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Minnesota’s Cost of Doing Business

October 04, 2011 By John R. Van Hecke, Executive Director & Fellow

As we’ve explored, Minnesota businesses receive a relatively good return on their tax investments in the form of skilled workers, solid infrastructure, and quality public health and human services.

Another set of factors firms must examine when considering expansion or relocation is the cost of doing business in a state—that isn’t related to taxes. That includes power and energy costs. For growing companies or start ups, entrepreneurs must explore investment availability and start-up assistance.

In these areas, Minnesota enjoys relatively low energy prices, a “reasonable and balanced tort liability system,” and a high level of venture capital investment and Small Business Administration loans.

Combining these measures with Minnesota’s reasonable level of business taxes (see “Average Business Taxes, Above Average Return”), Minnesota’s business climate is certainly competitive with other states.

Minnesota ranks among the 25 states with the lowest business energy prices in six measures of electricity and gas prices examined, which include a typical energy bill for commercial and industrial users, average annual gas prices for industrial and commercial users, and Energy Star labeling. For all six measures of energy prices for commercial and industrial users, Minnesota is near or significantly below the U.S. average, as measured by DEED.

These lower energy prices correlate with the state’s conservation initiatives that have saved our environment from more than a million tons of carbon monoxide emissions annually.

“Energy conservation programs help Minnesotans save energy, reduce pollution and the need for costly new power plants and infrastructure, and create jobs for companies that analyze, manufacture and install energy efficiency improvements,” said Mike Rothman, commissioner of the Minnesota Department of Commerce in a June press release.

The state’s 2007 Next Generation Energy Act is providing companies, individuals and public entities with a myriad of incentives to reduce their energy consumption. Examples include help with high-efficiency lighting retrofits, incentives for premium-efficiency industrial motors, and incentives for the purchase of Energy Star-labeled furnaces and air conditioners.

Minnesota ranks 12th relative to other states when it comes to Energy Star-labeled buildings. The state ranks 9th in average annual gas prices for both commercial and industrial users.

Each utility in the state, with the exception of the smallest municipal natural gas utilities, is required to operate a conservation improvement program.

As a result, electric utilities have invested $246 million in conservation programs, saving more than 1.2 million megawatt-hours of electricity. Natural gas utilities have invested $41 million in conservation programs, according to Minnesota’s Department of Commerce.

This publicly-led conservation effort no doubt helps companies in their efforts to minimize energy consumption.

Minnesota ranks well in several other key business indicators that help keep finances and expenses predictable.

According to Minnesota DEED, “Litigation environments have an impact on business decisions, including where companies choose to locate. Minnesota offers the 11th most reasonable and balanced tort liability system in the nation, according to the 2010 study by Harris Interactive Inc. for the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce.”

Minnesota also compares favorably to the rest of the nation in terms of the level of venture capital investment and the availability of Small Business Administration (SBA) loans. In terms of the total volume of venture capital investment, Minnesota ranks 20th among the states (14th on a per capita basis). In terms of the volume SBA loans, Minnesota ranks 9th among the states (6th on a per capita basis).

Good business people, the kind we want running Minnesota companies, realize that conservatives’ rhetoric about lower taxes and less regulation is misguided policy. Of course business want fair and predictable taxes and regulations. But taxes and regulations must also be fair for their workers and fellow citizens.

Good business people see government as a corporate partner. Businesses are usually looking to outsource what other firms do better and more efficiently. A good business will look for a well-functioning state that is best equipped to build roads, educate workforces, and establish fair and consistent regulatory and court systems.

State’s like Minnesota which add extra value through public initiatives to reduce energy costs, provide above average workforces, and assist start ups with financing and mentoring are even more attractive.

These are the businesses we should be looking to attract and grow in Minnesota.

Photo credit: Doug Wallick, creative commons

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