The Last Post

As some may know on July 1, I will begin my new assignment as Dean of the College of Social Sciences, Mathematics & Education at the University of Tampa.  UT is a private university with an enrollment of 7,000 students located in downtown Tampa, Florida.

 It's a big change for The Rural Guy.  In fact, it's so big that I feel compelled to terminate the blog, as it seems a bit hypocritical to write a blog as The Rural Guy from the middle of a metropolitan area.  So to avoid the dissonance, this will be my last post.

I will greatly miss the sights, sounds and smells of rural Minnesota.  Many have already told me that I will most certainly return in a few years.  Maybe so; who knows? But I can say without hesitation that rural Minnesota has been a great place for me, my kids, my family and my career.

Until we meet again somewhere in rural Minnesota or along Florida's Gulf Coast; so long.

Minnesota is Falling Behind on Broadband

In 2008 former Governor Tim Pawlenty created the first Governor’s Broadband Task Force to assess the status of broadband deployment, adoption and utilization in Minnesota and set goals for future access and connection speeds.  Understanding that broadband technology was going to be a key driver in business recruitment and retention, retail and commerce, distance education, tele-medicine and the delivery of efficient public services, the 2010 Minnesota State Legislature took those task force goals and enacted legislation setting them into statute.  As stated in statute, “as soon as possible, but no later than 2015, all state residents and businesses have access to high-speed broadband that provides minimum download speeds of 10 to 20 megabits per second and minimum upload speeds of 5 to 10 megabits per second.”  Further, the statute goes on to state “… that by 2015 and thereafter, Minnesota be in the top five states of the United States for broadband speed universally accessible to residents and businesses; the top five states for broadband access; and the top 15 when compared to countries globally for broadband penetration.” (Minnesota Statutes; Chapter 237.012).

Since those goals were first established there have been two subsequent broadband task forces with the latest iteration established in 2011 by Governor Dayton.  That task force released its 2012 annual report and broadband plan in December, with a number of recommendations to help improve access to broadband; and for some, improve its affordability. However as a member of the original broadband task force, the real message sent to the Governor in this report is that Minnesota is continuing to fall further behind in both access and speed. Citing Task Force chair Margaret Anderson Kelliher, “While the Task Force is encouraged to report that progress is being made toward the state’s broadband goal, we are not on track to meet them by 2015.” 

With all deference to Chairperson Kelliher in her letter to the Governor, she is being too polite and kind with her words.  The reality is that Minnesota is falling further behind as it relates to broadband access and speed with each passing year.  As noted in the report only 61.6 percent of Minnesota households have access to the state-mandated speeds (a minimum of 10 Mbps down and 5 Mbps up), which leaves over 800,000 Minnesota households behind; and not surprisingly, most of those left behind are in rural Minnesota.  As documented in a detailed chart, the report goes on to show that while 98 percent of households in Hennepin County and 99 percent in Ramsey county meet the state-mandated connection speeds, zero percent of households in Roseau, Lake of the Woods, Cook, Mahnomen, Aitkin, Kanebec, Mille Lacs or Wadena counties reach this state-mandated threshold. 

Information from outside sources paint an even more troubling picture. According to the Akamai 2012 “State of the Internet” report, when compared with other states on average connection speeds, Minnesota has now fallen to 25^th in its state ranking and is threatened with being in the lower half of all states. Further, as it relates to broadband access, according to data from the National Broadband Map (a joint project of the National Telecommunications Information Administration and the Federal Communications Commission), Minnesota has actually slipped to 38^th in ranking; down from 28^th a year earlier.

It’s important to recognize that in spite of this troubling news Minnesotans continue to embrace the Internet and broadband technology.  Today, three out of every four Minnesota households report purchasing a home broadband connection.  Additionally, if we were to include the adoption of mobile Internet technology through smart phones and tablets, it would likely be closer to four out of every five.  So understand that consumers are doing their part.  In fact today the largest group of Minnesotans who choose not to embrace the Internet are elderly Minnesotans, defined as those 65 years of age or older.  But even that cohort is witnessing sizable gains in their adoption of Internet and broadband technology.  And remember … every day another 64-year old with digital skills has a birthday and joins this cohort, increasing the adoption rate as a result.  So let’s not blame the consumer.

