1

January 12, 2011

Restarting Private Sector Job Growth in the Greater MSP

Metro Area

Restarting Private Sector Job Growth in the Greater MSP

Metro Area

2

Case for Change

What Drives Job Growth?

Strategies for Greater MSP

Agenda

2

3

For the past 30 years, the Twin Cities have enjoyed steady growth

GDP per capita1

Real income per capita1

2.0%CAG

R

1.9%1.9%

200520001995199019851980

1.7%

CAGR

1.8%1.4%

200520001995199019851980

1 In 2005 dollars

Midwest

Twin Cities

U.S. average

4

The Twin Cities has an incredibly strong private sector . . .

Revenue earned by Twin Cities Fortune 500 companies

$425 billion

Fortune 500 companies headquartered in the Twin Cities

22

Ranking among regions for most companies in the Fortune 400 private companies list – including Cargill and Carlson

6th

MSP has the 3rd most Fortune

500 companies per capita in the country

5

5th among all states in patents per investment dollar

. . . world-class research and strong human capital . . .

Educational Attainment, 2007

U.S ave

85

MSP

93

Population >25 with high school diploma Percent

2737

U.S. aveMSP

Population >25 with advanced degree Percent

MSP has the 5th best percent of advanced degrees among MSAs

U of M is nationally ranked #7 in patent-revenue generating researchThe Mayo Clinic ranks 2nd in the US News & World Report 2009 America’s Best Hospitals for 5th consecutive year

6

Volunteering rate in the nation

#1

And the largest pond hockey tournament in the world!

4 Major League

sports franchises

“Local food” community in the nation

#1

#3 Number of museums

Theatre seats per capita, behind NYC

#2 “Most Athletic City” in the nation

#1

Largest mall in America

#1

. . . and quality of life amenities

7

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1.0

1992 1994 1996 1998 2000 2002 2004 2006 2008

However, the region is losing ground

1 3-year moving average difference between Twin Cities and the U.S. using the given year and the previous two years

Job growth has

significantly declined

relative to the U.S.

Difference between Twin Cities employment growth and U.S. employment growth1

8

Our business rankings have worsened

Milken Best-Performing Cities

2003 rank

2009 rank

2003 rank

2009 rank

Austin 81 Raleigh-Durham

12 2

Raleigh-Durham

13 Sacramento 15 58

MSP 7620 Austin 59 4

Columbus 3824 Denver 89 44

Denver 1434

Sacramento 119

36 Columbus 10 135

Seattle 1789 Seattle 13 17

Chicago 71100

Chicago 14 160

MSP 99 123

Forbes Best Places for Business and Careers

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

Twin Cities is 373rd out of 381 MSAs ranked from lowest to highest labor cost

373rd

10

High cost of doing business in the Twin Cities is driven largely by tax, regulatory and labor costs

Initial findings

Minnesota ranks 30th on Forbes’ “Best states for doing business” rankings

Minnesota has the most stringent health insurance mandates in the country

Legislative/ regulatory environment

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

Tax environment

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

Labor costs

COST OF DOING BUSINESS

SOURCE: McKinsey Global Institute, Forbes, Tax Foundation, Moody’s Economy.com, Firm experts

11

48

MN state rank(1=lowest, 51=highest)

1 Represents the highest marginal corporate tax rate2 Represents the highest marginal personal income tax rate3 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

Corporate Income Tax1

Sales Tax

Personal Income Tax2

Corporate Property Tax Index3

2009, Percent

44

39

17

Minnesota

All other states

COST OF DOING BUSINESS

Minnesota’s taxes are among the highest in the country

US Avg.6.6

9.8

6.875US Avg.5.086

US Avg.5.9

7.9

2.21 US Avg. 3.0

12

The Twin Cities lack a coordinated business development effort

Site Selection Consultants say . . .

We have multiple organizations focused on economic development, but no coordinated , regional effort . . .

“You probably have lost a significant amount of corporate prospects due to a lack of regional agency.”

Local Business Leaders 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 . . .”

13

Case for Change

What Drives Job Growth?

Strategies for Greater MSP

Agenda

13

14

Three Sources of Job GrowthRetain existing

companies in the Twin Cities and foster an

environment for growth

Enable the creation of new Twin Cities firms through a culture of

innovation

Attract investment and corporate

relocations from outside Minnesota

Quality Job

Growth

Retain

Create Attract

15

Human Capital

quality and investment of workforce, education and training

Quality of Life

lifestyle and community factors

Infrastructure

regional transportation, airport access, telecom, utility capabilities

Cost of Doing Business

R&D capabilities, commercializing research and ability to source capital support to entrepreneurs

Innovation and Start-up

level of taxes, incentives , regulatory and/or permitting process

How do you Create Job Growth?

