Business Duluth

By Elaine
Hansen

This is the best part of the year. Yes, I know that it is summer and finally we
have gotten some warm weather, but it is also the time of the year when I have
the privilege of organizing and hosting a week-long course covering the basics
of economic development. Participants come to Duluth-Superior from throughout
the U.S.
and the opportunity is there to showcase some of our local initiatives as
examples of successful economic development.

Canal Park

Can you remember what it really looked like
in the 1950s and early 60s? I am old
enough to remember going down to South
Lake Avenue with my father to get auto parts and
seeing the mountains of rusted metal and smelling the grease and oil.

In how many vacation places have we relaxed
next to a vast body of water, with over seven miles of sand beach, while being
near hotels, quaint shops, restored warehouses and a pedestrian walkway winding
around a lakeshore? That’s not to mention tourist trains, a trolley, carriage
rides, tour boats, a convention center, a movie theater, aquarium, marine
museum, a biking/roller blade/walking trail along a lake, and a pier from which
to watch many different types of vessels. You relaxed, took pictures, enjoyed
family and friends, and went home and spoke of what a wonderful place you had
visited and how much fun you had.

Canal Park
would not be what it is today if a few leaders had not taken risks, worked
together and moved forward – bit by bit.
A few of those individuals are Art King who championed the St. Croix
Redevelopment effort in Canal Park in the 1950s and 60s, Jeno and Mick Paulucci
who, along with Andy Borg, Jr., transformed an old bar and brothel into a
fashionable restaurant in the 70s, Ralph Knowlton from the Corps of Engineers,
the Marshall sisters - Julia and Caroline - city benefactors who loved the
lakefront, the Goldfine family for maintaining the Vista fleet and developing
hotels, and C. Patrick Labadie who turned the Marine
Museum into the most visited attraction in the Twin Ports.

Aviation cluster

After the Air Force left the region in the
early 70s, the area around the airport was quiet and buildings started to
decay.

Again, a few people kept going forward and
believing that change was possible which resulted in the SAGE (U.S. Air Forces
Semi-Automatic Ground Environment) building being developed into a research
facility, UMD’s Natural Resource Research Institute (NRRI). Airbase family
housing became low-rent housing for university students with families then
ultimately the Aspenwood condominiums. The Northwest Airlines Maintenance Base
was built and since has become home to Cirrus’ jet operations.

It has taken over 15 years, but we now have a
world-class group of businesses that provide good-paying jobs and stability for
our regional economic base.

Superior

I remember Superior as well: the old buildings, the old
houses, a quiet, grimy shipyard and a reputation for late-hour drinking. Now,
buildings are being revitalized and those not used are being demolished.

Thanks to the efforts of Todd Johnson and
others moving forward, there is a transformed, active Fraser shipyard, the
former City/County building is now a home to offices, and the old City Hall is
being turned into retail space. New businesses, such as Charter Films, are
growing in areas once almost deserted. Enbridge Energy is rapidly expanding.
And Mayor David Ross has led a successful campaign that has given Superior an inviting
image.

Call for business leaders

There are other areas as well. We have a
growing medical district, a changing education cluster with five institutions
of higher education, and we should not forget our port which continually leads
in annual tonnage shipped and is now a major player in the production of alternative
energy.

We have much to be thankful for and to be
positive about, and the transformation will continue with contributions like
those of the Zeppa family, Rob Link and Alex Giuliani, to name a few. All
entities have a life cycle, and in order to maintain a strong economic base,
change will need to occur as new ones replace those that no longer exist.

Duluth is facing some
challenges right now. It is not time to bury our heads in the sand and point
fingers. It is a time for business and
community leadership.

Elaine Hansen is director of the UMD Center
for Economic Development, a joint project of the UMD Labovitz School of Business
and Economics, Natural Resources Research Institute, and Swenson College of
Science and Engineering.

By Rob West

You cannot pick up a paper or even read an e-mail
these days without hearing strong opinions, both pro and con, about the School
Board’s efforts to revitalize Duluth’s
aging public schools. Unfortunately, while open debates on this and other
community issues are a crucial part of community discourse, often these
exchanges have not been approached in a healthy, civil, objective manner that
takes a strategic and long-term view of the future.

Most of the arguments for and against the districts
long-range facilities plan, or red plan, have come under divisive headings
like "Dixon, an outsider, should not be allowed to force plan." Whether you are a long-range
facilities plan supporter or a red plan opponent, it is simply irresponsible to
ignore the broader message that this needlessly contentious debate is sending
to each of us, along with the rest of the region and state.

