Minnesota Opinion: No surprise that Minnesota ranks most expensive for business

Best-states-for-this and worst-states-for-that rankings are all the rage, especially on social media, and easy to dismiss.

But when a reputable news outlet like CNBC reports on one and the source of the ranking is a just-as-reputable online small-business advisor, the results are worth considering. That’s especially true for Minnesota with our state topping a recent ranking related to our ongoing and longtime struggle to be business-friendly.

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This month, Minnesota ranked No. 1 as the most expensive state to start a new business, as determined by SimplifyLLC . That disappointing designation can be a wake-up call in St. Paul and statewide, as competition between states to attract businesses, industries, and jobs — and to bolster local economies and residents’ quality of life — only intensifies while we continue to recover from the pandemic’s economic devastation.

“I am not surprised,” Rep. Natalie Zeleznikar, R-Fredenberg Township, said in response to a Duluth News Tribune Opinion page request for comment on the report. She cited several business-unfriendly state actions and measures being considered by the Legislature this session, including a state mandate for 100% clean energy, a proposed paid family and medical leave program with $2.9 billion in new payroll taxes needed for its startup and untold costs to Minnesota businesses, project permitting that’s pricey and drags on too long, a proposed $300 million-a-year capital-gains surcharge (which would make Minnesota’s capital gains tax the second highest in the U.S.), and even a new fee on pizza and other orders delivered by local small businesses.

Reflecting on the legislation being worked on by the DFL-controlled Legislature, Zeleznikar said lawmaking this year has been akin to a “war on small business.”

“I do not believe Minnesotans agree with … (what) we are seeing now,” she said. “We need a model to support businesses and entrepreneurs, and the Democrat plan is not business-friendly or employee-friendly. Without businesses, there are no jobs for anyone. Let’s get Minnesota back on track.”

To determine its ranking, SimplifyLLC conducted a state-by-state comparison of business costs in four categories: basic business costs, labor costs and worker availability, cost of space and utilities, and healthy business environment.

After the numbers were crunched, it determined, among other findings, that “Minnesota has one of the country’s highest corporate income tax rates, at 9.8%,” as CNBC reported. “It also has relatively high labor costs. … Last year, Minnesotans’ average annual wage was $60,598, according to the U.S. Bureau of Labor Statistics. Together, those factors contribute to a high cost of doing business in the state.”

Minnesota’s ranking may be alarming, even if not so surprising, but it does have merit, according to Monica Haynes, director of the Bureau of Business and Economic Research at the University of Minnesota Duluth. Especially if we keep in mind, as she and others warn, numbers can always be massaged and twisted.

“From what I can tell there are no issues with the (study’s) methodology,” Haynes, also an adjunct professor in the Department of Economics and Health Care Management at UMD, told the Opinion page. “But, for any of these types of rankings, the measures they choose to include will vastly influence where a state will fall on the list.”

For example, most Minnesota businesses uses pass-through taxation instead of corporate tax rates, Vicki Hagberg, regional director of the Northland Small Business Development Center , pointed out to the Opinion page.

“I make this point not to minimize the importance of corporate tax rates in Minnesota being high compared to other states but to point out that the argument made in the original article is not applicable to the majority of businesses being started,” Hagberg said. “Similarly, a high labor force participation rate is good for businesses, but you also need to couple that statistic with the unemployment rate to understand the availability of labor in general.”

Hagberg’s verdict: “The rankings appear to be a simplistic viewpoint of the cost of doing business without a strong understanding of what those factors mean in the context of overall economic health. …

“Businesses choose to start up in a state or community for a variety of reasons,” she said. “I’d caution entrepreneurs not to read too much into sensational rankings articles and instead to work with a technical assistance provider like (the) Northland (Small Business Development Center) or Entrepreneur Fund to evaluate if their specific startup will make financial sense.”

Consulting with experts ahead of a major decision like starting a business is almost always sound advice.

Whether this ranking needs to be taken with a grain of salt or not, however, doesn’t negate that it’s out there, that it’s being reported on by a reputable news outlet, and that it’s only reinforcing Minnesota’s unfortunate and ongoing reputation as a tough place to do business. That negative knock has long been hampering our state’s ability to attract and retain those projects and private investment needed to put Minnesotans to work and to grow our state’s economy.

So, this ranking and others like it can’t be so quickly dismissed or ignored by our elected officials or others in Minnesota who see the critical importance of economic development and who work to counter the systemic challenges preventing our state from prosperity.

Instead, we can all join Minnesota Chamber of Commerce President Doug Loon in “calling on the state to do what they can to improve our business climate” — especially “through the regulatory and tax structures.”

There are opportunities this legislative session in St. Paul to do just that. They are there to be seized.