Central ED Governance

A single organization coordinates economic development efforts

Sector Focus Explicitly target particular sectors as growth engines for the region

Economic development strategy developed and institutionalized with main economic development organizations

Unified Vision

Marketing Campaign

Highly visible campaigns which market regional identity

16

Cost of Doing Business

Quality of Life

Infrastructure

Human Capital

Innovation and Start-up

MSP above peers and national averageMSP around average

MSP below average

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 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

36.8% of Twin Cities residents have a bachelor’s degree relative to 27.5% nationally

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

Assessment

Greater MSP Assessment

Ranks 22nd in number of entrepreneurs per thousand residents

At 26 deals venture deals in 2007, MSP lags top innovation hubs

En

vir

on

menta

l Le

vers

16

17

Unified Regional Vision

Central ED Governance

Sector focus

Marketing Campaign

Pro

cess

Le

vers

MSP above peers and national averageMSP around average

MSP below average

Supporting Facts

Currently various economic development entities operate with varying visions

ED pursued at a sub-regional level

Currently, ED entities operate largely autonomously

Sub-regions within MSP often compete for business rather than coordinating efforts

Historically limited coordinated cluster efforts but some current activities underway (e.g., RCM, Humphrey Institute)

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

Assessment

Greater MSP Assessment

17

18

Address the cost of doing business

Develop a regional vision, strategy and approach for economic development

Enhance entrepreneurship and innovation

Proposed 3 Strategic Priorities for the Region to collectively work on…

19

Case for Change

What Drives Job Growth?

Strategies for Greater MSP

Agenda

20

Where those findings led us: Itasca Job Growth Initiatives

Create new companies and

start-ups

▪ 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

– 13 county MSA definition

– Scope of Activities– Region’s ED vision

and strategy– Branding and

marketing– Retention and

expansion– Attraction

Objective: Fuel Quality Job Growth

Retain, expand and attract

existing companies

21

–21

MSP REDP Launch Status

–21

Engaged national executive search firm

Currently in final stages of interviews

New CEO in place in Q1

Incorporating as a 501c3

Creating board governance concepts & documents

Selecting initial board members

Nearing Year 1 Goal: $2.8M

Public Sector: 6 counties & 14 cities contribute over $900K

Private Sector: $1.5M pledged, $1.0M outstanding asksEngaging economic

development leaders throughout region

Formalizing operating protocol between REDP and other ED organizations

11

33

22

44

Hire a CEO

Initiate Legal Incorporation

Secure Year 1 Investment

Draft Rules of Engagement

22

Appendix

–23

Active Minneapolis-Saint Paul Regional Economic Development Efforts

Regional Economic Development Activities*

Talent Transportation/ Land Use

Entrepreneurship/

Innovation

Strategy and Growth

Green

▪ 4FRONT▪ TheLineMedia.co

m

▪ 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

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Where those findings led us: Job Growth Initiatives

Retain, expand, and attract existing

companies

Create new companies and

start-upsKey Itasca Initiatives

Rationale

▪ 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

▪ 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

Objective: Fuel Quality Job Growth

25

Itasca Project History (2003 – 2009)

Ideas, Innovation, and Business Climate

Talent/Workforce

Infrastructure Quality of Life

Retaining and Growing Leading Employers/Grow MN!

Strengthening University-Business Relations

Supporting the Growth of Small Business / GetGoMN.org

Advancing a Comprehensive Transportation Plan

Twin Cities Compass

Creating a World-class K-12 Education System in MN

Supporting the Strategic Redirection of Minneapolis Public SchoolsSupporting Early Childhood

Development

Financially Fit Minnesota

Understanding and Addressing Socio-economic Disparities/Close the Gap

1

2

3

7

8

9

10

6

5

4

26

1-3%

Gains fromcreation of new firms4

1-3%

Gains from attracting new establishments5

18%-22%

Gains from existing MNfirms3

Loss from establish-ment closings2

(17%-21%)

(3%-6%)

Loss from contraction1

Twin Cities average gross employment flows Average annual percent change of employment, 2002-2007

SOURCE: Bureau of Labor Statistics, Dunn & Bradstreet, Economy.com, McKinsey analysis

Retain Create

Attract

Employment loss

Employment gain

Retaining and growing Twin Cities-based establishments is a significant opportunity

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?

27

Small employers account for approximately 76% of job growth

SOURCE: US Census Statistics of US Businesses, McKinsey analysis

Total employment in Minnesota ,Employment growth by enterprise size1

Percent, 2003-2006

0

Large

Medium

Small

Percent of Employment Growth2

24

76

Percent of Employment

49

34

17

Small (1-20 employees)Medium (21-499 employees)Large (500+ employees)

Percent of employment growth, USPercent, 2003-2006

77

21

2

Key questions

Should we develop strategies specific to company size?

Where do we get the greatest return on our investment?

