Business Climate Bragging Rights

For decades, North Dakota battled its neighbor to the south for bragging rights. Today, it’s taking on the nation’s other 48 states and staking its claim to being best of breed when it comes to economic growth, low business taxes and the nation’s highest employment rate.

“North Dakota’s economy has slowed a bit, which means it’s now growing at the same pace as China,” says Dan White, an economist who has been monitoring the state’s fortunes for Moody’s Analytics since 2011. “Its GDP rate of growth for 2014 approximates China’s 8-percent growth rate. It continues to dominate the US market, which is averaging growth between 2 and 2.5 percent.”

In the past four years, the state’s economy has boasted an average growth rate of 12 percent, according to the US Bureau of Economic Analysis (BEA). The state has created 116,000 net new jobs since 2000. In the same time period, it’s per-capita personal income has jumped from 38th in the nation to second, reaching a robust $57,084.

“As a father and grandfather, the per-capita income figure means a lot to me personally,” says Alan Anderson, the commissioner of the North Dakota Department of Commerce since May of 2011. “It means my children, couples starting families and students graduating from our colleges and universities don’t have to leave the state in search of high-paying jobs.

“The state’s leadership has been working to diversify our economy and provide good-paying jobs since well before the oil and gas sector took off,” adds Anderson, a 30-year veteran of the oil industry. “We had climbed to 19th by 2008 and now, thanks to the oil boom, have our sights set on leading the nation.”

In almost every important economic category, North Dakota has already achieved the mantel of leadership, according to Moody’s White. After a brief lull during the fall of 2013, employment has reaccelerated; North Dakota’s job growth is once again outpacing gains being made in other states. “Percentage-wise, it leads the country in job growth. Its unemployment, which is hovering between 2 and 2.5 percent, is the nation’s lowest,” White noted. “Overall, you have to rank its economy and fiscal condition number one in the US.”

Cracks Start to Show

North Dakota owes its top ranking to the discovery and extraction of oil in the Bakken formation, the oil-rich shale rock material that lies beneath the earth’s surface in the western part of the state. Six years ago, North Dakota was producing 100,000 barrels per day (bpd). In April, it broke the magical 1-million-bpd barrier, putting it in the same league as Texas, the nation’s energy capital, according to Gov. Jack Dalrymple, a Republican and self-proclaimed farm boy who was selected as the nation’s Outstanding Young Farmer of the Year in 1983.

But while the energy boom has filled the state’s coffers (a record high monthly deposit of $112 million in July raised the state’s rainy day fund to $2.2 billion), it has also exposed chinks in the state’s armor. In a nationally broadcast interview with Bloomberg television earlier this year, Gov. Dalrymple said the state has to invest billions of dollars to improve its infrastructure.

Building new roadways and rail lines is at the top of his to-do list. They’re needed to ensure the safe and efficient movement of people and goods across the state. Another pressing concern: the need to greatly reduce the flaring of natural gas and its unhealthy air emissions in the Williston Basin oil fields.

“Thirty percent of the natural gas [a by-product of the oil drilling] is being wasted,” he explained. “Our state’s natural gas contains lots of valuable liquids, including ethane, propane, and butane. Capturing these by-products will enable us to stop importing fertilizer and develop our own nitrogen fertilizer plants whose products can be used to grow our crops.

“By 2020, we’ll capture 90 percent of the natural gas [that’s escaping into the atmosphere],” said the governor, who still oversees his boyhood family farm in Casselton. The infrastructure improvements, the governor cautioned, will take time because the state is starting from scratch. “We didn’t have an oil industry 10 years ago,” he explained.

The private sector is heeding the call for action. Several firms have recently started or announced plans to construct additional refineries and natural gas processing plants, new pipelines and additional rail. These improvements are needed to quickly and safely transport North Dakota’s natural resources to other states.

Oklahoma-based
ONEOK Partners is investing between $550 million and $680 million to build its sixth and largest natural gas processing plant in the Williston Basin, the state’s epicenter for the extraction of natural gas. When the plant is completed by the end of 2015, the company’s total natural gas processing capacity will increase to 800 million cubic feet per day. ONEOK is also investing $100 million to increase the capacity of its 600-mile (965-km.) Bakken NGL Pipeline, which transports unfractionated natural gas liquids from the Williston Basin to an interconnection in Colorado. These projects bring its financial investment in North Dakota to $3 billion.

Ag, Aerospace and Aviation

While the state’s energy production generates national headlines and fills the state’s coffers, agriculture remains North Dakota’s number one industry. In terms of revenue generated, the state’s five top agriculture products are wheat, cattle and calves, corn (for grain), soybeans, and sugar beets. Production agriculture is becoming an increasingly important part of the state’s economy. The Peace Garden State continues to diversity its agriculture base by targeting the development of value-added agriculture. North Dakota’s primary focus is on bio-fuels and its co-products.

