Iowa dramatically outspends Minnesota to lure companies like Amazon

The head of Apple Inc. stood on the steps of the Iowa State Capitol this summer and delivered the kind of speech that makes some Minnesotans wince.

In glowing terms, Apple CEO Tim Cook described how Iowa persuaded the tech giant to build a $1.4 billion complex in a Des Moines suburb that will create 550 jobs and "build a new home for innovation in America's heartland." The deal came with $213 million in state and local incentives.

"At Apple, we admire what you guys have accomplished," Cook said as the Iowa flag waved in the background. "And we want to be part of it."

What Iowa has accomplished is a string of victories in the competitive world of economic development that has easily outpaced Minnesota's performance. In recent years, the Hawkeye State has landed big corporate names such as Facebook, Google, Microsoft and IBM, which are spending billions of dollars for new facilities and creating thousands of jobs in a state still known mostly for corn.

Now Amazon is planning to build a second headquarters that could someday employ 50,000 people, and the Twin Cities and other metro areas around the country are preparing for a fierce battle to land it. But Minnesota, which once dominated its neighbors in attracting big-ticket corporate projects, has not done as well lately.

Gov. Mark Dayton, a Democrat, recently said the state's bid for Amazon would be "restrained," and some lawmakers oppose big incentives at a time when unemployment in the state is 3.8 percent. Why throw money at the likes of Apple or Google, some argue, when Minnesota is already a major corporate center, with 17 Fortune 500 companies.

"Incentivizing additional job creation doesn't make sense when we already have unemployment rates that are far below the national average," said state Rep. Patrick Garofalo, a Republican who moved to trim the state's economic development budget in 2016.

But critics of Minnesota's approach say the state's healthy economy, which recovered quickly after the recession and has continued to expand, is feeding a sense of complacency. They point out that federal projections show the state's rate of job growth slowing significantly in coming years, falling behind Iowa and almost every other Midwestern state.

Since 2002, when Iowa dramatically boosted the amount of state money available for recruiting corporate expansion and relocation projects, the Hawkeye State has handed out $2.4 billion in incentives and created more than 112,000 jobs. The state of Minnesota, by contrast, spent less than $100 million through its primary job creation programs, netting about 16,000 jobs, records show.

"I think that is government malfeasance," said Tim Mahoney, a Democratic legislator from St. Paul who thinks Minnesota should be spending $50 million a year on economic development. "If we were investing the kind of dollars they are in Iowa, we wouldn't care if Amazon came here with 50,000 jobs because we wouldn't really need them."

Minnesota has been willing to shell out big dollars to lure development, but the money for those projects often comes out of the pockets of local taxpayers, not the state.

In 2015, for instance, Shakopee invested more than $5 million for road improvements around Amazon's new fulfillment center, creating 1,000 jobs. Richfield spent $48 million to subsidize Best Buy's new corporate headquarters. Target received $62 million from Minneapolis to build a downtown store and office tower in 2001.

Such moves are often controversial, with some residents blasting the use of "corporate welfare" to buy jobs. The Target project was so unpopular that former Mayor Sharon Sayles Belton lost the endorsement of the DFL in her 2001 re-election campaign, which she subsequently lost to R.T. Rybak.

Local support often is necessary because the state has so little money to promote economic development. In 2016, for instance, the Minnesota Department of Employment and Economic Development (DEED) received $12 million for its main job-creation programs, versus $186 million in Iowa.

Dayton has repeatedly pushed for more funding, arguing that Minnesota could create tens of thousands of additional jobs by providing more incentives. Legislators agreed to boost DEED's budget in Dayton's first four years, with annual spending on job programs climbing from $3.8 million in 2012 to $27 million in 2015. But last year, Republicans led the charge to slash those programs by more than 50 percent.

Garofalo said it makes more sense for the state to pursue big projects on a targeted basis, citing the Legislature's vote in 2013 to spend $372 million over a 27-year period to help pay for Mayo's massive Destination Medical Center project in Rochester. Garofalo, chairman of the House committee that oversees economic development efforts, said he would be willing to support a similar effort to help Minnesota land Amazon's second headquarters.

"We are in favor of a smart plan that gets Amazon to choose us," Garofalo said. "But if this turns into a sweepstakes, it ain't going to be us. We are never going to be able to offer the amount of cash that a state like Texas does."

Minnesota's reluctance to compete aggressively for jobs has paralleled a significant decline in the number of capital projects undertaken in the state by corporate America.

Compared with the late 1990s and early 2000s, when Minnesota routinely attracted far more major projects than neighboring states, Iowa and Wisconsin have surged ahead. In 2016, companies completed just 60 projects that cost $1 million or more or generated at least 20 new jobs in Minnesota, compared with 93 in Iowa and 106 in Wisconsin, according to Site Selection magazine, a trade publication that publishes an annual review of capital spending.

Real estate professionals from around the country agree that Minnesota has a lot to offer, but they said the state is often cut from the list by the time a company reviews its finalists. The state's lack of economic incentives is a frequent factor, as well as what some consider a slow business permitting process.

"I like Minnesota — I like the workforce, it's quality of life," said Mike Mullis, a Memphis consultant who has worked with Walmart and Amazon owner Jeff Bezos on site selection issues. "But historically, it has not been that competitive of a state. And a lot of the states around it have preyed on that fact. Wisconsin has done an excellent job of moving people across the border."

Over the past decade, the number of major projects in Minnesota has dropped by 58 percent. Only West Virginia and South Dakota saw larger declines, according to a Star Tribune review of Site Selection data.

"We can't rest on our laurels," said DEED Commissioner Shawntera Hardy, noting that her pipeline of projects has slowed since lawmakers trimmed her budget. "Just because our unemployment is at 3.8 percent isn't the full story of Minnesota. We need a robust and diverse economy."

In Iowa, public officials often tie incentives to training programs and the creation of high-paying jobs, rather than shelling out cash to corporations simply for choosing their state, records show.

"That's the kind of incentive that is good for everybody," said Jim Vos, a real estate consultant who negotiates leases in Minneapolis.

Economic development professionals said Minnesota's labor shortage could scare away big employers like Amazon, which want a reliable supply of workers. The federal Bureau of Labor Statistics projects Minnesota as one of the most sluggish job markets in the United States, with the number of new jobs projected to grow by just 4.3 percent by 2024, compared to 6 percent in Wisconsin and 8.6 percent in Iowa.

"We apparently think we're so good we don't have to play on the same field as Iowa or Texas or Pennsylvania or any other state," Mahoney said. "We've been listening to Prairie Home Companion way too much."

Star Tribune writer Nicole Norfleet contributed to this report.

Jeffrey Meitrodt • 612-673-4132