Business owners feel better about economy

Minnesota business owners are starting to feel better about the economy, according to an annual survey by the Minnesota Chamber of Commerce, the state's largest business lobby.

About two-thirds of business owners surveyed believe that the economy will be the same or improve in 2010, according to the survey, to be released today. A year ago, as the full dimensions of the global credit crisis became apparent, the chamber's survey found that more than 90 percent believed the economy would be the same or worse in 2009.

"I'm more optimistic this year simply because we've had another year of bad stuff," said Steve Garske, CEO and owner of Par Aid of Hugo, a manufacturer of golf course equipment. "After decades of continuous growth, we saw sales drop by more than 10 percent in 2008-09. We would like to avoid further sales erosion in 2010. I have low expectations at this point in hopes that I may be surprised with a better 2010."

Garske declined to lay off any of his 31 workers and had them spend downtime working on projects around the plant instead of producing more flag sticks, ball washers, benches and water stations made from recycled plastic. His company, financed conservatively, has survived the downturn.

About a quarter of state employers have laid off workers over the last 12 months and a minority were even contemplating more layoffs.

Still, the pessimism of last year is waning.

"I think we've hit bottom," said Randy Reinke, CEO of Custom Products of Litchfield, Minn., which makes operator cabs and roll bars for the hard-hit mining, forestry and snowmobile industries. Custom's sales dropped by 30 percent in the fiscal year that ends Sept. 30, following a record 2008.

"I'm seeing some confidence in future projects by our customers," Reinke said. "I think we'll see an increase in business, particularly in the second half [of 2010.]"

The Federal Reserve reported Wednesday that the economy is starting to grow in the current quarter, spurred by modest increases in manufacturing to replenish inventories, business investment in technology and federal stimulus spending.

The rebounding stock market also has increased investor and public confidence that the economy is starting a slow northward turn. However, there's still concern about the American consumer, who has cut spending markedly, and an unemployment rate that's nearing 10 percent.

A full-fledged recovery won't occur until more folks are called back to work and able to purchase goods. Still, I'll take any optimism I can find among Minnesota business owners.

Todd Rapp, a principal at public affairs firm Himle Horner, a co-sponsor of the survey, said business managers believe Minnesota should rebound as well as or better than other states. However, only 6 percent of the employers expect to add employees over the next 12 months.

The annual survey of 350 of the 2,400-member chamber's business was conducted in June and July. It also acts as a Minnesota Chamber advisory to the Legislature.

Tax complaints

"If we continue down our current path, our noncompetitive tax policy is about the only thing that can stop Minnesota from emerging from this recession as quickly and successfully as other states and countries," said David Olson, chamber president.

Taxes are the biggest barrier to creating jobs, said 61 percent of business managers. The next-largest barrier is soaring health care costs. Only about half of Minnesota employers offer health insurance as a benefit. Smaller employers are less likely to offer health insurance.

"The state has ignored some key business tax issues for a number of years," said Tom Hesse, the chamber's vice president of government affairs. "The corporate income tax is high and does discourage investment in Minnesota."

The highest corporate tax rate is 9.8 percent, fourth-highest in the country. However, various credits and deductions lower that number for many companies.

Hesse said the chamber has convened a task force to look at the fairness and application of all Minnesota personal, corporate and sales taxes, with an eye toward a simpler system. Critics of the existing system say, for example, that the overall sales tax of 6.5 percent could be lowered and made more fair if the tax were applied to now-exempt items such as clothing, food and business services.

Gov. Tim Pawlenty, who refused to compromise with the Legislature in a deal that would have included tax increases on the wealthiest Minnesotans, also gets poor grades from business. Only 35 percent of the respondents gave Pawlenty a favorable grade; 61 percent view his performance unfavorably.

The chamber generally supports Pawlenty's positions. However, it did break with him in supporting in 2008 a phased-in, 10-cent-a-gallon increase in the gasoline tax to boost road and bridge work. It was the first state increase in a generation. And gasoline prices are lower than when the increase was added last year.

Only 40 percent gave the Legislature favorable marks.

Despite tax concerns, 53 percent of business owners and managers say Minnesota has a "good business climate." Only 11 percent said the state has a "bad" climate.

And nearly 90 percent "report they are optimistic about our economic future."

The business managers gave Minnesota high marks for reliable energy at competitive prices, proximity to suppliers, good infrastructure and politicians who listen.

Neal St. Anthony • 612-673-7144• nstanthony@startribune.com