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Expert says Wisconsin can expect slow growth, no matter the job pledges

By   /   January 9, 2013  /   No Comments

By Ryan Ekvall | Wisconsin Reporter

MADISON – Jay-Z doesn’t hang with Scott Walker.

Mr. Z — rapper-record producer-Beyonce’s husband — is an Obama guy.

But if he had a rap for Wisconsin’s governor, it might go something like this:

“If you’re having campaign pledge problems, I feel bad for you, Gov. You said 250,000 jobs, but promises ain’t enough.”

But perhaps the bad rap on Walker should be the governor’s overly ambitious job creation goal in a state economy facing severe, intrinsic challenges.

Walker pledged to create 250,000 jobs in his first term, a mark he’s well short of halfway home. Quarterly Census Bureau data, a survey of 96 percent of Wisconsin payrolls, shows the Badger State ranked 42nd among the states in percentage of job change from June 2011 to June 2012, equating to 1.5 percent growth, or 35,381 total private-sector jobs created in that time.

The governor’s administration has said fewer than 90,000 jobs have been created in the state since December 2010 — the month before Walker took office, numbers no one has been able to corroborate.

Moody’s Analytics pegs Wisconsin employment growth at 1.6 percent for the foreseeable future.

Walker and others, including Wisconsin Manufacturers and Commerce, the state’s largest business lobby, previously attributed some of the slow growth to the uncertainty that surrounded the recall elections in June 2012.

Wisconsin faces some tough challenges to economic recovery, according to a Moody’s Analytic’s economic expert.

Some 900,000 Wisconsinites last year signed recall petitions to oust the sitting governor over public-sector collective bargaining changes that, among other things, required public employees to contribute to their pension. Somewhat ironic in the Census jobs numbers, perhaps, is that Wisconsin ranks sixth in government job growth during the same period — .6 percent growth, or 2,153 jobs.

But now the recall drive is behind Walker, and he’ll look toward the future as the introductory speaker Thursday at the 2013 Wisconsin Economic Forecast Luncheon in Madison.

The governor is likely to tout the state’s improved fiscal outlook after balancing a state budget last session that was $3.6 billion and adding more than $100 million to the rainy-day fund.

He also may bring up mining regulation reform and the thousands of projected mining and manufacturing jobs based on Gogebic Taconite LLC’s proposed $1.5-billion iron ore mine.

But unless new sectors spur growth, Wisconsin may muddle along for the foreseeable future.

In the latest Forbes Best States for Business list, Wisconsin ranked 43rd among the states in growth prospects. Michael Zoller, an economist at Moody’s Analytics, which Forbes leaned on for its rankings, spoke with Wisconsin Reporter about the low-growth prospect facing Wisconsin.

“For starters, Wisconsin is a manufacturing state in a bad region,” Zoller said. “At Moody’s, we assume the Midwest will perform a little weaker than the national average. And manufacturing will be one of weakest performing sectors in the recovery.”

About 16 percent of Wisconsin’s employment is in manufacturing, double the national average. And while Wisconsin has outperformed most states in new manufacturing jobs, according to Census Bureau data, the sector’s recovery may not result in a lasting boon for the state.

Manufacturing employment is up 2.8 percent from November 2011 to November 2012 in the greater Milwaukee region, according to the Metropolitan Milwaukee Association of Manufacturers.

“Indiana has better types of manufacturing, a lot of medical devices. It’s more resistant to outsourcing. Wisconsin is more traditional — paper, heavy machinery. Paper is very cyclical, it’s easy to mechanize. Heavy manufacturing is the same way,” Zoller said. “Wisconsin can’t turn to manufacturing forever.”

Meanwhile, the state continues to offer economic development incentives — including millions of dollars in tax breaks and low-cost loans from the Wisconsin Economic Development Corp. — to manufacturers. The state recently slashed the income tax rate for manufacturers to 0.4 percent, “smokestack chasing” in economic development parlance.

WEDC spokesman Tom Thieding acknowledged “a majority of assistance has gone to manufacturers” and said the corporation was targeting areas where Wisconsin has competitive advantages, including manufacturing, but also in biotechnology, aerospace, health care and water technology.

“The key to this kind of co-investment by WEDC is to identify clusters that have strong industry consortia leadership that have a plan/desire to advance that sector,” Thieding wrote in an email to Wisconsin Reporter.

“Commerce never took this approach. WEDC won’t venture into a sector if there isn’t industry leadership, support and investment,” Thieding said, referring to the state Department of Commerce, which Walker replaced with WEDC.

