ECONOMIC DEVELOPMENT COMMITTEE

The Economic Development Committee was assigned three studies. House Concurrent Resolution No. 3072 directed a study of possible methods of growing North Dakota's population, including approaches to decreasing outmigration and increasing inmigration and reviewing how other states are dealing with related population issues. The basis of the study included recognition of problems related to the state's low rate of population growth, concerns relating to the changing demographics of the state's population, and the need to consider population centers from which to recruit individuals to move to the state. House Concurrent Resolution No. 3051 directed a study of economic development efforts associated with and including establishment of a Red River Valley business and technology development zone and methods through which programs receiving funding from the United States Department of Agriculture rural economic area partnership, empowerment zone, enterprise community, and champion community programs can be enhanced. House Bill No. 1504 directed a study of the state's business climate, including the creation of an index of key objective measurements that address the state's competitiveness with other states, the consideration of methods of creating business partnerships with North Dakota Indian tribes in order to increase primary sector business growth in the state, and active participation in the activities of the Primary Sector Business Congress. In conducting the study the Legislative Council was directed to create a Primary Sector Business Congress. The purpose of the congress was to assist in the business climate study, evaluate the impact of existing state economic development programs on primary sector businesses, identify methods to increase primary sector business job growth in the state, and prioritize for the Legislative Council the state's primary sector business economic development programs and initiatives.

The Legislative Council also assigned the committee with responsibility under North Dakota Century Code (NDCC) Section 40-63-03 to receive annual reports from the Division of Community Services on renaissance zone progress; under Chapter 18, Section 9, of the 2003 Session Laws to receive reports annually during the 2003-04 interim from the Commissioner of Commerce regarding specified economic goals and associated benchmarks; and under Section 15-10-41 to receive a presentation from the State Board of Higher Education on definitions and eligibility criteria regarding its centers of excellence program relating to economic development.

Committee members were Representatives Rick Berg (Chairman), Tracy Boe, Byron Clark, Donald L. Clark, Mark A. Dosch, Mary Ekstrom, Glen Froseth, Nancy Johnson, Jim Kasper, George Keiser, Eugene Nicholas, Kenton Onstad, Ken Svedjan, and Don Vigesaa and Senators Dick Dever, Duaine C. Espegard, Tony S. Grindberg, John O. Syverson, and Ryan M. Taylor. Representative Byron Clark was a member of the committee until his resignation on January 2, 2004.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2004. The Council accepted the report for submission to the 59th Legislative Assembly.

REPORTS

Department of Commerce

Division of Community Services

Renaissance Zone Annual Reports

The committee received annual reports from the Department of Commerce Division of Community Services on renaissance zone progress. The committee received updates on the status of projects within each of the renaissance zones, including the:

• Status of each project, as either approved or completed.
• Nature of the credits and exemptions applicable to each project.
• Amount of the financial institution tax exemption for each project.
• Amount of the state tax impact for each project.
• Amount of the property tax impact for each project.
• Amount of the historical tax credits for each project.
• Dates of local and division approval for each project.
• Dates of the five-year tax credit period for each completed project.

As part of the second of the annual reports, the committee received testimony the Division of Community Services had approved 17 zones; had approved a total of 195 zone projects, with 97 of those projects not yet completed; and had recognized five cities with a renaissance fund organization, with $1,475,000 in tax credits approved for investors in a renaissance fund origination, leaving a balance of $1,025,000 from the first $2,500,000 of credits.

The Division of Community Services did not recommend any changes to the renaissance zone program. The committee received testimony new renaissance zones continue to be created across the state and the zones appear to be working under existing law. The division continues to encourage small communities to participate in the program.

The committee toured the Fargo Renaissance Zone and received testimony from individuals in support of the economic benefit opportunities related to the Fargo Renaissance Zone. The committee received testimony the Fargo Renaissance Zone has positively impacted the area included in the zone as well as the area surrounding the zone.

Conclusion

Although the committee makes no recommendation with respect to the renaissance zone program, the committee expressed a need for future annual renaissance zone reports to include information regarding whether renaissance zone projects have resulted in increased property tax assessment values, in order for the legislative assembly to better gauge the effectiveness of the program.