Spiritwood Energy Park, a 551-acre (223-hectare) industrial park located just off of I-94 near Jamestown, has emerged as an attractive location for agricultural and industrial processing businesses seeking rail and low energy costs. A 99-MW combined heat and power plant adjacent to the park provides process steam at long-term, attractive rates to the park’s tenants.

“Jamestown turned out to be the ideal location for Dakota Spirit AgEnergy, our firm’s second ethanol bio-refinery, because of the proximity to markets and its excellent transportation infrastructure,” says Greg Ridderbusch, president of the Midwest AgEnergy Group. The $155-million plant, now under construction, will purchase 23 million bushels of corn annually from area farms to produce 65 million gallons of ethanol and fuel grade corn oil to make bio-diesel and distillers grain for livestock feed. The plant is slated to begin production in early 2015 with 36 employees.

Right now, there’s as much business activity aloft as there is in the ground. North Dakota was one of six states selected by the Federal Aviation Administration to conduct research on unmanned aircraft systems (UAS).

“We have the infrastructure, educational and financial resources as well as talent and the political and private sector leadership to make the state a hub for UAS advancement,” says Brian Opp, manager of aerospace business development for the North Dakota Department of Commerce. “Research will focus on business and security applications as well as how the drones perform in extreme weather conditions.”

Some examples of UAS applications would include monitoring oil and gas pipelines for potential leaks, checking the electrical grid, spotting wildfires, and flying over crop lands in search of parched areas needing water.

Key allies in UAS development include the University of North Dakota, a world leader in aerospace education; North Dakota State University, known for its expertise in electronics, engineering and computing technologies; the North Dakota Aeronautics Administration (it plays a lead role in aviation safety); and the Northern Plains Unmanned Systems Authority, which focuses on safety, privacy, and developing technologies, principles and procedures for integrating UAS into the national air space. The state is also reaching out to private sector firms such as Northrop Grumman to serve as mentors to innovative venture firms that are seeking to commercialize new technologies.

Grand Forks County is spearheading the development of Grand Sky, an aviation business park dedicated to UAS research and initiatives at the Grand Forks Air Force Base. The park has been allocated a 220-acre (89-hectare) parcel of land inside a secure, cordoned-off area of the base. The campus, which is now under construction, will eventually provide 1.2 million sq. ft. (111,480 sq. m.) of classrooms, computer labs and simulation areas to support training activities for pilots and sensor operators. Future development will include a hangar, office and data center facility serving as a hub for businesses, educational institutions, government contractors and public agencies involved in the UAS sector.

“Right now, our state is firing on all cylinders,” says Anderson, who retired from Tesoro Energy before taking the helm of the state’s commerce department. “The people I’m working with in the private and public sectors as well as those in the field of education are creative thinkers. They are working hard to improve on our successes as well as on issues where we fall short. This bodes well for our future.”

Wanted: Visitors Who Stay

When given the opportunity to rattle off South Dakota’s impressive statistics on job growth, low taxes, good wages and low-cost of living, Pat Costello, Commissioner of the South Dakota Governor’s Office of Economic Development (GOED), decides instead to highlight the state’s excellent quality of life, the friendliness of its residents, its low crime rate, good schools, clean air and abundant clean water.

Photo courtesy of Bel Brands USA

“Most folks in the US have misconceptions about the state because they have never visited this area of the country,” says the native South Dakotan. “Our state is scenic; it offers granite peaks, prairies, lush meadows, an abundance of wildlife and recreational opportunities for every season – fishing, hunting, hiking, cycling. And we’re blessed with several national parks, including Mount Rushmore National Memorial, Badlands National Park and the Minuteman Missile National Historic Site.”

Why the plug for the state’s tourist attractions and quality of life instead of its business assets?

“We have,” Costello says, “the second lowest unemployment rate in the country – around 3.5 percent. Right now, we have more jobs than people with the skills to fill the wide array of open positions that our financial services, healthcare, agriculture, technology, manufacturing, mining, biotechnology, education and retail sectors seek.”

While agriculture remains the state’s major source of income, tourism contributes significant dollars to the state treasury. To Costello, tourism is important for another reason. He would like to boost the number of visitors and thereby increase the state’s odds of converting some of the tourists to residents. Getting folks to experience the state and see what it has to offer is a door opener. The state also is using its colleges and universities as lures. By keeping tuitions low at its state-run schools, South Dakota is attracting increasing numbers of students from nearby states as well as foreign students. The schools are also expanding their sports stadiums and athletic facilities. More music concerts are being booked. “When the students graduate, we’re doing what we can to keep them here,” said Costello.

Governor Dennis Daugaard, a University of South Dakota graduate who only left the state long enough to hitchhike to Chicago, pursue a law degree at Northwestern University and practice law in Illinois for a few years, targeted one of his recent weekly news columns – Considering A Future in South Dakota – to the state’s youth. It urged young people to stay put in the nation’s fifth least populated state. He said the prospects for young graduates getting good jobs in South Dakota are much greater than in surrounding states. The graduates, he said, will get to keep more of the money they earn because South Dakota is one of only a few states that don’t have an income tax. He urged his constituents to type “Regional Price Parity” into their web browsers.