Rather, if there is blame to be assigned, I would have to point to our legislature.  Simply passing statutes that set broadband goals is no more effective than passing a U.N. resolution!  It may make you feel good, but it is of little consequence.  Like other states that were once behind Minnesota in the rankings but now are ahead of us, we need policymakers who are willing to set strategies in addition to goals; and equally important, to appropriate funds to help implement such strategies.  The Governor’s Broadband Task Force did their job in helping the Governor and the Legislature understand that we are at a critical juncture in our state’s broadband trajectory.  Further, the Task Force outlines a series of recommendations to establish public/private partnerships that could help meet the goal of ubiquitous broadband across Minnesota.  Now we will have to wait and see what the legislature chooses to do with it.

Time for a New Conversation on Taxes

Now that both the November elections and the November budget forecast is behind us, the political dynamics associated with the 2013 legislative session is much clearer.  The evaporation of GOP influence across all levels of state governance was admittedly a bit surprising.  However, what was not surprising was the rhetoric from both parties regarding their reaction to the November economic forecast projecting an upcoming biennial budget deficit of $1.1 billion.  While representatives of both parties were quick to agree that such a deficit was much more manageable than the $5+ billion deficit faced 2 years ago, their respective solutions were predictably routine.  Almost immediately after the forecast was released Republican voices were emphasizing that the current biennial balance of approximately $1 billion was a “surplus” and that there was no need for any tax increases.  Equally predictable was DFL Governor Dayton’s call for higher income tax rates on Minnesota’s top earners; a call he has made since his 2010 election. 

To say that we need a new conversation about taxes in this state is obvious.  How else can you explain such rhetoric?  First, suggesting that Minnesota has a budget surplus is like your brother-in-law telling you that he received a $500 raise and therefore has more money to spend, all the while ignoring the fact that he still owes $20,000 on his credit card.  Similarly, calling for higher income taxes on the rich (or anybody) simply exacerbates Minnesota’s already disproportionate dependence on the income tax.  So before both parties stake their ground on these all too-familiar positions, can’t we try to change the conversation?

One idea that has been around for quite a while, but seldom seriously addressed is the notion of broadening the sales tax base.  The arguments for changing the conversation in this direction are two-fold; and from my perspective compelling.  The first is that since the establishment of the sales tax in 1967, our Minnesota economy has fundamentally shifted from one that produces “goods” to one that delivers “services.”  However, the current sales tax is primarily imposed on the purchase of goods and not the delivery of services.  This means that each year as our economy continues to transform, the sales tax becomes less relevant and effective. 

Such deliberate policy decisions to exclude certain goods or services from the collection of sales tax is often called a “tax expenditure,” and Minnesota has plenty of them.  But the decision to exclude many consumer and business services is a big one.  According to a study by the Public Strategies Group in 2009, the inclusion of many consumer and business services currently exempt from the sales tax could yield up to $2 billion in additional revenue per year.  In light of the fact that the projected biennial budget deficit is $1.1 billion, isn’t such a change in conversation worthwhile?

The second reason for looking more closely at these tax expenditures is that while the appropriated general fund budget must be debated and approved line-by-line by legislators and signed by the Governor every biennium, once a tax expenditure is approved by the legislature it remains in place until the legislature intentionally modifies or repeals it.  In simple terms, this means that after being passed a tax expenditure go on “auto-pilot” and remains in place for decades without any legislative discussion or review.  Is this really the best way to legislate tax policy?

Of course the high profile “poster child” for such sales tax exemptions is the one on clothing; an exemption that many suggest is woven into the cultural fabric of Minnesotans. But the truth is that there are many sales tax exemptions that no one would ever want to change; such as the sales tax exemption on prescription drugs, groceries, and yes … clothing.  But just because we can agree on a variety of such exemptions is not a rationale for ignoring a thorough review of the more than 200 such tax expenditures currently in statute (yes … over 200!).  For example, do we really still need a sales tax exemption on newspapers and magazines ($65 million); an exemption on telecommunications equipment ($26 million); or an exemption on farm machinery ($36 million)?  