Commissioner of Commerce
Economic Goals and Benchmarks

Annual Reports

Background

Chapter 18, Section 9, of the 2003 Session Laws requires the commissioner of the Department of Commerce to monitor and report annually during the 2003-04 interim to either the Budget Section or an interim committee designated by the Legislative Council regarding the following North Dakota economic goals and associated benchmarks:

1. Develop unified efforts for economic development based on collaboration and accountability:
   1. Site selection ranking of the North Dakota Department of Commerce.
   2. Share of local economic development organizations participating in statewide marketing strategy.
2. Strengthen cooperation between the University System, economic development organizations, and private businesses:
   1. Academic research and development expenditures as percentage of gross state product.
   2. Industry research and development expenditures as percentage of gross state product.
3. Create quality jobs that retain North Dakota's workforce and attract new high-skilled labor:
   1. Net job growth.
   2. New private sector businesses per 100,000 residents.
   3. Average annual wage.
   4. Net migration.
4. Create a strong marketing image that builds on the state's numerous strengths, including workforce, education, and quality of life.
   1. Positive national and out-of-state media exposure (favorable mentions).
   2. Number of North Dakota Department of Commerce web site hits per month.
   3. Number of leads generated by the North Dakota Department of Commerce.
5. Accelerate job growth in sustainable, diversified industry clusters to provide opportunities for the state's economy:
   1. Net job growth in manufacturing.
   2. Net job growth in business services.
   3. New private sector businesses in manufacturing.
   4. New private sector businesses in business services.
   5. Number of utility patents per 100,000 residents.
6. Strengthen North Dakota's business climate to increase international competitiveness:
   1. Gross state product (annual growth rate).
   2. Venture capital investments (thousands).
   3. Merchandise export value (per capita).

The department, in cooperation with Job Service North Dakota, the Department of Human Services, and the University System, is to include in its report the number of individuals trained and the number who became employed as a result of each department's workforce development and training programs, including the state's investment, the areas of occupational training, the average annual salary of those employed, and the average increase in earnings 12 months after completion of training.

Testimony and Committee Considerations

The committee received annual reports from the Commissioner of Commerce regarding specified economic goals and associated benchmarks. The following is a summary of the 2004 report, with the target figure in regular font (top) and the preliminary estimates as of June 15, 2004, in bold font (bottom):

	2000	2001	2002	2003	2004
Goal 1: Develop a unified front for economic development based on collaboration and accountability
Percent of local economic development organizations participating in state marketing strategy				30%	40%
				85%	45%
Site Selection magazine ranking on North Dakota's Department of Commerce				N/A	N/A
Goal 2: Strengthen linkages between the state's higher education system and economic development organizations and private businesses
Academic research and development expenditures as a percent of gross state product			0.4%	0.4%	0.4%
	0.36%	0.45%	N/A	N/A
Industry research and development expenditures as a percent of gross state product			0.2%	0.4%	.05%
	0.45%	1.83%	0.77% (est.)	N/A
Goal 3: Create quality jobs that retain North Dakota's current workforce and attract new skilled labor
Net job growth			1,800	1,400	1,700
	3,900	1,950	150	2,850
New private sector businesses			174	77	105
	116	(27)	206	331
Average annual wage			$26,252	$27,389	$28,688
	$24,683	$25,707	$26,550	$27,629
Per capita personal income	$25,109	$25,830	$26,852	$29,204
Net migration		2,088	662	1,302
		(6,456)	(3,916)	(1,334)
Population change		(4,797)	(2,374)	(74)
Goal 4: Create a strong marketing image on the state's numerous strengths, including workforce, education, and quality of place
Positive national/out-of-state media exposure (favorable mentions)				10	20
	2	7	5	12	17 (ytd)
Number of North Dakota Department of Commerce web site hits per month			10,920	11,466	12,039
	N/A	16,539	18,470	24,974	27,080 (ytd)
Number of leads generated by the North Dakota Department of Commerce			140	160	175
		40		99	58 (ytd)
Goal 5: Accelerate job growth in sustainable, diversified industry clusters to provide opportunities for the state's economy
Net job growth in manufacturing			300	200	200
	1,100	150	(350)	(250)
Net job growth in business services			400	200	300
	550	(250)	1,150	750
Net job growth in leisure and hospitality	300	50	450	150
Net job growth in health care services	450	550	650	830
New private sector businesses in manufacturing			5	3	3
	25	(6)	(7)	7
New private sector businesses in business services			19	9	14
	61 (est.)	62	97	83
Number of utility patents per 100,000			17.9	19.5	21.2
	13.2	15.1	11.4	8.6
Goal 6: Strengthen North Dakota's business climate to increase global competitiveness
Gross state product (annual growth)			2.3%	3.6%	3.5%
	8.6%	2.4%	4.9% (est.)	4.2% (est.)	4.3% (est.)
Venture capital investments (thousands)			$700	$2,734	$5,658
	$6,054	$1,017	$0	$14,500	2,000 (ytd)
Merchandise export value (per capita based on 2002 census = 642,200)			$1,306	$1,329	$1,368
	$975	$1,255	$1,338	$1,330

