survey of nearly 8,000 small businesses across the nation found that taxes were not the prime concern of small businesses when rating the business climate of their state or city, with licensing and regulatory issues ranking much higher.

“Licensing and permitting regulations were … a more powerful predictor of a state’s small business-friendliness than were taxes, even controlling for the businesses’ different industries,” the survey found.

Minnesota ranked 11th

Overall, the survey ranked Minnesota 11th among all states in business-friendliness, and the Twin Cities 17th among 57 metro areas. The survey was conducted by Thumbtack, an online business marketplace based in San Francisco, and the Ewing Marion Kauffman Foundation of Kansas City.

Both the state and metro area received relatively high marks for “ease of starting a small business,” but much lower grades for their “friendliness” on taxes, licensing and regulations.

State economic development officials did not respond to a request for comment on the survey. In the past, Gov. Mark Dayton has argued that too much attention is focused on tax comparisons in assessing the state’s business climate.

“States offering businesses and their top executives the lowest taxes usually offer the rest of their citizens the lowest incomes, the fewest public services and the highest crime rates,” Dayton says. “Furthermore, their job growth typically lags ‘high value and high performance’ states like Minnesota.”

The new survey did not impress John Spry, a professor of business economics at the University of St. Thomas. He said economists prefer to study data about business decisions and how they are influenced by policy changes such as tax increases.

“This kind of survey is designed to get into newspapers,” Spry said.  “There aren’t a lot of surveys like this that are used in economic literature.”

St. Paul Mayor Chris Coleman
MinnPost photo by Terry GydesenSt. Paul Mayor Chris Coleman: “We have made business-friendliness a priority for St. Paul, and more and more local businesses are choosing to invest here.”

However, Bill Blazar, senior vice president of the Minnesota Chamber of Commerce, said he was not surprised by the survey results and the great concern about licensing and regulation.

“These are small businesses and many of them are startups,” Blazar said. “Typically, for the first few years, they don’t make any money, so they don’t worry a lot about taxes.  If somebody says to them, ‘you need a license,’ that’s a much bigger deal.”

Blazar said that when the chamber receives a call from a startup, “it is almost always about a licensing issue.” As an example, Blazar said he received a call last fall from an individual who had developed vitamin supplements and wanted to open a small retail store in Minneapolis. As part of his marketing approach, Blazar said, the man wanted to demonstrate to customers how his supplement could be mixed with fruit juice.

“A week before he was going to open, the city of Minneapolis told him that he not only needed a restaurant license, but that he also had to add a bathroom because he’s a restaurant,” Blazar said. “Eventually we got it sorted out and they backed away from both requirements.”

Business leaders concerned

Despite the survey results, Blazar and other business leaders remain concerned about proposals by Dayton and the DFL Legislature to raise the state’s top income tax rate. They say it will make Minnesota less competitive and harm some 21,000 small business owners who pay individual income taxes on their business income.

Meanwhile, the state of Minnesota, Minneapolis and St. Paul all say they are attempting to streamline business licensing and permitting requirements.

As part of its 2013 budget, the city of Minneapolis undertook a major restructuring of city regulatory agencies that is intended to deliver services more efficiently and reduce city costs by $300,000 to $400,000 a year.  “As a result, doing business in Minneapolis will become even easier,” said Major R.T. Rybak.

Jambois said city agencies in St. Paul are working on a project to map the entire planning, zoning, regulatory and permitting process “in order to get rid of the duplication, reorder processes and streamline the system.”

In his recent State of the City address, St. Paul Mayor Chris Coleman said: “We have made business-friendliness a priority for St. Paul, and more and more local businesses are choosing to invest here. But as many of our council members and local business owners know, navigating the permitting process can be tricky. We as a city can and must do better.”

Comments (8)

  1. Submitted by Tessa Schweitzer on 04/17/2013 - 09:18 am.

    John Spry

    Would be nice to have more background on Prof. Spry. By a quick glance at some of his editorials, I would guess he’s allied with conservative ‘think’ tanks and rewarmed trickle down.