My point here is not to specifically pick on these exemptions, but rather to point out that collectively these special tax breaks add up to more than $11 billion in revenues not collected (Public Strategies Group, 2009).  And as noted above, once enacted these tax exemptions tend to go on auto-pilot.  Could a thorough review of all these tax expenditures by the Legislative Auditor lead to the elimination of at least one out of every ten of these exemptions?  Now that would totally change the conversation!

An Innovative Collaboration

I entered the Minneapolis Convention Center with a mixture of curiosity and excitement.  The occasion was the 2012 Tekne Awards; the Minnesota High Tech Association’s version of the Academy Awards for technology entrepreneurs and innovators.  And as I entered the Convention Center I was handed a badge and steered toward a reception area upstairs designated for the award finalists.  In the ballroom below were approximately 1,000 guests in a festive mood from all across Minnesota’s high tech industry.  I knew this was going to be a fun evening.

As I climbed the stairs to reach the reception area I noticed everyone shared the same badge as me with the word “Finalist” on it.  Slowly as my eyes focused I began to see friends and colleagues I have either known or have gotten to know over the past two years.  For you see, in 2010 the Blandin Foundation was awarded a multi-million dollar grant from the National Telecommunications Information Administration to coordinate a large, statewide initiative designed to promote broadband adoption all across rural Minnesota.  Known as the Minnesota Intelligent Rural Community (MIRC) project, this unique initiative brought together more than 20 different organizations, institutions, agencies and rural communities to focus their efforts on increasing broadband adoption among Minnesota’s rural residents, as well as rural businesses. And it was this initiative, spearheaded by the Blandin Foundation that was a finalist for the 2012 Tekne Award in the category of “Innovative Collaboration.”  As a broadband researcher for many years the Blandin Foundation tapped me back in 2010 to serve as the project’s evaluator over the next two years. In other words it was my job to document all the activity by this large group of partners all across the state and at the end of the 2-year effort to examine the impact and consequences of their work.

To state that the scope of the project was comprehensive is an understatement, as the project strategically targeted key groups of non-adopters.  For those low-income rural residents who couldn’t afford a computer, our partner PC’s of People secured, refurbished and distributed over 2,000 computers to needy rural families.  The average annual household income among those receiving these computers was $12,145, with over 35 percent having an unemployed head of household.  After all, for many Minnesota businesses today you can’t even apply for a job without being able to submit your application online. And if you are thinking, about the unmet computer literacy and training needs of many rural residents, our partners at DEED, U of M Extension, MnSCU and the Minnesota Renewable Energy Marketplace delivered more than 31,000 hours of training and technical assistance, both online and across rural Minnesota.

More than 2,000 rural businesses were provided training; over 6,000 rural businesses were reached; and direct technical assistance was provided to more than 60 small rural businesses by our partner at the U of M Extension.  Over the two years U of M Extension not only provided this important technical assistance, but with more than 60 percent of all major purchases beginning with a web-search today, they helped rural businesses understand the importance of managing their “digital tele-presence” in today’s economy. This was all bolstered by the efforts of the nine rural Regional Development Commissions providing outreach and media information all across their respective rural regions.  As I noted, this was a remarkable coordinated effort with a broad scope across an even broader geography we call Greater Minnesota.

And what was the consequence of all of this time and effort? Well beginning with over 4,000 baseline surveys conducted back in 2010, we have tracked the growth in broadband subscriptions from quarter-to-quarter, regularly reporting our progress to the National Telecommunications Information Administration.  With a goal of achieving 38,000 new broadband subscriptions across rural Minnesota within the 2-year period, the current count now stands at 40,496.

