Business climate not the same for everyone

The shouts and huzzahs from the governor's office when the business news channel CNBC recently named Minnesota as the best state for business likely made it difficult to hear the heavy sighs of the business owners who have a completely different lived experience.

There is no good reason to just dismiss the overall conclusion of the CNBC study, as the facts CNBC lined up to put Minnesota just ahead of No. 2 Texas seem convincing. It's also easy to find people here who will happily admit they love running a business in a region with a great quality of life and a highly educated workforce.

But to conclude that everything is just fine here for "business" means accepting the comical idea that every business owner's situation is the same.

Our business community includes the Cargill executives who preside over a sprawling global corporation out of a Minnetonka mansion as well as the entrepreneur who spends much of his workday behind the counter of a dry-cleaning store.

They won't see business issues like paying property taxes or minimum wages the same way, and that's if the top people at Cargill think much about those things at all.

The industry seems to matter, too, not just the size of the company. Minnesota seems like a great place for software developers who love biking to work in the city, less good for a manufacturer with a big plant that generates a hefty property tax bill. It's a tax the software developers probably don't even notice paying.

It's not even possible to say that every firm in one industry has the same experience here, and there may be no better example than restaurants.

The quick service and fast casual restaurants, places like locally owned Punch Pizza, are doing well here, said Dan McElroy, the top staffer for the state's restaurant association. So are fine dining restaurants, at the upscale end of the market.

Where it's a lot more difficult to make money is in the middle. These are the casual restaurants that provide affordable food along with good table service. They are facing higher labor costs as Minnesota's minimum-wage law does not allow credits for tips the servers earn, which is similar to the laws in states like Washington and Oregon.

"Minnesota in the restaurant space has just shy of 19 employees per restaurant, which is also close to the national number," McElroy said, citing Federal workforce data. "That's also where Washington and Oregon were five or six years ago. Washington and Oregon are now at 14.2 employees per restaurant."

McElroy said restaurant owners in the Pacific Northwest simply replaced servers with iPads and the food is delivered by a minimum-wage runner. The businesses are managing to get by, he said, but with far fewer employees.

The CNBC study didn't just focus on minimum-wage or tax policy, of course. It ran down a long list of things that are undeniably assets for the state, noting that Minnesota scored well for quality of life with low crime, clean air and an excellent health care system.

The 2015 version of the CNBC study also put more emphasis on the depth of a state's skilled workforce, and Minnesota did well here, too. Minnesota also finished in second place for education, with CNBC highlighting the state's high schoolers perpetually holding the top spot for composite ACT test scores.

"The 20th century has been described as the human capital century — as opposed to physical capital and land, which were more important factors of production in past times," Macalester College economics professor Pete Ferderer said. "Human capital is even more important in the 21st century and so being No. 2 in education matters more as time goes by."

Good schools for the kids is a frequent topic when interviewing people who came to the Twin Cities to work for one of the state's big companies, along with short and predictable commutes, outdoor activities and a vibrant arts scene. These people invariably grow to like it here so much that leaving is out of the question.

The deep talent pool here is one of the reasons why the structure of our state's economy seems to work just fine for the big headquarters companies, even if it's possible to hear CEOs grumble about the cost of doing business here.

Charlie Weaver, executive director the Minnesota Business Partnership, an organization of the CEOs of the state's largest employers, points out that the CEOs can run their global businesses from nearly anywhere "but they are not inclined to move so long as everything else works."

Weaver said car dealers or dry-cleaning store owners would probably leave this month if they could.

The CNBC study ranked Minnesota 35th in the cost of doing business, and the personal income tax rate here causes business owners heartburn, too.

Big companies can just pay executives a little more, but for a mom-and-pop taxed as a Subchapter S or other pass-through company, the business money and the personal money are the same. The personal income tax rate here tops out at 9.85 percent, among the highest in the nation.

The business group that represents mom-and-pops is the Minnesota Chamber of Commerce, and come next winter it will bring its members to St. Paul for its annual legislative session priorities dinner. This well-attended event always features a question-and-answer session with legislative leaders.

If one of Minnesota's small-business owners stands up and first congratulates the political leaders for helping make Minnesota the best place in the country for business, that would be a story worth reporting on CNBC.

lee.schafer@startribune.com • 612-673-4302