The EDA Center | at the University of Minnesota  
Commentaries on Greater Minnesota

Periodically we will present commentaries on topics of interest to community and economic developers across rural Minnesota. Below is a list of all commentaries with the most recent listed first.

 

Commentaries
Taking the Temperature of Main Street
November 2012
Jack M. Geller, Ph.D.
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In today's environment, any discussion of economic development inevitably includes the concept of entrepreneurship and small business development; and such discussions are particularly relevant when assessing rural communities. The relative health of the businesses on Main Street has been a big concern in many rural communities for decades and trying to take the temperature of these businesses is not that easy. Using somewhat crude measures it's easy to count the number of empty storefronts or closed businesses; but such measures are really not very helpful. However, tracking sales tax receipts is actually a useful measure that is fairly accurate, easy to understand, and the data is collected for you by the Minnesota Department of Revenue.

So I was pleased to see a recent study published by Will Craig and Bruce Schwartau from the University of Minnesota that did just that. If the names of Craig and Schwartau seem familiar it's because I previously mentioned their work in this column back in August. In that earlier study they examined the sales tax revenues of the largest communities outside the Twin Cities metro (Rochester, Duluth, St. Cloud and Mankato) and highlighted the explosive growth and development of Mankato as a regional center. However, in this new study they examine new data released by the Minnesota Department of Revenue for much smaller communities; many as small as 1,000 in population. Accordingly, data for communities of this size really can help us take the economic temperature of rural Main Street.

Another interesting fact relative to this new study is that it examines sales tax data from 2003-2009. If you recall, this was not exactly the best years for the Minnesota economy. In fact, state government experienced a significant contraction in 2003 and a subsequent partial government shutdown in 2005. This was then followed by two reasonable years of economic growth before both the financial and housing sectors crashed in late 2007, leading to the "Great Recession," which presumably ended in 2009. In fact according to Craig and Schwartau, between 2003 and 2009 sales tax receipts for the entire state as a whole were down 14 percent, after adjusting for inflation and the 2008 state sales tax increase. With this in mind you can guess that my expectations for how our rural Main Streets might fair during this same period of time were quite subdued.

So you can imagine my surprise when the data indicated that many of our rural communities actually faired quite well and in fact some even thrived. What is most interesting to note is that among the largest rural communities (mean population 89,089) the average change in sales tax revenue was -15.7%, with only 25 percent of these communities recording an increase in sales tax collections. However, among the smallest communities in the group (mean population 2,502) the average change was a loss half that size (-7.1%), but more importantly 54 percent of these small communities actually recorded an increase in sales tax revenue between 2003 and 2009.

How can one explain or make sense out of this data? Well looking a bit more closely at this data reveals a very interesting correlation. While the size of the community clearly is a factor in determining the amount of sales tax revenue collected, the geographic proximity of alternative shopping venues is equally important. Allow me to provide a simple example. Aiken, Minnesota is a community of 2,165 residents that is situated approximately 31 miles northeast of Brainerd and 54 miles to the south of Grand Rapids. Given the inconvenience to alternative shopping for their routine needs, businesses in Aitkin collected $2.54 million in sales tax revenue in 2009. Now let's look Janesville, MN; a community of similar size (population 2,256) but one that is conveniently located 17 miles on a four-lane highway east of Mankato, MN. In 2009 with approximately 100 additional residents, Janesville's businesses collected only $370,000 in sales tax receipts; approximately one-sixth of that collected in Aitkin.

So what do we make of this new analysis by Craig and Schwartau. Well clearly the good news to be gleaned is that with 54 percent of these small rural communities recording an increase in sales tax revenues between 2003 and 2009, it suggests that many of these small towns are both relevant and resilient even in difficult times. Second, similar to the slogan used regarding the attributes of real estate, location and proximity to alternative shopping venues plays an important role in determining the overall health of our rural Main Streets.

Geller is professor & head of the Arts, Humanities & Social Sciences at the University of Minnesota, Crookston. He also serves as the director of the federally-funded EDA Center at UMC. He can be reached at gelle045@umn.edu

This document was prepared by the University of Minnesota, Crookston under award number 06-66-05709 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

The University of Minnesota is an equal opportunity educator and employer.

 
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