Does Minnesota Have A Better Business Climate Than North Dakota? I'm Not Buying It

In a recent ranking by CNBC, Minnesota comes in #1 in the nation in terms of business climate. North Dakota ranked 6th, South Dakota ranked 11th, Iowa ranked 10th, and Wisconsin ranked 15th.

That’s an unusual outcome, and one likely to prompt a lot of gloating east of the Red River where government officials have been chapped at times at North Dakota’s overt efforts to brand itself a more business friendly. Typically Minnesota, thanks to its high-tax status, ranks much lower but this year CNBC tweaked their methodology which gave Minnesota the edge. “CNBC indicated a new emphasis on its workforce category in the rankings,” reports the Grand Forks Herald.

“Rather than just seeking the lowest taxes or the highest incentives, companies are increasingly chasing the largest supply of skilled, qualified workers,” the CNBC article said.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]”A family of four in Minnesota making $100,000 per year, itemization not considered, pays $4,409 in state taxes,” Peterson wrote. “If this family lived in North Dakota, they would only pay $941 in state taxes. If the same family made $150,000 per year, they would pay $7,934 in Minnesota state taxes compared to $2,013 in North Dakota.”[/mks_pullquote]

I guess that makes sense, but other metrics tell us that Minnesota’s economic climate may not be all it’s cracked up to be. For instance, young people are leaving that state and coming to places like North Dakota.

Minnesota “has lost residents every year since 2002, with young adults most eager to leave,” the Minneapolis Star-Tribune reported recently. “About 9,300 18- to 24-year-olds move out annually, according to the Minnesota State Demographic Center. That — combined with a declining birthrate and an aging population — has demographers and civic leaders sounding alarms.”

North Dakota has been a beneficiary of this outmigration of Minnesota’s young adults. “About a third of Minnesota’s “leavers” tend to move to the border states of Wisconsin (16 percent), North Dakota (12 percent) and Iowa (6 percent),” the Star-Tribune reports.

And taxes, while certainly not the only reason for the trend, probably explain at least some of it. Because, as North Dakota Chamber of Commerce President Andy Peterson noted last year, there’s a big difference between taxes in North Dakota and taxes in Minnesota.

“A family of four in Minnesota making $100,000 per year, itemization not considered, pays $4,409 in state taxes,” Peterson wrote. “If this family lived in North Dakota, they would only pay $941 in state taxes. If the same family made $150,000 per year, they would pay $7,934 in Minnesota state taxes compared to $2,013 in North Dakota.”

What that means is that young families could get themselves a sort of raise worth several thousand dollars a year just by leaving Minnesota for a lower-tax environment like North Dakota. And Peterson wrote this before North Dakota’s legislature passed another $125 million in income tax cuts earlier this year.

Here’s another indicator for why Minnesota shouldn’t necessarily be deemed more business friendly than North Dakota: Border town populations.

Comparing the 2013 population of cities on the North Dakota side of the Red River to their sister communities on the Minnesota Side, you can see that North Dakota has a clear advantage:

If Minnesota’s business climate is so great, why do so many people in these bordertown communities choose to live and work on the North Dakota side of the border?

I think CNBC should take another look at their methodology. Does Minnesota have a better workforce available? Perhaps, but then it’s not like North Dakota, South Dakota, Iowa, and Wisconsin have ever been shy about tapping into Minnesota’s workers for their own economy based on outmigration trends.

Which doesn’t exactly uphold the argument that Minnesota is #1 in business climate.