28

Twin Cities Job Creation by Sector (2002 – 2007)Percent Employment

Growth CAGRTwin Cities

A small group of sectors has driven the majority of job creation

Other

General MerchandiseStores

Professional Services

Administrative Services

Ambulatory Health Care

Social Assistance

Hospitals

Educational Services1

Food/Drinking Places

Job Creation

31.8

4.06.27.27.8

10.3

10.5

11.0

11.1

SOURCE: Bureau of Economic Analysis, Bureau of labor statistics, Moody’s economy.com, McKinsey analysis

Top employment growth sectors

EmploymentGrowth DifferenceMSP-US

2.3

5.81.81.4

6.8

5.0

4.0

1.1

-0.3

+3.0

+3.3

+0.6+3.7-0.2-1.5-0.3

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” ?

29

Quality of life

Innovation and start-up

Human capital

Infrastructure

Cost of doing business

Central ED governance

Unified vision

Sector focus

External marketing campaign

Best practice regions employ varying mixes of levers but several emerge as consistent across regions

Key area of focus of economic development effortSecondary area of focus of economic development effort Not an area of focus of economic development effort

Consistent lever across regions

Envir

onm

enta

l le

vers

Pro

cess

levers

Nashville

Austin

Pittsburgh

Raleigh-Durham Ireland Singapore

30

The Twin Cities compare well against peers in civic engagement and leisure amenities

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

QUALITY OF LIFE

Leisure and entertainment rank, 2007Score based on multiple metrics1

63

82

83

86

91

94

94

95

95

98

Raleigh-DurhamSacramentoColumbusAustin

San Diego

Seattle

Denver

Baltimore

MSP

Chicago

Volunteerism, 2007Percent of pop’n volunteering in past year

Denver

29.834.1

SeattleColumbus

MSP

28.3

38.335.1

28.8

Austin

Chicago

22.1

Sacramento

23.2

San Diego

25.9

Baltimore

27.1

Raleigh-Durham

Libraries, 2007Library volumes per capita

Seattle

3.53.6

ChicagoBaltimore

Columbus

2.6

4.23.8

2.9

MSP

Sacramento

1.7

San Diego

2.2

Raleigh-Durham

2.3

Austin

2.4

Denver

Recreation space, 2007Acres of park per 1,000 residents

MSP

18.134.2

San DiegoRaleigh-Durham

Austin

15.3

37.535.9

16.7

Columbus

Chicago

4.2

Baltimore

7.7

Seattle

10.4Sacramento 11.3

Denver

Arts Community, 2007Arts establishments per 1,000 residents

Seattle

0.720.72

AustinMSP

Denver

0.53

0.920.74

0.62

Chicago

Sacramento

0.42

Columbus, OH

0.48

Baltimore

0.52

San Diego

31

Population over 25 with high school diplomaPercent, 2007

SOURCE: US Census “American Community Survey,” McKinsey analysis

HUMAN CAPITALThe Twin Cities have a highly educated population

85

85

86

86

87

88

88

89

91

93

US Average: 84.5

Chicago

San Diego

Baltimore

Austin

Sacramento

Raleigh-Durham

Denver

Columbus, OH

Seattle

MSP

Advanced Degree AttainmentPercent, 2007

14

Austin

12

Baltimore

19 33

Chicago

32

21

US Advanced Degree Average: 27

20 12

San Diego

33

3825 13

Sacramento

3020 10

Raleigh-Durham

4025 15

Denver

3623 13

Columbus, OH

3221 11

Seattle

3523 12

MSP

3725 12

Bachelors

Graduate or Professional

32

Average commute time by car, truck, or van aloneMinutes, 2007

SOURCE: US Census Bureau, American Community Survey

INFRASTRUCTURE

Twin Cities residents have reasonable commute times relative to peers

29

27

27

25

25

25

25

24

24

15

US Average 25

ChicagoBaltimore

Seattle

Denver

San Diego

Raleigh-Durham

Sacramento

MSP

Columbus, OH

Austin

Average commute time by public transportMinutes, 2007

50

47

46

45

49

34

43

38

36

19

US Average 48

33

Venture capital investments

The Twin Cities’ VC market is less robust than its peers

Average annual investment, 2004-2007$ per capita

SOURCE: Capital IQ

INNOVATION

154.1

75.1

23.2

17.5

651.5

541.2

447.1

401.3

264.9

235.4

Denver

San Diego

Austin

Seattle

Raleigh

Baltimore

Sacramento

Columbus

Chicago

MSP

Total venture capital deals

Total, 2004- 2007Number of deals

98

32

55

16

114

114

343

200

349

247Denver

San Diego

Austin

Seattle

Raleigh

Baltimore

Sacramento

Columbus

Chicago

MSP

34

Entrepreneurial activity1, 2007Number of entrepreneurs per 100,000 people

22

Minnesota has competitive levels of entrepreneurial activity

SOURCE: Kauffman Foundation Index of Entrepreneurial Activity

26

43

40

19

47

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

20

10

17

State rank1=highest

INNOVATION

195

217

241

295

312

319

321

338

396

North Carolina

Colorado

California

US Average = 300

Ohio

Washington

Illinois

Texas

Minnesota

Maryland

Entrepreneurship Growth, 2002-2007CAGR

-2.50

-0.20

-2.90

-3.10

-2.50

-3.90

-0.20

-0.80

1.30