Additionally, the committee received a copy of the September 2002 North Dakota Economic Development Foundation strategic plan. The six strategic goals of the plan are:

• Develop a unified front for economic development based on collaboration, accountability, and trust.
• Strengthen linkages between the state's higher education system, economic development organizations, and private businesses.
• Create high-quality jobs to retain North Dakota's current workforce and attract high-skilled labor.
• Create a strong marketing image to build on the state's numerous strengths, including workforce, education, and quality of place.
• Accelerate job growth in diversified industry targets to provide opportunities for the state's long-term economic future.
• Strengthen North Dakota's business climate to increase global competitiveness.

The committee received testimony that specific industries being targeted by the Department of Commerce include tourism, information technology, value-added agriculture, and advanced manufacturing and energy. Although it is difficult to limit to a single source or manner, the department is working on pursuing outlets to promote North Dakota as a small-business home. The department is continually reviewing and trying to refine target industry areas and is constantly looking at targeted job growth. The Commissioner of Commerce testified that the goals and associated benchmarks are valuable tools and need to be used to guide economic development in the state.

Recommendations

The committee recommendations relating to the specified economic goals and associated benchmarks are addressed in the Recommendations portion of the Primary Sector Business Congress Activities portion of this report.

State Board of Higher Education

Centers of Excellence Report

Background

North Dakota Century Code Section 15-10-41 provides:

Centers of excellence.

1. The state board of higher education shall establish a centers of excellence program relating to economic development consistent with the purpose under subsection 2. The board shall designate centers of excellence. A designation by the board of a center of excellence within the economic development category does not preclude the board or a higher education institution from designating a center of excellence in an academic or service area. Centers of excellence relating to economic development include the North Dakota state university center for technology enterprise and the university of North Dakota center for innovation.
   Before January 1, 2004, the board, in consultation with the North Dakota economic development foundation and with private sector input, shall establish definitions and eligibility criteria for centers of excellence relating to economic development. The board shall present the definitions and eligibility criteria for the centers of excellence relating to economic development to an interim committee designated by the legislative council. The North Dakota economic development foundation may identify and recommend high priority centers of excellence relating to economic development for consideration by the state board of higher education for future budget requests.
2. The purpose of the program is to develop and engage strategies for science and technology research and development, commercialization, entrepreneurship, infrastructure, growth and expansion of knowledge-based industries, and activities in the state to develop innovative approaches that expand the gross state product; to assist efforts to attract private and federal assistance for science and technology research and development and for commercialization in growth clusters most likely to increase the gross state product; to increase collaboration among state, federal, and private research and development and technology commercialization organizations in the state; to strengthen the leadership and support of the national science foundation experimental program to stimulate competitive research programs and to encourage partnerships with other state institutions for expanded efforts to stimulate economic growth in identified industry clusters; to provide leadership in science and technology policy at a regional, a national, and an international level; and to create employment opportunities for North Dakota university system graduates. Identified industry clusters include advanced manufacturing, aerospace, energy, information and technology, tourism, and value-added agriculture.
3. The state board of higher education shall allocate funds from appropriations for undesignated centers of excellence relating to economic development based on the criteria established and shall report on such allocations, in partnership with the North Dakota economic development foundation, to the budget section. A recipient of funds under this section shall use the funds to enhance capacity, enhance infrastructure, and leverage state, federal, and private sources of funding. Funds awarded under this section may not be used to supplant funding for current operations or academic instruction or to pay indirect costs. The board may award funds under this section to research universities, university-related foundations, and public institutions that are located in the state which demonstrate the potential to deliver expertise and service to industry clusters that will contribute to the gross state product. A recipient of funds under this section which is an institution of higher education under the control of the board of higher education or which is a nonprofit university-related foundation shall:
   1. Provide the board of higher education with documentation of the availability of two dollars of matching funds for each dollar of funds awarded under this section as a condition of eligibility for receipt of funds under this section; and
   2. Provide the board of higher education, governor, and North Dakota economic development foundation with annual reports for four fiscal years following receipt of the funds.