He pointed to WEDC’s $750,000 co-investment in “water technology companies” in the Water Technology Research and Business Accelerator Building in Milwaukee. According to The Milwaukee Water Council website, the goal is to turn Milwaukee into a freshwater research and development hub. The Water Council is WEDC’s co-investor in the project.

“The facility will be a venue for attracting and creating new businesses in the water industry, and will address key local and global water-quality technology and policy issues,” the website notes.

“We’ll still use the traditional tools we have to advance business development, but we’re building a more targeted approach to sectors in the “new economy,” Thieding added.

Lawmakers have discussed injecting taxpayer dollars into the high-risk venture capital sector to promote growth in newer technologies.

In addition to manufacturing jobs leaving the country, Zoller also said less than half of manufacturers pay for on-the-job training any longer, pushing that burden onto the willful hands of the state government.

Minority leader Rep. Peter Barca, D-Kenosha, has said “closing the skills gap” is a major priority this legislative session. In practice, that might take the form of increased funding for technical colleges or tax credits for manufacturers that train on the job. Sen. Majority leader Scott Fitzgerald, R-Juneau, said jobs training tied to mining will likely end up in the final version of that bill.

At the same time the state looks to increase funding for jobs training, students are looking to other, more attractive sectors — and too often in other states. In Wisconsin, educating students and keeping graduates in Wisconsin is of concern to economic prognosticators.

“If you take out the two metro areas (Madison and Milwaukee), Wisconsin is an extremely undereducated state,” Zoller said. “Only about 20 percent of the population (outside of Madison and Milwaukee) has bachelors’ degrees — among the least educated in the country. Other metro areas are going to have problems finding people with skills and attracting industries that will provide growth.”

Studies by the nonpartisan Wisconsin Taxpayer Alliance and the Federal Reserve Bank of Minneapolis show “brain drain,” where college-educated young adults migrate from Wisconsin, to be a prolonged problem in the state. The Minneapolis FRB noted Wisconsin lost a net 50,000 college graduates in the 1990s.

“The other big thing is Wisconsin has been hard hit by mergers and acquisitions, especially in Milwaukee. Wisconsin is home to a lot of small- to mid-sized companies. Those are easier companies to acquire,” Zoller said. “Financial industries have shut down entirely and moved to Minnesota or Chicago or have been gobbled up by foreign companies.”

For example, BMO Harris, the Bank of Montreal, acquired Marshall and Ilsley Bank (M&I Bank), previously the largest Wisconsin-based bank. In July 2011, the bank announced 475 layoffs. In September 2012, the bank announced another 74 Wisconsin job cuts.

Then there are economic woes beyond Wisconsin’s grasp, namely the United States fiscal situation and the European economy.

“Problems in Europe are plaguing the global economy,” Zoller said. “To see a manufacturing recovery, you need a trade recovery. The problems in Europe have to be resolved in order for that to happen. Walker can’t go to European Union and be like ‘do something.’ That’s happenstance. They have to basically wait.”

The bottom line:

“At Moody’s, we see the growth drivers in the nation are in higher skilled industry — health care, professional services, finance. People migrate because of money and jobs. You have to create high quality jobs to create a better economy,” Zoller concluded.

Contact Ryan Ekvall at rekvall@wisconsinreporter.com

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Kittle is a 25-year veteran of radio, newspaper and online journalism. In July 2011, Kittle joined Watchdog.org as bureau chief for Wisconsin Reporter. He has spent much of the past three years covering the seismic political changes taking place in the Badger State. Last year, Kittle joined Watchdog’s national reporting team, covering everything from energy policy to governmental assaults on civil rights. Beyond being published in Wisconsin’s daily newspapers and in multimedia news outlets, Kittle’s work has appeared on Fox News, and in Human Events, Reason Magazine, Newsmax and Town Hall. His special investigation into a politically charged John Doe probe, “Wisconsin’s Secret War,” was the basis of a 2014 documentary on Glenn Beck’s TheBlaze. Kittle has made several appearances on Fox News, including “On the Record with Greta Van Susteren. He serves as weekly politics commentator for Lake 96.1 FM in Lake Geneva, and WRJN-AM 1400 in Racine. His resume includes multiple awards for journalism excellence from The Associated Press, Inland Press, Wisconsin Broadcast Association and other journalism associations. Contact Kittle at mkittle@watchdog.org.