Duluth has an aging population in which about 20
percent of our city’s residents are older than 65. For many years, we have seen
an exodus of our young people as talented young adults move away to start
families and pursue careers in other cities that appear to have more
opportunities. It’s not just Minneapolis, New York or Denver; we are
in competition with other cities similar in size to Duluth’s
including Sioux Falls, S.D.;
Fargo, N.D.;
and Des Moines, Iowa. So why are we losing many of our best
and our brightest? Could it be that many of them dont see a healthy,
compelling and vibrant future for Duluth?

With
companies like our two health-care systems, Allete, Maurices, Enventis, Cirrus
Design and more that are successfully recruiting specialized talent, we must
also recognize that there are many young people moving to our community. And we’re
attracting young entrepreneurs who start businesses as well. Many are attracted
by the quality of life we enjoy. Many come for an excellent two- or four-year
education and stay. They find good jobs, pay taxes and raise their families.
All the foregoing contribute to the economic prosperity we all enjoy. But make
no mistake: Each is concerned about the future of our public schools.

Therefore,
if anyone tells you that not investing in our schools is a great way to save
money, I encourage you to question their motives. The reality is this: Having
a sound public education system is a fundamental ingredient in fuel that drives
economic prosperity. Vibrant schools equal a vibrant economy. If we want to
have a future that is prosperous and one we’re proud of, we need to resolve
differences quickly and take the bold steps necessary to ensure that access to
quality public education, delivered in sound facilities, continues to be a cornerstone
in attracting and retaining young people to this market.

When
visitors come to our community, whether they are folks who want to live and
work here or businesses who are interested in investing in this region, we
cannot afford to present the wrong perceptions about Duluth. Competition for economic growth is
keen. Cities our size are putting their best foot forward to attract new businesses
and high-paying jobs to their communities by showcasing their state-of-the-art
public schools.

These
include Des Moines; Spokane,
Wash.; Sarasota,
Fla.; Allentown,
Pa.; Huntsville,
Ala.; and many others that were
listed in the Top 10 U.S. Public School Systems list compiled by Expansion Management
magazine in its April 2005 issue.

Is Duluth competitive on
this front? What did people take away with them when they passed through Duluth this past weekend for Grandma’s Marathon?
Did they see a harmonious, civic-minded community where elected leaders are supported
in even the most difficult times, or did they read headlines about backbiting
arguments and provincialism? Did they see clean, vibrant schools that are safe
and accessible for all students, or did they see outdated buildings and
infrastructure in decline at the expense of our community’s future?

Moreover,
consider the extensive benefits for our local families who stand to gain more
from this project than just better schools for their children. This project is
not a $293 million bill we’re facing; it is a $293 million investment we are
making in our future, with work being done by local architects and contractors
who hire local labor.

There’s a
lesson here. Whatever your stance, it is time for us to stop fighting among
ourselves and work collaboratively to position our community as a positive,
welcoming place for working families and their children. Otherwise, you can be
sure that Sioux Falls, Fargo and every other progressive city in
this country will open their doors and paint a brightly colored picture of
prosperity that is far superior to our own.

Rob West is president and CEO of Area Partnership for Economic
Expansion, or APEX.

By Jim Skurla

When and how will high gas prices affect the tourism industry in Northeastern Minnesota this year?

Given the recent speculation about slashing
the estimates of oil in the reserves and the suggestion that prices may go as
high as $5 a gallon before the end of summer, fuel cost and supply could affect
tourism, almost immediately.

The tourism industry is important to the
economic base the Northeast Minnesota region.
It generates a healthy economic impact in jobs and income.

As summer quickly approaches, Duluth will be expecting
its usual influx of visitors. But 2008 may be different.

The U.S. economy has slowed down and
consumer confidence is low. Whether the economy is technically in a recession
is currently being debated by economists, but there is no denying that the
economic trends are weak. Although the housing market has not bottomed out yet,
the financial sector is still reporting losses, and job losses are mounting.

But many economic forecasts are seeing some
glimmers of hope and a slow recovery may begin in a few months.

Far more troubling for the tourism forecast
are record oil prices. Prices are still rising, and rising with no end in
sight. Consumers are feeling the effects in higher food costs and at the gas
pumps.

The good news for Duluth tourism is that the regional tourism
industry draws a majority of its travelers from the Twin Cities, and it has
been shown that visitors will stay closer to home as travel costs increase.
This bodes well for the Twin Ports.

