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January 12, 2011

Restarting Private Sector Job Growth in the Greater MSP Metro Area. January 12, 2011. Case for Change What Drives Job Growth? Strategies for Greater MSP. Agenda. 1. For the past 30 years, the Twin Cities have enjoyed steady growth. U.S. average. Twin Cities. Midwest.

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January 12, 2011

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  1. Restarting Private Sector Job Growth in the Greater MSP Metro Area January 12, 2011

  2. Case for Change What Drives Job Growth? Strategies for Greater MSP Agenda 1

  3. For the past 30 years, the Twin Cities have enjoyed steady growth U.S. average Twin Cities Midwest Real income per capita1 CAGR 2.0% 1.9% 1.9% 1980 1985 1990 1995 2000 2005 GDP per capita1 CAGR 1.7% 1.8% 1.4% 1980 1985 1990 1995 2000 2005 1 In 2005 dollars

  4. The Twin Cities has an incredibly strong private sector . . . $425 billion MSP has the 3rd most Fortune 500 companies per capita in the country Revenue earned by Twin Cities Fortune 500 companies 22 Fortune 500 companies headquartered in the Twin Cities 6th Ranking among regions for most companies in the Fortune 400 private companies list – including Cargill and Carlson

  5. . . . world-class research and strong human capital . . . 5th among all states in patents per investment dollar MSP has the 5th best percent of advanced degrees among MSAs Educational Attainment, 2007 U of M is nationally ranked #7 in patent-revenue generating research Population >25 with high school diploma Percent Population >25 with advanced degree Percent 93 85 The Mayo Clinic ranks 2nd in the US News & World Report 2009 America’s Best Hospitals for 5th consecutive year MSP U.S ave MSP U.S. ave

  6. . . . and quality of life amenities #1 #1 Volunteering rate in the nation “Local food” community in the nation #2 #1 Theatre seats per capita, behind NYC “Most Athletic City” in the nation #1 Largest mall in America 4 Major League sports franchises #3 And the largest pond hockey tournament in the world! Number of museums

  7. However, the region is losing ground Difference between Twin Cities employment growth and U.S. employment growth1 Job growth has significantly declined relative to the U.S. 1 3-year moving average difference between Twin Cities and the U.S. using the given year and the previous two years

  8. Our business rankings have worsened Forbes Best Places for Business and Careers Milken Best-Performing Cities 2003 rank 2009 rank 2003 rank 2009 rank Austin 1 8 Raleigh-Durham 12 2 Raleigh-Durham 3 1 Sacramento 15 58 MSP 20 76 Austin 59 4 Columbus 24 38 Denver 89 44 Denver 34 14 MSP 99 123 Sacramento 36 119 Columbus 10 135 Seattle 89 17 Seattle 13 17 Chicago 100 71 Chicago 14 160

  9. The Twin Cities have a challenging business climate Minnesota is 38th out of 50 in terms of overall business climate according to Milken Institute Cost of Doing Business Index 38th 43rd The tax foundation ranked Minnesota 43rd out of 50 on its business tax climate 373rd Twin Cities is 373rd out of 381 MSAs ranked from lowest to highest labor cost

  10. Legislative/ regulatory environment Tax environment Labor costs COST OF DOING BUSINESS High cost of doing business in the Twin Cities is driven largely by tax, regulatory and labor costs Initial findings • Minnesota ranks poorly both on business climate (41 of 50) and ratio of tax benefit to tax burden (46 of 50) • Minnesota’s corporate tax rate of 9.8% is third highest in the country • Minnesota ranks 30th on Forbes’ “Best states for doing business” rankings • Minnesota has the most stringent health insurance mandates in the country • Twin Cities has the 8th highest labor cost (out of 381 cities) • 15.9% of workers are in unions, above 12.5% national avg. • Wages for low skilled workers in the Twin Cities are 8.5% higher than peer regions SOURCE: McKinsey Global Institute, Forbes, Tax Foundation, Moody’s Economy.com, Firm experts

  11. COST OF DOING BUSINESS Minnesota All other states 48 17 44 39 Minnesota’s taxes are among the highest in the country MN state rank (1=lowest, 51=highest) 2009, Percent 9.8 Corporate Income Tax1 US Avg. 6.6 US Avg.5.086 Sales Tax 7.9 Personal Income Tax2 US Avg.5.9 Corporate Property Tax Index3 US Avg. 3.0 1 Represents the highest marginal corporate tax rate 2 Represents the highest marginal personal income tax rate 3 This represents the relative ranking of corporate property taxes (0=best possible property tax ranking, 3= US average, 6 = the worst possible ranking). SOURCE: Tax Foundation

  12. The Twin Cities lack a coordinated business development effort Local Business Leaders say . . . Site Selection Consultants say . . . “Minnesota gets dominated by almost every other state because we have no one hit team, one organization, in economic development. Nothing’s coordinated, it’s a mess . . .” “You probably have lost a significant amount of corporate prospects due to a lack of regional agency.” We have multiple organizations focused on economic development, but no coordinated , regional effort . . .