  2. Submitted by jody rooney on 04/17/2013 - 10:40 am.

    Concerned about the non representativeness of the study

    Two large sectors were missed – as in 0% of the respondents Retail and Manufacturing. So while this is of value it is of limited value. This is the problem with on line research. They only used 2900 responses to do the regression analysis. One wonders if that is all they used out of the 8,000 they looked at. While these responses should give you something for the whole country separating it out into states leaves a lot of room for interpretation.

    So I agree with Mr. Spry this is not a well done survey.

    I think next time the Kaufman foundation should dig a little deeper and get something that is a little better.

    The use of the gross data for taxes is pretty interesting though. The concern about taxes changes with business size with about 50 employees being the change between “The level of taxes I pay is about right” or “The level of taxes I pay is too high”.

    Seems that taxes are definitely not as big a concern for small business.

  3. Submitted by Bill Gleason on 04/17/2013 - 10:51 am.

    Professor Spry is a conservative economist

    In fact one of the local right wing talk shows – the Late Debate – seems to consider him their house economist. His material may also be found on the somewhat grandiosely named conservative think tank, The Center of the American Experiment.


    Nevertheless, it is fitting that MinnPost sought input from Professor Spry or Professor King Banaian of St. Cloud State.

    Both are bright and articulate espousers of the conservative view.

    I would like to point out, however, that just because such a survey is not used in the economics literature does not mean that there is anything wrong with it. If Professor Spry objects to the surveys results, it would be useful for him to explain why.

    To argue that the economic literature is somehow the gospel, is misleading.

    For a recent example of a snafu in the economics literature that has had fairly serious wrong implications for policy, please see:

    Is the evidence for austerity based on an Excel spreadsheet error?

    Washington Post


  4. Submitted by John N. Finn on 04/17/2013 - 12:33 pm.

    Raising the top rate….

    “….will …. harm some 21,000 small business owners who pay individual income taxes on their business income.”

    I hear this claim a lot. Does not Minnesota let them deduct all of their expenses and only tax the profit that’s left over? I seriously don’t know.

  5. Submitted by Peter Stark on 04/17/2013 - 01:29 pm.

    Non-Policy Factors

    MinnPost published an article not long ago about tax-and-cost business indexes that I think is relevant to the discussion here.

    The San Francisco Fed studied the relationship of so-called “business climate indexes” to job growth and GDP growth across the states. The researchers determined that while business climate indexes (i.e. taxes, costs, regulation, etc.) played a significant role in jobs and GDP growth, non-policy factors were more important in most cases. Factors like industry-mix (largely a historical or geographical consequence), weather, and population density were either just as important or more important than taxes and regulation.

    So while studies of tax-and-cost structures facing businesses is an important component of “business climate,” it certainly isn’t the entire picture. Minnesota, for instance, appears to be naturally endowed with a strong business climate due largely to geography and historical developments. That we manage to have so many Fortune 500 companies, rank 11th highest in median household income, and have the 10th lowest unemployment rate among the states, despite our tax and regulatory structure should make this point clear.

  6. Submitted by John Bracken on 04/18/2013 - 09:27 am.


    I am a small time contractor. Once a year I take my required education update. Each year I sit there stunned at how the state can keep pummeling us with more rules, more fines, and more paperwork. I wouldn’t wish this upon anyone. It is easier to stay small, have no employees, and as people do increasingly, consider the option of cash. Being self employed you come to understand the tax burden really fast…15.3% Social Security/Medicaid, 7% state and 15% federal (probably 28% if the wife works). Then, of course, throw in about 7.3% tax on materials. Math, an inconvenient truth.

  7. Submitted by Susan McNerney on 04/18/2013 - 12:14 pm.

    If taxes were such a huge indicator

    of business success, the three highest states in terms of venture capital funding wouldn’t be California, New York, and Massachusetts, but they are.

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