Sections 17 and 19 of House Bill No. 1019 (2003) provided that $200,000 of the discretionary grants line item for the Department of Commerce appropriation is for the purpose of contracting with a private organization for conducting a marketing and image-building campaign for the Red River Valley Research Corridor during the second year of the biennium. Additionally, the bill provided the Department of Commerce is to provide a centers of excellence grant from the North Dakota Development Fund, Inc., of $1,250,000 to the North Dakota State University Center for Technology Enterprise and of $800,000 to the University of North Dakota Center for Innovation. The department was to provide these grants on October 1, 2003.

Testimony and Committee Considerations

A representative of the State Board of Higher Education presented the centers of excellence report. Since enactment of NDCC Section 15-10-41 in 2003, a University System task force and a North Dakota Economic Development Foundation task force merged to form the Joint Committee on Economic Development Centers of Excellence. This joint task force, with input by nearly 50 individuals in the primary economic sectors in the state, identified program needs and opportunities for focusing the resources of the North Dakota University System.

The following definitions and selection criteria were established and approved by the Joint Committee on Economic Development Centers of Excellence and then approved by the State Board of Higher Education:

• "Economic development center of excellence" means an area of concentration and a critical mass of knowledge and expertise associated with one or more North Dakota University System colleges or universities which meet the overall intent and the majority of the following criteria:

  Creates high-value private sector employment opportunities in the state;

  Promotes growth and expansion of knowledge-based industries and/or the development of new products (commercializes technology), high-tech companies, and skilled jobs in the state, i.e., uses academic and research excellence capacity to support economic development;

  Provides for public/private sector involvement and partnerships;

  Leverages other funding;

  Stimulates new wealth and increases gross state product;

  Fosters and practices entrepreneurship;

  Encourages cooperation and collaboration among the North Dakota University System colleges and universities;

  Links to targeted industry clusters (advanced manufacturing, energy, information technology, tourism, and value-added agriculture);

  Addresses depopulation and related issues; and

  Includes provisions for becoming self-sustaining.

• "Targeted economic development center of excellence" means a desired area of concentration and critical mass of knowledge and expertise associated with one or more North Dakota University System colleges or universities that when fully developed will meet the same criteria designated for an established center of excellence.

Using these newly developed definitions and criteria, the State Board of Higher Education, taking into account recommendations by the North Dakota Economic Development Foundation, selected two economic development centers of excellence projects from six proposals. The two projects selected were the Bismarck State College National Energy Technology Training and Education Center for $300,000 and the Williston State College Oil Field Training Center for $100,000, both subject to the campuses being able to meet the $2 to $1 match requirement under Section 15-10-41(3)(a).

The committee received the following information for each of the nine economic development centers of excellence:

• The amount of state, federal, and private funding.
• The related private sector party, if able to be identified.
• A brief description, including purpose and planned outcomes.
• Progress, including estimated completion dates.
• How the center's activity will be sustained beyond the 2003-05 biennium.
• Which of the statutory criteria the center meets.

A representative of the State Board of Higher Education testified that hopefully each of the state's institutions of higher education will be able to identify an avenue by which to pursue an economic development center of excellence, but the selection criteria needs to be input-based and needs to evolve to an outcome-based approach that evaluates factors, such as whether the economic development center of excellence actually creates jobs. Therefore, some flexibility will be utilized when considering expectations related to research, academic relationships, and capacity to attract external funding, but all economic development centers of excellence will need to become self-funding.