  13. Case for Change What Drives Job Growth? Strategies for Greater MSP Agenda 12

  14. Three Sources of Job Growth Retain existing companies in the Twin Cities and foster an environment for growth Retain Quality Job Growth Create Attract Attract investment and corporate relocations from outside Minnesota Enable the creation of new Twin Cities firms through a culture of innovation

  15. 7 How do you Create Job Growth? Environmental Levers Cost of Doing Business level of taxes, incentives , regulatory and/or permitting process Quality of Life lifestyle and community factors Human Capital quality and investment of workforce, education and training Infrastructure regional transportation, airport access, telecom, utility capabilities Innovation and Start-up R&D capabilities, commercializing research and ability to source capital support to entrepreneurs Process Levers  Unified Vision Economic development strategy developed and institutionalized with main economic development organizations Central ED Governance A single organization coordinates economic development efforts Sector Focus Explicitly target particular sectors as growth engines for the region Marketing Campaign Highly visible campaigns which market regional identity

  16. Greater MSP Assessment MSP above peers and national average MSP around average MSP below average Assessment Supporting Facts • Minnesota’s corporate tax is third highest in the nation at 9.8% • MN ranks 43rd in overall tax climate • MSP ranks 8th highest in wage labor rates out of 383 MSA’s Cost of Doing Business • Ranked #1 on Sperling’s best places, #2 on Forbes Best U.S. Cities to earn a living, and #2 in Next Cities: Hotspots for young, talented workers Quality of Life • 36.8% of Twin Cities residents have a bachelor’s degree relative to 27.5% nationally Human Capital Environmental Levers • MSP average commute time of 24 minutes is at the US average and average commute time via public transportation is better than US average • Broadband penetration of 56% is middle of the road relative to peers Infrastructure • Ranks 22nd in number of entrepreneurs per thousand residents • At 26 deals venture deals in 2007, MSP lags top innovation hubs Innovation and Start-up 15

  17. Greater MSP Assessment MSP above peers and national average MSP around average MSP below average Assessment Supporting Facts • Currently various economic development entities operate with varying visions • ED pursued at a sub-regional level Unified Regional Vision • Currently, ED entities operate largely autonomously • Sub-regions within MSP often compete for business rather than coordinating efforts Central ED Governance Process Levers • Limited outreach efforts on regional basis, with most outreach coming from city entities such as Capital City Partnership • More to Life and Positively Minnesota efforts Marketing Campaign • Historically limited coordinated cluster efforts but some current activities underway (e.g., RCM, Humphrey Institute) Sector focus 16

  18. Proposed 3 Strategic Priorities for the Region to collectively work on… • Address the cost of doing business • Develop a regional vision, strategy and approach for economic development • Enhance entrepreneurship and innovation

  19. Case for Change What Drives Job Growth? Strategies for Greater MSP Agenda

  20. Retain, expand and attract existing companies Create new companies and start-ups Where those findings led us: Itasca Job Growth Initiatives Objective: Fuel Quality Job Growth • Launch a Regional Economic Development Partnership (REDP) • Private - public partnership • 13 county MSA definition • Scope of Activities • Region’s ED vision and strategy • Branding and marketing • Retention and expansion • Attraction • Support and enhance the productivity of the region’s entrepreneurship ecosystem • Establish a Business Bridge • Institutionalize working relationships between the University of Minnesota and the Private Sector

  21. MSP REDP Launch Status Hire a CEO Secure Year 1 Investment 1 2 • Engaged national executive search firm • Currently in final stages of interviews • New CEO in place in Q1 • Nearing Year 1 Goal: $2.8M • Public Sector: 6 counties & 14 cities contribute over $900K • Private Sector: $1.5M pledged, $1.0M outstanding asks Initiate Legal Incorporation Draft Rules of Engagement 3 4 • Incorporating as a 501c3 • Creating board governance concepts & documents • Selecting initial board members • Engaging economic development leaders throughout region • Formalizing operating protocol between REDP and other ED organizations • 20 • 20

