A Blueprint for Economic Growth

A Blueprint for Economic Growth 2011-12 Building Jobs Coalition – Building Minnesota State Capitol, Saint Paul “  University of Minnesota, Minneapo...
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A Blueprint for Economic Growth 2011-12 Building Jobs Coalition – Building Minnesota

State Capitol, Saint Paul

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University of Minnesota, Minneapolis

If we continue to allow roads to congest, bridges to age, water systems to deteriorate and the power grid to remain inefficient, we will undermine domestic employers. - AGC of America



Memorial Hall addition, Winona State University

NOvA Off Axis Detector Facility, Orr

Capitol Office Building 525 Park Street, Suite #110 St. Paul, MN 55103-2186

Quotes used in “A Blueprint for Economic Growth” are from respondents to AGC of Minnesota’s July/August 2009 Minnesota Construction Industry Field/Craft Employment Outlook and the Building Jobs Coalition Workforce Survey through 2010 (conducted in December 2009).

2011 - 12 Coalition Co-Chairs • Beverly Hauschild-Baron – American Institute of Architects Minnesota • Harry Melander – Minnesota Building and Construction Trades Council • Dave Semerad – Associated General Contractors of Minnesota

Coalition Members • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Adolfson & Peterson Construction AECOM Ellerbe Becket Amcon Construction Company American Institute of Architects Minnesota American Subcontractors Association of Minnesota Associated General Contractors of Minnesota Association of Women Contractors Bartylla Plumbing and Heating, Inc. Builders Association of Minnesota BWBR Architects Carlson-LaVine, Inc. Carpentry Contractors Association Cement Masons, Plasterers and Shophands- Local 633 Cemstone Products Co. City of Brooklyn Park City of Minneapolis City of North Branch City of Oakdale City of Saint Paul Construction Partnership, Inc. Danny’s Construction Company, Inc. Fabyanske Westra Hart & Thomson, PA Faegre & Benson, LLP Fairview Health Services Fifth Quarter Enterprise/Emerging Markets the hathor group, inc. Hightower Initiatives Hoyt Properties, Inc. Independent Millwright Contractors Association International Brotherhood of Electrical Workers – Minnesota State Council

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• International Brotherhood of Electrical Workers – Local 110 • International Brotherhood of Electrical Workers – Local 292 • International Brotherhood of Teamsters • International Union of Operating Engineers – Local 49 • Itasca Project • JE Dunn Construction Company • Joseph Development LLC • Knutson Construction Services • Labor Management Fund Advisors • Laborers District Council of Minnesota and North Dakota • Larkin Hoffman Daly & Lindgren, Ltd. • LarsonAllen LLP • Leonard, O’Brien, Spencer, Gayle & Sayre, Ltd. • Lockridge Grindal Nauen P.L.L.P. • M & I Marshall & Ilsley Bank • Management Guidance, Inc. • McGladrey • McGrann, Shea, Carnival, Straughn & Lamb • Metropolitan Economic Development Association (MEDA) • Metro Cities Association of Metropolitan Municipalities • Minneapolis Building and Construction Trades Council • Minneapolis Building Trades • Minnesota Electrical Association • Minnesota Glass Association • Minnesota Historical Society • Minnesota Laborers- Employers Cooperation and Education Trust (LECET) • Minnesota Mechanical Contractors Association • Minnesota Pipe Trades Association

• Minnesota Solar Energy Industries Association • Mortenson Construction • National Association of Minority Contractors-Upper Midwest • National Electrical Contractors Association-Minnesota & Dakotas • National Strategies, Inc. • North Central States Regional Council of Carpenters • Northland Securities • Painters and Allied Trades • Platinum Bank • Plumb/FNR Builders, Inc. • Preservation Alliance of Minnesota • Principal Financial Group • Real Estate Communications Group • Rural Subcontractors • Ryan Companies US, Inc. • Saint Paul Building Trades • Saint Paul Port Authority • Schafer Richardson, Inc. • Shaw-Lundquist Associates, Inc. • Sheet Metal Workers • Sheet Metal Air Conditioning & Roofing Contractors • Summit Academy OIC • Target Corporation • Thor Construction • Tiller Construction • United Way • Urban Works Architecture • Woody’s Rebar Co., Inc.