The committee received testimony that the issue of whether an economic development center of excellence needs to be research-based was an area of intense discussions during task force meetings. If a center of excellence is required to be research-based, the location of centers of excellence would be limited to the two research-based universities. The task force ultimately decided the legislative intent of the economic development centers of excellence program was to have more than two locations for centers of excellence. Therefore, whether a center is research-based is one criteria to consider, but not the only or the determining criteria.

Addressing the committee's concern that there may be confusion between economic development centers of excellence under NDCC Section 15-10-41 and centers of excellence that are not related to economic development but that excel in specific academic or service areas, a representative of the State Board of Higher Education testified that the board will try to further clarify this distinction.

Recommendations

The committee recommendations relating to the centers of excellence economic development are addressed in the Recommendations portion of the Primary Sector Business Congress Activities portion of this report.

POPULATION STUDY

Legislative Background

2003 Legislation

Legislative measures introduced during the 2003 legislative session which specifically or closely addressed population included:

• Senate Bill No. 2393, which increased the duties of the North Dakota Economic Development Foundation to include recommending and monitoring legislation and initiatives to strengthen and impact the state's economy and population.
• House Bill No. 1019, the appropriation for the Department of Commerce, which created a centers of excellence program.
• Senate Bill No. 2030, which allowed the Department of Commerce to retain a limited amount of the money received as subscriptions, commissions, or fees from the department's career guidance and job opportunities web site.
• House Bill No. 1199, which would have created a Department of Commerce Division of Population Growth. The bill failed to pass the House.

Previous Studies

During the 2001-02 interim, the Commerce Committee was charged with studying workforce training and development programs in the state, including efforts to recruit and retain North Dakota's workforce, underemployment and skills shortages current workforce training efforts, and the involvement of the New Economy Initiative goals and strategies and the Work Force 2000 and new jobs training programs and other workforce training and development programs administered by agencies of the state, and the feasibility and desirability of consolidating in a single agency the funding and administration of those programs. The committee recommended Senate Bill No. 2030 (2003).

During the 1999-2000 interim, the Commerce and Labor Committee was charged with studying the economic development efforts in the state. As part of this study the committee studied population retention and demographics, including receipt of reports from Project Back Home, CareerLink North, and the North Dakota State University Data Center. This committee recommended Senate Bill No. 2032 (2001), which created the Department of Commerce by consolidating the Division of Community Services, Department of Economic Development and Finance, and Tourism Department and which created the North Dakota Commerce Cabinet. Additionally, the committee recommended House Bill No. 1043, which would have provided for state payment of certain student loans, but failed to pass the Senate.

Recent Population Initiatives

In addition to a wide variety of organizations that have addressed population growth in the state and region, such as the North Dakota Rural Development Council, Northern Great Plains, Inc., and the Heartland Center for Leadership Development, there have been several population growth initiatives. Initiatives that have addressed the issue of population growth include the Great Plains Population Symposium Project, Saving North Dakota Roundtable, New Economy Initiative, and the Youth Investment Initiative in Support of Initiated Measure No. 3.

Great Plains Population Symposium Project

The Great Plains Population Symposium Project held a three-day national policy conference in Bismarck in October 2001 and held a two-day state and local policy conference in Dickinson in April 2002. The purpose of the project was to investigate the continuing depopulation of the rural Great Plains and to raise the nation's awareness of the facts and ramifications relating to the emptying of the nation's vast central region. The project was led by Dickinson State University in collaboration with researchers at North Dakota State University, Colorado State University, University of Montana, and Iowa State University. The project was sponsored by federal legislation and was supported by a grant from Congress.

Saving North Dakota Roundtable

On January 9, 2003, on the North Dakota State University campus, 31 people ages 21 to 34 took part in a "Saving North Dakota" roundtable discussion cohosted by The Forum (Fargo) and the Associated Press Managing Editors group. The Forum reported that roundtable members targeted five major areas of discussion--human rights, arts and culture, technology, marketing, and community and economic development. Additionally, on January 30, 2003, several of the panelists met with legislative leaders and Governor John Hoeven to discuss these major topics.