  22. Appendix

  23. Active Minneapolis-Saint Paul Regional Economic Development Efforts Regional Economic Development Activities* Transportation/ Land Use Entrepreneurship/ Innovation Strategy and Growth Talent Green • 4FRONT • TheLineMedia.com • Living Cities Corridors of Opportunity • HUD Sustainable Communities • Integrated transit/ROI planning • Central Corridors Funders Collaborative • Entrepreneurial Accelerator • Business Bridge • Minnesota Showcase • Supplier Library • REDP: Regional Economic Development Partnership • Brookings Metropolitan Business Plan • Regional Competitiveness Project • Destination 2025 • MetroMSP.org • Thinc.GreenMSP *Funded/Confirmed programs and efforts with individuals actively working to positively impact regional economic development in the greater Minneapolis Saint Paul metro area • 22

  24. Create new companies and start-ups Retain, expand, and attract existing companies Where those findings led us: Job Growth Initiatives Objective: Fuel Quality Job Growth Key Itasca Initiatives • Support and enhance the productivity of the region’s entrepreneurship ecosystem • Establish a Business Bridge • Institutionalize working relationships between the University of Minnesota and the Private Sector • Launch a Regional Economic Development Partnership (REDP) • Private - public partnership • Scope of Activities • Region’s ED vision and strategy • Branding and marketing • Retention and expansion • Attraction Rationale • Region’s entrepreneurial activity slowing in recent years • Prominent and critical gaps in funding availability, entrepreneurship culture, and regulations • Opportunity to bundle and promote core assets • Other regions are aggressively competing for jobs, while Twin Cities frequently not in consideration set

  25. 4 2 1 5 9 3 7 6 8 10 ItascaProject History (2003 – 2009) Ideas, Innovation, and Business Climate Talent/Workforce Retaining and Growing Leading Employers/Grow MN! Creating a World-class K-12 Education System in MN Strengthening University-Business Relations Supporting the Strategic Redirection of Minneapolis Public Schools Supporting the Growth of Small Business / GetGoMN.org Supporting Early Childhood Development Quality of Life Infrastructure Advancing a Comprehensive Transportation Plan Financially Fit Minnesota Twin Cities Compass Understanding and Addressing Socio-economic Disparities/Close the Gap

  26. Key questions • Should we focus on retention of jobs given that it has the largest base of growth? • Which focus – retain, create, attract – would provide the greatest return on investment? Retaining and growing Twin Cities-based establishments is a significant opportunity Employment loss Employment gain Twin Cities average gross employment flows Average annual percent change of employment, 2002-2007 Retain Create Attract 18%-22% 1-3% 1-3% (3%-6%) (17%-21%) Loss from contraction1 Loss from establish-ment closings2 Gains from existing MN firms3 Gains from creation of new firms4 Gains from attracting new establishments5 SOURCE: Bureau of Labor Statistics, Dunn & Bradstreet, Economy.com, McKinsey analysis

  27. Small employers account for approximately 76% of job growth Key questions • Should we develop strategies specific to company size? • Where do we get the greatest return on our investment? Small (1-20 employees) Medium (21-499 employees) Large (500+ employees) Total employment in Minnesota , Employment growth by enterprise size1 Percent, 2003-2006 Percent of employment growth, US Percent, 2003-2006 Small 17 Medium 34 77 76 21 Large 49 2 24 Percent of Employment Percent of Employment Growth2 SOURCE: US Census Statistics of US Businesses, McKinsey analysis

  28. A small group of sectors has driven the majority of job creation Top employment growth sectors 2.3 5.0 Key questions • Should we focus on growing specific high skill, high productivity sectors? • Should we focus on improving the economic foundation – “a rising tide lifts all boats” ? 6.8 4.0 5.8 1.8 Twin Cities Job Creation by Sector (2002 – 2007) Percent Employment Growth Difference MSP-US Employment Growth CAGR Twin Cities Food/Drinking Places 11.1 -0.3 Hospitals 11.0 +3.3 Social Assistance 10.5 +3.0 Ambulatory Health Care 10.3 +0.6 Educational Services1 7.8 +3.7 Administrative Services 7.2 -0.2 1.4 Professional Services -1.5 6.2 4.0 1.1 -0.3 General Merchandise Stores Other 31.8 Job Creation SOURCE: Bureau of Economic Analysis, Bureau of labor statistics, Moody’s economy.com, McKinsey analysis