“You’ll find the US Department of Commerce report which shows South Dakotans have the lowest cost of living in the United States,” he said. “We don’t spend as much money on housing, insurance, food and other everyday needs.

“My hope for our young people is not that they would never venture out or leave for the big city, but rather that they would consider a future in South Dakota,” emphasized the Governor. “Most of all, I hope they will come to realize, as I did, that their dreams can come true right here at home.”

Major Cheese

Because of the state’s commitment to nurturing its home-grown businesses, Costello estimates that his department spends 60 to 75 percent of its energy helping local companies expand. However, he and his colleagues aren’t averse to hunting “big game.” They attended and exhibited at this year’s BIO conference in San Diego since biotech is clearly one of the state’s growing industries. The state is also focused on increasing foreign direct investment.

A recent FDI success story:
Bel Brands USA completing the first phase of its $130-million manufacturing plant on 48 acres (19 hectares) near the I-29 corridor in Brookings (first documented in the Sept. 2012 issue of Site Selection). Bel Brands USA is the US subsidiary of Paris-based Fromageries Bel, a world leader in branded cheeses. The first phase includes the hiring of 250 employees by the end of this year; the employee count will reach 400 when product demand necessitates the development of the project’s second phase.

“We successfully began commercial production of Mini Babybel [mini cheese wheel snacks] on July 8,” says Kimberly Mulcahy, Bel Brands USA’s senior manager of communications, CSR and consumer relations. “We’ll produce 1 million Babybels per day once we are running both day and night shifts later this year.”

She says the company’s executive team selected South Dakota and Brookings after looking at several states. The state won because it has “a robust dairy industry” that can provide access to raw materials, especially milk (the plant will purchase 500,000 pounds of milk per day from two nearby dairy co-ops when it operates at full capacity). Other winning criteria: Brookings’ close proximity to the extensive dairy research center and infrastructure at South Dakota State University, the hard-working Midwest values of South Dakota’s residents and economic development support offered by the state as well as Brookings.

Sales of Mini Babybel in the US have experienced double-digit growth for the past several years, says Mulcahy. “Along with Mini Babybel production from our Leitchfield, Kentucky, plant,” she adds, “the new Brookings plant will enable us to eventually eliminate the need to import product from France.”

Recruitment
²

Anthony Antonik, an economist who tracks the state’s economy for Moody’s Analytics, says health services, including the life sciences, will be at the forefront of South Dakota’s expansion. The state’s largest employer, Sanford Health, recently signed an agreement with GE Healthcare, enabling the system to grow more efficiently over the next 10 years through staffing and capital optimization and expanded care for cancer, heart disease and orthopedics. Avera McKennan Health also announced the construction of a $16.5-million, 70,000-sq.-ft. (6,503-sq.-m.) medical office building in Mitchell; groundbreaking was slated for August.

Energy extraction in the Midwest will be another significant driver of expansion, according to Antonik. South Dakota’s manufacturing, construction and consumer-based and mining support industries for the nearby Bakken fields will continue to be the primary beneficiaries.

The Midwest’s increasing investment in wind energy recently convinced Canada-based
Marmen, Inc., a world leader specializing in high precision machining, fabrication and mechanical work, to open its first US plant in Brandon, in Minnehaha County. When fully operational later this year, the wind tower fabrication plant will employ 250 individuals with a wide range of skills, including welders, environment, health and safety technicians, machine operators, heavy duty mechanics, assemblers, materials handlers, blasters, painters, administrative assistants and general laborers.

“The choice of South Dakota was strategic,” says Patrick Pellerin, President of Marmen. “It brings us closer to our clients. Brandon and Sioux Falls offer a pro-business climate with engaged political, academic and corporate leaders.”

As for workforce, “Our recruitment is going very well,” he says. “We have hired and trained more than 150 employees since the beginning of our operations last year. We now have more than the half of our needed staff on the job. Since we are new in the area, we need to make sure we get our name out there – we invest in TV and radio spots, newspapers, billboards and the Web. Our recruitment campaign features our employees, as they are the best ambassadors to promote the company and share their passion for their work. We believe the area has one of the best workforces in the country.”

Nick Fosheim, executive director of the Minnehaha County Economic Development Association, is impressed with Marmen’s recruiting approach. And he thinks it might serve the region’s own recruiting aims.

“Attracting a firm of Marmen’s caliber will encourage other firms to check out South Dakota and Minnehaha County,” Fosheim says.

“Our recruitment strategy is pretty straightforward,” says Costello. “While we have incentives and a low cost of living and low business operating costs, the clincher for South Dakota is the work ethic of its hard-working residents.”