We need design work now. The pipeline for next year’s ‘shovel ready’ is empty...

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Midtown Exchange, Minneapolis, utilized federal Historic and New Markets Tax Credits

Executive Summary About the Building Jobs Coalition The Building Jobs Coalition, a diverse group of contractors, unions, architects, engineers, economic developers and public officials, believes that our legislators and Governor must take immediate action to stimulate and invest in the design and building industry through strategic legislation and policy. The passage of the 2010 Jobs Bill was a major victory for Minnesota’s economy, but that must only be the beginning as we work for a greater business climate. While the ongoing recession continues to impact the economy as a whole, the effect of the recession on Minnesota’s design and building industry has been devastating. Thousands of workers in the design and building industry have already lost their jobs as a result of the recession, and as challenging conditions continue to plague the industry, Minnesota risks the permanent loss of these workers. The long-term health of Minnesota’s design and building industry, which has long had a strategic advantage, is at risk as the industry faces the prospect of losing even more educated and skilled workers due to a stagnant economy. For the third session in a row, the Building Jobs Coalition is passionately committed to working with our elected officials at the State Capitol to identify and implement solutions that create economic opportunity and return thousands of skilled workers to their jobs. The men and women of our Coalition believe our elected officials must give the issues outlined in this document top priority during the 2012 legislative session. In short, we need to invest in Minnesota. Page 3

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Contents

The Need...........................................  5 Building Jobs Coalition Issues.............. 6

The Successes....................................... 8

The Plan...........................................  10 The Return on Investment.................  11



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Sea Life, Mall of America, Bloomington

The building construction climate in the Twin Cities is as bad as it has been since the Great Depression. Page 4

The Need Why construction is essential to Minnesota’s economy In support of Minnesota’s design and building industry, the Building Jobs Coalition, a diverse group of architects, engineers, contractors, unions, professionals, and public officials, is focused on growing jobs in the state of Minnesota through the design and construction of commercial, industrial, residential, and institutional projects. If action is not taken immediately, many skilled workers with years of experience will be permanently dislocated. According to virtually every economic measure, design and construction businesses and their employees have been disproportionately affected by the economic downturn. While the nation and Minnesota continue to suffer through a recession, the design and building industry is experiencing depression-like conditions. When looking back at an economic slowdown that has compounded over several years, the unemployment rate for Minnesota’s design and building industry is 40 percent in some areas as projects around the state continue to be stalled due to the national recession. This unemployment rate is devastating not just for the industry but also for the entire state, since construction spending traditionally accounts for approximately 10 percent of Minnesota’s economy.

The construction unemployment rate in the United States in January 2011 increased to 22.5 percent.



Minnesota Construction Employment 2005-2011

In the 12 months that ended January 2011, Minnesota lost 6,300 construction jobs1. Based on MNDEED employment numbers, U.S. construction employment is down 37 percent from its historic capacity experience in August 2006. Minnesota construction employment is down 53 percent, from its historic capacity experience in August 2007. Construction jobs traditionally account for five percent of the state’s total workforce, but currently are only around two and a half percent.

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Firms that aren’t traveling are either getting smaller or going out of business. Minnesota… Twin Cities….is one of the worst, if not the worst, areas for new work.

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Since 2006, Minnesota has experienced a 33 percent decrease in the number of construction firms, as a net loss of over 6,000 companies closed their doors. Currently, there are 12,000 construction service companies in this state; however, over 1,000 companies will no longer exist by the end of this year. Of those construction service companies, 95 percent are small businesses with fewer than 19 employees. Many of these sole proprietors will not be eligible for unemployment support and will be among the thousands of invisible unemployed. For a number of reasons, addressing the crisis in Minnesota’s design and building industry is essential to rebuilding, expanding, and sustaining Minnesota’s economy.