New Economy Initiative

The New Economy Initiative is a public-private initiative that was coordinated by the Greater North Dakota Association beginning in 2000. The goals of the initiative continue to be to mobilize North Dakotans to develop and implement solutions to some of the problems plaguing the state's business climate. The initiative works through the creation of action teams and industry clusters.

Youth Initiative Committee Initiated Statutory Measure No. 3

Initiated statutory measure No. 3, supported by the Youth Initiative Committee, would have created a Bank of North Dakota-administered program providing for partial reimbursement of student loan payments for employed North Dakota residents under 30 years of age who graduated from accredited postsecondary schools. Reimbursements would have been limited to $1,000 per eligible resident per year for not more than five years. The measure would also have provided an income tax credit of up to $1,000 for employed North Dakota residents from 21 through 29 years of age, for up to five years. The measure was rejected by voters at the November 5, 2002, general election.

Testimony and Committee Considerations

The committee received testimony regarding detailed population data from a representative of the State Data Center which focused on what was presented as the four hard demographic truths about the future:

1. Population consolidation.
2. Loss of young adults and families.
3. Aging population.
4. Shifting labor force.

The committee received testimony that in looking at the net domestic migration rates, North Dakota, South Dakota, Wyoming, and Kansas are all sharing the same experience. Additionally, even though the state of Texas had a growth rate of more than 22 percent, over 50 percent of the counties in Texas have experienced a population loss. There is a difference between looking at the state rate of population and the county rate of population because a state's counties can experience loss but if the state includes a large metropolitan area, the growth of that metropolitan area can make up for the losses in the counties. One thing that makes North Dakota unique is that North Dakota does not have the large cities most other states have. The population shift in the Great Plains is due in large part to agriculture and technology and this shifting trend has been taking place for more than 50 years.

The committee received testimony that the issue of migration from rural areas to urban areas is a global issue. The situation of the United States can be distinguished from the situation in Europe in that geographically the United States is larger than the countries in Europe and the distance between communities is greater in the United States.

The committee received testimony from a local developer that outmigration is an effect, not a cause. People come or go from a community for jobs and education. Additionally, outmigration is not unique to North Dakota. In reviewing demographic and population statistics, it is important to note that throughout the nation smaller communities statistically have lower average incomes than larger communities and North Dakota is a state comprised of small communities.

Recommendations

The committee recommendations relating to the population study are addressed in the Recommendations portion of the Primary Sector Business Congress Activities portion of this report.

ECONOMIC DEVELOPMENT EFFORTS STUDY

North Dakota Legislative Background

There has been a significant amount of state legislation and a number of Legislative Council studies relating directly to economic development and economic development programs. The following information regarding legislation and studies is not totally inclusive but includes the recent legislation most directly related to economic development.

2003 Legislation

• Section 23 of House Bill No. 1019 provided for the creation of a State Board of Higher Education centers of excellence program to develop and engage strategies for science technology research and development, commercialization, entrepreneurship, infrastructure, growth and expansion of knowledge-based industries, and activities to develop innovative approaches that expand the gross state product. The two centers designated in the bill were the North Dakota State University Center for Technology Enterprise and the University of North Dakota Center for Innovation.
• Sections 17 and 19 of House Bill No. 1019 provided that $200,000 of the discretionary grants line item for the Department of Commerce appropriation was for the purpose of contracting with a private organization for conducting a marketing and image-building campaign for the Red River Valley Research Corridor during the second year of the biennium and for providing specified centers of excellence grants from the North Dakota Development Fund, Inc., of $1,250,000 to the North Dakota State University Center for Technology Enterprise and of $800,000 to the University of North Dakota Center for Innovation.
• Section 25 of House Bill No. 1019 revised the seed capital investment tax credit program.
• House Bill No. 1127 expanded the lending sources from which a student seeking assistance under the technology occupations student loan program may obtain a student loan.
• House Bill No. 1426 allowed political subdivisions to create commerce authorities.
• House Bill No. 1207 allowed political subdivisions to establish municipal port authorities or regional port authorities.
• Senate Bill No. 2393 increased the duties of the North Dakota Economic Development Foundation to include recommending and monitoring legislation and initiatives to strengthen and impact the state's economy and population.
• House Bill No. 1423 expanded the rural growth incentive city program to include grants related to location of new businesses within the city.
• Senate Bill No. 2335 authorized the Bank of North Dakota to invest in North Dakota alternative and venture capital investments and early stage capital funds.
• Senate Bill No. 2259 revised the law relating to renaissance zones, including authorizing renaissance fund organizations to provide financing to businesses outside a renaissance zone.
• House Bill No. 1457 authorized a renaissance zone city of over 5,000 population to expand the zone to a maximum size of 35 blocks, based upon population.