However, this summer may be different. Gas
prices have never been this high, so visitors may shorten their vacation or not
travel at all this season.

Federal tax rebates, which are arriving, are
an opportunity for area tourism businesses to promote visiting Northeast Minnesota as an excellent way for taxpayers to
spend their rebates.

A long-term solution for tourists would be
the proposed high-speed train from the Twin Cities to Duluth. Because high gas prices will not be
going away, the U.S.
is primed to accept and use convenient mass transit.

The summer of 2008 might be the time when we
find out just how high the price of gas has to go before it really starts to
negatively affect Twin Ports tourism.

Jim Skurla is Acting Director of the UMD Labovitz
Schools Bureau of
Business and Economic Research. The Bureau has provided specific research to
identify economic problems and opportunities in Northeast
Minnesota since the 1960s.

By Tony Barrett

If you had told me five years ago that the Iron Range
would be seeing an epic economic boom, I would have asked what you were
smoking. But a boom is what’s happening.

Led by high demand for taconite and
reinforced by a slew of investment initiatives, mines are being built and expanded.
An entire steel plant is moving forward. We’re finally seeing a nugget plant
built, producing the higher value-added ore product that has been talked about
for more than a decade.

What’s happening is a huge positive for the
communities of the Range, the Duluth-Superior area and the entire Upper Midwest.

But I’m an economist. For me, behind every
silver lining there’s a cloud. With this explosive growth comes questions. Here
are five that we should be asking.

Is the infrastructure in place?

If it isn’t, or if it’s aging and requires
replacement, are there plans for the needed investment? Who will foot the bill?
Highways, railroads and port facilities are there, but in many cases they are
decades old. Given the higher usage, they’ll wear out at an accelerated pace.

And we have to look beyond transportation. Will
there be housing for the influx of construction workers and permanent workers? Iron Range
school districts have been in retrenchment mode forever, laying off teachers
and closing schools. Now we’ll need more schools and teachers. And are there
sufficient social services and health care in place for the new residents?

Infrastructure isn’t sexy and no one wants to
pay for it. But it’s critical for the smooth functioning of an economy and society.

Exactly who will build it, and who will come?

First will come the construction workers. These
will be temporary Rangers, here for the life of the construction process then
moving on. You dont want to permanently expand housing and schools for this
population since, by the time your investments are in place, those workers are
moving on. However, temporary housing and services can’t be shoddy and
second-rate.

Then there are the permanent workers needed
to staff the new and expanded plants. Some will have to be imported from
outside the region due to the simple fact of insufficient local supply. What
plans are in place to identify and recruit them? Are we going to let the
marketplace randomly pull workers into our region? Are we going to establish
training and educational facilities which can generate the workers?

Can you say "culture shock?"

These events have turned around a generation
of economic decline for the Range. And it’s not a slow, gradual turn-around. If
an economy can be said to have turned on a dime, that’s what is happening.

Our communities have gone through 25 years of
layoffs, watching young people leave for better jobs, and the people who have
stayed have had to deal with stagnant or declining real incomes. Now, young
people have a future, incomes will be rising, outsiders will be moving into
the area.

Face it, we’re in for several years of
upheaval. Positive upheaval, for the most part, but upheaval nonetheless.
Change does not come easily for anyone and the communities on the Range will be
no different.

Is this all a done deal?

Consider the national economic situation.
We’re dealing with a volatile financial environment, to put it mildly. The investments
on the Range are all big ticket projects, and fortunately, some have financing
set in stone.

But in recent weeks we’ve seen a seemingly
solvent Bear Stearns go bust and banks backing out of the huge Clear Channel
Communications deal. My point is that these were both solid-looking situations
that fell apart in the face of financial challenges.

Every investment project that doesn’t have
its financing signed, sealed and delivered faces the risk of seeing its
financing evaporate overnight.

If this is the boom, when is the bust?

The commodities industry is cyclical by
nature. Without a doubt, globalization helps by diversifying the demand for our
products. Increasing the value-added helps. And the incredible increase in
productivity in our existing mines over the last 20 years helps.

But there’s no escaping the fact that if
there is no demand for steel, there is no demand for taconite. That goes for
all raw materials. So, there will be another bust.

Does that mean we shouldn’t want the boom we
are currently experiencing? Of course not. Lets enjoy it and take advantage of
it. Just be aware of and ready for the bust that will come at some unknown time
in the future.

Tony Barrett holds a Ph.D. in economics from George Washington
University. He teaches
economics at the College
of St. Scholastica.