Source: Minnesota Department of Employment and Economic Development

1Associated General Contractors of America, www.agc.org, from Bureau of Labor

Statistics (BLS) , U.S. Department of Labor, www.bls.gov/sae, 3/10/11

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Building Jobs Coalition Issues Banking Regulation Reform Streamline any state bank regulation language that impacts construction lending and/or the flow of available credit. This should not be specific to banks, but apply to any lender. Environmental Review Streamlining The Building Jobs Coalition is supportive of legislation that significantly streamlines the processes for businesses to secure environmental approvals. We are supportive of a goal to make environmental review as efficient as possible in protecting natural and cultural resources while providing a transparent, user-friendly system. Krummenacher case nonconforming variance language changes Redefine state language pertaining to a municipality’s right to award nonconforming variances based on the Minnesota Supreme Court’s decision in Krummenacher v. City of Minnetonka. Municipal Permit Extensions Allow an automatic extension of approved municipal permits for a determined period to negate the need to reapply after the original deadline. Extending municipal permits would help facilitate construction activity. Tax Increment Financing (TIF) district extension The Building Jobs Coalition supports an extension of TIF district sunset periods to July 1, 2013. The extension, from July 1, 2011, would help stimulate additional capital improvements and private construction. Tax Base Adjustment for Vacant Buildings Provide local government the authority to adjust the property value base for taxes downward under certain conditions and with certain findings, such as resetting the base at a level that would permit it to generate revenue that may be used to incent job formation within existing buildings. The percentage of new occupancy would be a factor in the percentage of the reduction in value/tax expenditure. Tax reduction would not take place without producing a number of qualified jobs for the length of the lease, which would have a maximum of five years. This Old House tax valuation exemption program reauthorization Reauthorize existing This Old House statute allowing for tax valuation exemption on improvements to homesteaded properties over 45 years of age and valued at $400,000 or less. The improvements for a single project or in any one year must add at least $5,000 to the value of the property. Passing this legislation will enable homeowners to make improvements to their home that will increase the property value, provide construction jobs, and stabilize communities.



In 2010, there was an 18% decrease in new buildings.

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We are trying to maintain our existing crew.



Create Tax Credits for New Markets In mirroring the New Markets Tax Credit Program created by the federal government, the new Minnesota New Markets Tax Credit Program would facilitate projects throughout lower income areas in the state. The program would make available tax credits for investors who provide funds for growing businesses and would be administered by the commissioner of the Minnesota Department of Revenue. Both for-profit and non-profit industrial and commercial enterprises would be eligible for the tax credit. Create a state housing tax credit that will allow businesses to support additional housing for the local workforce and create a safety net for the elderly and disabled For every $1 million issued as a tax credit, the state also leverages $4.3 million in additional public and private investment, and creates over 85,000 work-hours, directly and indirectly, in the year of construction. This investment also creates, rehabs or builds 28 units of housing1. Land Assembly Program A statewide land assembly program would provide economic growth opportunities in every community where there are small parcels that are contiguous, but owned by different entities. The purchase and redevelopment of these sites can provide assembled sites that can work better for its communities, its growing businesses and people who need jobs. Small properties within an established economic development area may be acquired, with a grant cap of $1 million per year per grantee and a grant cap of $500,000 per site. A local match of at least 10% will be required, which can come from either public or private funds. This program stimulates private investment on underutilized industrial and commercial properties, as it creates opportunities for business expansion and tax base enhancement in areas where workforce and public transportation exist. Lift the moratorium on nuclear power construction Lifting the moratorium on nuclear power construction could produce new jobs and expand types of energy sources in the state. Creation and funding of a Small Business Loan Guaranty Program as proposed by Minnesota Community Capital Fund Create a state-backed loan guaranty fund to stimulate small business development. The program would provide for funding assistance for construction projects, though not more than 25% of the initial project loan. Only those projects with strong credit and demonstrated need would qualify for the program, which would sunset in 2014. Support the use of asset preservation and replacement funding for public buildings Support asset preservation, including Higher Education Asset Preservation and Replacement (HEAPRA), for public construction projects and maximize the amount of available funding to address identified deferred maintenance projects at state buildings, Minnesota State Colleges and Universities (MNSCU) and the University of Minnesota. Pass a bonding bill with projects creating jobs in the building construction sector A bonding bill will put Minnesotans back to work at a time when they need it most. It will ensure that Minnesota’s building infrastructure remains competitive and the talents and expertise of the design and building industry are put to work. 1Based on $200,000 in tax credits issued annually for five years. Assumes tax credits are marketed at 70 cents on the dollar and that 28 affordable housing units are created.

