What Happens When a Metropolitan Area Shares the Wealth

I decided that, on a day when temperatures dip into the -30 degree range in the Twin Cities (and that isn’t even taking wind chill into consideration), it might be a good time to address the question, “why would anyone want to live there?”

In his article for the current edition of the Washington Monthly, Daniel Block notes that Minneapolis/St. Paul is one of the only metro areas in the heartland with a growing population. He contrasts that with the greater Milwaukee area of Wisconsin.

In 2016, the rural parts of both states shifted sharply to the right, matching the national trend. Minnesota, however, stayed blue, while Wisconsin went red. To understand why, take a look at the growth rates of the states’ largest metro areas, both of which voted heavily for Clinton. Between 1970 and 2017, Greater Minneapolis grew at an annual rate of roughly 2 percent, above the national rate of 1.1 percent. The Minneapolis region—home to a variety of corporate giants like Target—now has roughly 3.6 million residents, up from 1.87 million in 1970. By contrast, Greater Milwaukee, buffeted by business closures and a shrinking middle class, grew at an annual rate of only 0.26 percent over the same period.

If, as Block suggests, population growth in major metropolitan areas is critical for Democrats, it is important to try to understand what makes the Minneapolis/St. Paul area such an outlier in the midwest.

Someone who has been studying that for a while now is Myles Shaver, a professor at the University of Minnesota’s Carlson School of Management. You can watch him present his findings in a video here, where he explains what his research says about why the Twin Cities are home to 18 Fortune 500 companies—more than any other metro area its size. As he told Derek Thompson, “We’re not like Atlanta, where half of its Fortune 500s moved there. There is something about Minneapolis that makes us unusually good at building and keeping large companies.” He went on to explain why that happens.

Shaver’s theory, which he’s developing into a book, is that Minneapolis is so successful at turning medium-size companies into giants because its most important resource never leaves the city: educated managers of every level, who can work at just about any company…“It bears out the old adage: ‘It’s really hard to get people to move to Minneapolis, and it’s impossible to get them to leave.’ ”

As part of his research, Shaver interviewed about 2,700 of those educated managers and identified the factors that were both least and most important in their decision to live in the Minneapolis area. The least important included things like college/professional sports, tax rates, and cultural events. The most important factors were:

  • Job opportunities
  • Strong local economy
  • Good place to raise children
  • Quality public schools
  • Quality health care

Drilling down a bit deeper, Shaver found that 85 percent of people in the managerial class sent their children to public schools—something that would be unheard of in most metro areas.

That brings us to the heart of what some people have called “the Minneapolis miracle.” The confidence people have in the area’s public schools is one effect of a law passed back in the 1970s called the “Fiscal Disparities Act.”

In the 1960s, local districts and towns in the Twin Cities region offered competing tax breaks to lure in new businesses, diminishing their revenues and depleting their social services in an effort to steal jobs from elsewhere within the area. In 1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality. The Minnesota state legislature passed a law requiring all of the region’s local governments—in Minneapolis and St. Paul and throughout their ring of suburbs—to contribute almost half of the growth in their commercial tax revenues to a regional pool, from which the money would be distributed to tax-poor areas. Today, business taxes are used to enrich some of the region’s poorest communities.

No other metro region in the country has ever replicated that strategy, but in 2015 Chicago’s Metropolitan Planning Council wanted to know why Minneapolis was growing at almost five times the rate of their city. They came up with three reasons:

  1. The Fiscal Disparities Act
  2. Education
  3. Quality of life

Notice that both education and quality of life are largely dependent on the funding formula in the Fiscal Disparities Act.

The 1970s were a long time ago and it could be hard to convince other metropolitan areas to adopt the redistribution of commercial tax revenue that has been fueling growth in the Twin Cities area for decades now. But I suspect that many of them would identify with what the Chicago Metropolitan Planning Council found.

Northeastern Illinois municipalities have a bad habit of giving away tax revenues to lure businesses to move from one suburb to the next or from a suburb to the City of Chicago, because they believe it will grow their overall tax base and create jobs locally. But this is often done without assessing the overall economic impact to the region and the effect is only a relocation of jobs, not net new job growth. Businesses are at an advantage because they know communities will compete for them.

The Chicago Metropolitan Agency for Planning finds that in the Chicago region, “Local governments are spending or committing significant amounts of incentive dollars to firms that may generate sales tax revenues, but have low jobs multipliers and/or low wages.” In other words, municipalities give up revenue that is supposed to go to public services or schools, and often no new net job growth is created regionally.

It is that race to the bottom to give away tax revenues for meager job growth at low wages that is debilitating to a community’s quality of life. That is what the Minneapolis/St. Paul area figured out forty years ago and what continues to fuel its growth today. It certainly isn’t the weather.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly. Follow her on Twitter @Smartypants60.