So it was with a good measure of accomplishment and excitement that we gathered at the Minneapolis Convention Center that evening.  For two years I had the opportunity to document an extraordinary effort of coordination and collaboration across multiple organizations, universities and state agencies.  And now with the project winding down at the end of 2012, here we were to celebrate our collective efforts.  So it was with great satisfaction as we watched former WCCO news anchor Don Shelby take to the podium and announce that the Blandin Foundation’s Minnesota Intelligent Rural Community project was the winner of the 2012 Tekne Award for Innovative Collaboration.  A great collaboration indeed.

Taking the Temperature of Rural Main Street

In today’s environment, any discussion of economic development inevitably includes the concept of entrepreneurship and small business development; and such discussions are particularly relevant when assessing rural communities.  The relative health of the businesses on Main Street has been a big concern in many rural communities for decades and trying to take the temperature of these businesses is not that easy.  Using somewhat crude measures it’s easy to count the number of empty storefronts or closed businesses; but such measures are really not very helpful.  However, tracking sales tax receipts is actually a more useful measure that is fairly accurate, easy to understand, and the data is collected for you by the Minnesota Department of Revenue.

So I was pleased to see a recent study published by Will Craig and Bruce Schwartau from the University of Minnesota that did just that.  If the names of Craig and Schwartau seem familiar it’s because I previously mentioned their work a few months ago.  In that earlier study they examined the sales tax revenues of the largest communities outside the Twin Cities metro (Rochester, Duluth, St. Cloud and Mankato) and highlighted the explosive growth and development of Mankato as a regional center.  However, in this new study they examine data released by the Minnesota Department of Revenue for much smaller communities; many as small as 1,000 in population.  Accordingly, data for communities of this size really can help us take the economic temperature of rural Main Street.

Another interesting fact relative to this new study is that it examines sales tax data from 2003-2009.  If you recall, this was not exactly the best years for the Minnesota economy.  In fact, state government experienced a significant contraction in 2003 and a subsequent partial government shutdown in 2005. This was then followed by two reasonable years of economic growth before both the financial and housing sectors crashed in late 2007, leading to the “Great Recession,” which presumably ended in 2009.  In fact according to Craig and Schwartau, between 2003 and 2009 sales tax receipts statewide were down 14 percent, after adjusting for inflation and the 2008 state sales tax increase.  With this in mind you can guess that my expectations for how our rural Main Streets might fare during this same period of time were quite subdued.

So you can imagine my surprise when the data indicated that many of our rural communities actually fared quite well and in fact some even thrived.  What is most interesting to note is that among the largest out-state communities (mean population 89,089) the average change in sales tax revenue was -15.7%, with only 25 percent of these communities recording an increase in sales tax collections.  However, among the smallest communities in the group (mean population 2,502) the average change was a loss half that size (-7.1%), but more importantly 54 percent of these small communities actually recorded an increase in sales tax revenue between 2003 and 2009.

How can one explain or make sense out of this data?  Well looking a bit more closely at this data reveals a very interesting correlation.  While the size of the community clearly is a factor in determining the amount of sales tax revenue collected, the geographic proximity of alternative shopping venues appears to be equally important.  Allow me to provide a simple example.  Aiken, Minnesota is a community of 2,165 residents that is situated approximately 31 miles northeast of Brainerd and 54 miles to the south of Grand Rapids.  Given the inconvenience to alternative shopping for their routine needs, businesses in Aitkin collected $2.54 million in sales tax revenue in 2009.  Now let’s look Janesville, MN; a community of similar size (population 2,256) but one that is conveniently located 17 miles on a four-lane highway east of Mankato, MN.  In 2009 with approximately 100 additional residents, Janesville’s businesses collected only $370,000 in sales tax receipts; approximately one-sixth of that collected in Aitkin.

So what do we make of this new analysis by Craig and Schwartau.  Well clearly the good news to be gleaned is that with 54 percent of these small rural communities recording an increase in sales tax revenues between 2003 and 2009, it suggests that many of these small towns are still both relevant and resilient even in difficult times.  Second, similar to the slogan used regarding the attributes of real estate, location and proximity to alternative shopping venues plays an important role in determining the overall health of our rural Main Streets.  Sometimes a bit of distance is a good thing.