  29. Key area of focus of economic development effort Secondary area of focus of economic development effort Not an area of focus of economic development effort Best practice regions employ varying mixes of levers but several emerge as consistent across regions Consistent lever across regions Raleigh-Durham Ireland Singapore Nashville Austin Pittsburgh Cost of doing business  Quality of life Environmental levers  Human capital Infrastructure Innovation and start-up  Unified vision  Central ED governance Process levers Sector focus  External marketing campaign

  30. Volunteerism, 2007 Percent of pop’n volunteering in past year Libraries, 2007 Library volumes per capita MSP 38.3 Columbus 4.2 Seattle 35.1 Chicago 3.8 Columbus 34.1 Baltimore 3.6 Austin 29.8 MSP 3.5 Chicago Denver 28.8 Seattle 2.9 Raleigh-Durham 28.3 Denver 2.6 MSP Baltimore 27.1 Austin 2.4 San Diego 25.9 Raleigh-Durham 2.3 Baltimore Sacramento 23.2 San Diego 2.2 Chicago 22.1 Sacramento 1.7 Denver Seattle Arts Community, 2007 Arts establishments per 1,000 residents Recreation space, 2007 Acres of park per 1,000 residents San Diego Austin 37.5 Denver 0.92 Raleigh-Durham San Diego 35.9 Austin 0.74 Raleigh-Durham 34.2 MSP 0.72 Sacramento Columbus 18.1 Chicago 0.72 Seattle 0.62 MSP 16.7 Columbus San Diego 0.53 Denver 15.3 Sacramento Baltimore 0.52 11.3 Austin Columbus, OH 0.48 Seattle 10.4 Sacramento 0.42 Baltimore 7.7 Chicago 4.2 QUALITY OF LIFE The Twin Cities compare well against peers in civic engagement and leisure amenities Leisure and entertainment rank, 2007 Score based on multiple metrics1 1 Rank compiles data on dining, shopping, entertainment, outdoor activities, media, performing arts, and museums SOURCE: Corporation for National & Community Service; Cities Ranked & Rated; Trust for Public Land

  31. 7 Advanced Degree Attainment Percent, 2007 Graduate or Professional Bachelors MSP 25 12 37 Seattle 23 12 35 Columbus, OH 21 11 32 Denver 23 13 36 Raleigh-Durham 25 15 40 Sacramento 20 10 30 Austin 25 13 38 Baltimore 19 14 33 San Diego 21 12 33 Chicago 20 12 32 US Advanced Degree Average: 27 HUMAN CAPITAL The Twin Cities have a highly educated population Population over 25 with high school diploma Percent, 2007 MSP Seattle Columbus, OH Denver Raleigh-Durham Sacramento Austin Baltimore San Diego Chicago US Average: 84.5 SOURCE: US Census “American Community Survey,” McKinsey analysis

  32. Average commute time by public transport Minutes, 2007 US Average 48 INFRASTRUCTURE Twin Cities residents have reasonable commute times relative to peers Average commute time by car, truck, or van alone Minutes, 2007 Austin Columbus, OH MSP Sacramento Raleigh-Durham San Diego Denver Seattle Chicago Baltimore US Average 25 SOURCE: US Census Bureau, American Community Survey

  33. 3 The Twin Cities’ VC market is less robust than its peers INNOVATION Venture capital investments Total venture capital deals Average annual investment, 2004-2007$ per capita Total, 2004- 2007Number of deals Denver Denver San Diego San Diego Austin Austin Seattle Seattle Raleigh Raleigh Baltimore Baltimore MSP MSP Sacramento Sacramento Chicago Chicago Columbus Columbus SOURCE: Capital IQ

  34. 0 Entrepreneurship Growth, 2002-2007 CAGR 17 10 20 26 43 40 19 47 22 INNOVATION Minnesota has competitive levels of entrepreneurial activity Entrepreneurial activity1, 2007 Number of entrepreneurs per 100,000 people State rank 1=highest California Colorado North Carolina Maryland Minnesota Texas Illinois Washington Ohio US Average = 300 1 Using Census Current Population Survey data, the study tracks the change in the number of non-business owners who become business owners month-to-month SOURCE: Kauffman Foundation Index of Entrepreneurial Activity

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