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The Successes Building Jobs Coalition 2011: Building on our successes and creating more jobs in Minnesota In 2010, the Building Jobs Coalition worked tirelessly with all stakeholders to draft legislative and policy solutions to create job opportunities for employees and employers in Minnesota’s building industry. A historic Jobs Bill was passed by the Legislature and signed into law by Governor Pawlenty on April 1, 2010. We believe the passage of this legislation will create a minimum of 1,500 construction jobs in the building sector. The bill creates tax credits for historic building rehabilitation and small business innovation investment, while also allowing greater flexibility for tax increment financing and improvements to energy efficiency. Some success stories have already been documented, including several projects that have applied for the State Historic Tax Credit1 and 275 certified investors in the Angel Investor Tax Credit program2 . We as a coalition will build upon the success of the 2010 session with support for many issues that will create more jobs in Minnesota.

Baldinger Bakery site, Saint Paul

In Duluth, the former St. Louis County Jail is being rehabbed using the state and federal Historic Tax Credits



For every dollar the state invests in historic tax credits, the return on investment is $4-8.



1

McElhatton, S. (2011, March 4). A tax credit for historic sites drives redevelopment. Finance and Commerce.

2

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Loth, M. (2011, February 25). 66 MN Cos. Got $28M From Angel Tax Credit in 2010. Twin Cities Business.

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Private sector activity is at a 30 - year low.



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The Plan Create Jobs in Minnesota Any effort to reinvigorate the design and building industry must successfully jump-start new privately-funded construction. In 2008, privately-funded construction accounted for $766 billion, or 70 percent, of the total construction market. The largest determining factor in the health of construction activity is the strength of the private sector market. The Building Jobs Coalition is proposing legislation that will stimulate design and building jobs quickly and put this sector back to work on commercial, industrial, residential, and institutional projects around the state. The proposed pieces of legislation include a wide range of practical solutions for stimulating design and construction activity in the near term. Throughout the development of the legislation, the concept of leveraging private investment was a paramount priority. Utilization of the tools we propose will provide needed capital for projects to begin construction and leverage state investment to four to eight dollars in private investment for every public dollar invested. The Building Jobs Coalition’s proposal was drafted with input from legislative leadership and the administration, as well as through consultations with the Department of Employment and Economic Development. Through these consultations, the Building Jobs Coalition determined that the design and building industry in Minnesota needs an approach that will leverage and stimulate private investment and direct funding through bonding measures.

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Minnesota has now positioned itself as a place not to build...



Market conditions remain very depressed.  



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We have already laid off 300 employees.  







More than recent years, we are traveling out of state to find work.

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Investing in Minnesota’s economy While some of the measures outlined in the proposals will have an impact on Minnesota’s budget, the new economic activity these measures will stimulate will put more Minnesotans to work, increase business expenditures, and boost revenue. Ultimately, income, sales and corporate tax receipts will rise and provide offsets for the costs associated with these measures. It is also worth noting the cost of inaction. If employment continues its current rate of decline, Minnesota will face the prospect of a design and building industry with a historical regional advantage in human and capital resources that will have diminished to a point where it will no longer hold this enviable position. In short order, we are in imminent danger of losing a powerful component of our economy. The legislation supported by the Building Jobs Coalition will supplement stimulus efforts at the federal level to pave the way for design and building activity that will: remediate and redevelop brownfield sites; increase energy options in Minnesota; increase property value; and, provide needed financing for commercial, industrial, and residential projects across the state. While this plan is not free, every dollar infused into the design and building industry provides a significant return on investment that will restore lost jobs, increase business activity, restore tax receipts, and give our economy the boost it needs to turn the hope of recovery into reality.

Workforce is significantly smaller than past years.

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The Return on Investment

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The construction industry in Minnesota is 4% of the work force. The construction industry has a 25% unemployment rate in the state.



In 2010, Minnesota lost 6,300 construction jobs.

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I feel we have hit the bottom but it will take 12-18 months to start seeing significant improvement.

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