2001 Legislation

• Senate Bill No. 2032 created the Department of Commerce, North Dakota Commerce Cabinet, and North Dakota Economic Development Foundation.
• House Bill No. 1400 created the rural growth incentive program.
• House Bill No. 1283 created the technology occupations student loan program administered by the State Board of Higher Education.
• Senate Bill No. 2349 increased the maximum amounts of loans available under the beginning entrepreneur loan guarantee program.
• House Bill No. 1413 expanded the seed capital investment tax credit program.
• Senate Bill No. 2352 provided a sales tax exemption for the purchase of computer and telecommunications equipment that is an integral part of a new primary sector business or a physical or an economic expansion of a primary sector business.
• Senate Bill No. 2033 revised the renaissance zone law.
• House Bill No. 1460 increased the tax credits available for renaissance zone investments.

1999 Legislation

• House Bill No. 1443 created the quadrant system for workforce training.
• Senate Bill No. 2242 created the beginning entrepreneur loan guarantee program.
• House Bill No. 1141 eliminated the requirement that the Department of Economic Development and Finance have a Division of Science and Technology.
• House Bill No. 1492 allowed for the establishment of renaissance zones in cities.
• Senate Bill No. 2096 provided new jobs training and education program services developed and coordinated by Job Service North Dakota must be provided to primary sector businesses that provide self-financing as funding for new jobs training programs.

2001-02 Interim Studies

• The Higher Education Committee studied the State Board of Higher Education's implementation of the performance and accountability measures report required by Senate Bill No. 2041 (2001), including information on education excellence, economic development, student access, student affordability, and financial operations.
• The Higher Education Committee studied the responsibilities and the functions of the College Technical Education Council and the implementation of the workforce training regions, including how the regions are functioning.
• The Commerce Committee studied the availability of venture capital, tax credits, and other financing and research and development programs for new or expanding businesses, including an inventory of the programs available, a review of the difference between public and private venture capital programs, and assessment of the needs of business and industry, the research and development efforts of the North Dakota University System, and reviewed the investments of the State Investment Board and the feasibility and desirability of investing a portion of these funds in North Dakota.
• The Commerce Committee studied the feasibility and desirability of expanding North Dakota's economic development marketing efforts to include international markets and establishing a global marketing division within the Department of Commerce.
• The Commerce Committee studied the workforce training and development programs in North Dakota, including efforts to recruit and retain North Dakota's workforce, underemployment and skills shortages, current workforce training efforts, and the involvement of the New Economy Initiative goals and strategies; and the Work Force 2000 and new jobs training programs and other workforce training and development programs administered by agencies of the state of North Dakota and the feasibility and desirability of consolidating in a single agency the funding and administration of those programs.
• The Commerce Committee received a report from the Securities Commissioner of the commissioner's findings and recommendations resulting from the commissioner's review of policies and procedures relating to access to capital for North Dakota companies, with the goal of increasing North Dakota companies' access to capital investment.

1999-2000 Interim Study

The Commerce and Labor Committee studied the economic development efforts in the state, including the provision of economic development services statewide and the related effectiveness, the potential for the privatization of the Department of Economic Development and Finance, and the appropriate location of the North Dakota Development Fund, Inc., including the potential transfer of the fund to the Bank of North Dakota.

1997-98 Interim Study

The Commerce and Agriculture Committee studied the economic development functions in this state, including the Bank of North Dakota programs, Technology Transfer, Inc., the North Dakota Development Fund, Inc., the Department of Economic Development and Finance, and other related state agencies.

Federal Program Background

There are several federal economic development programs being utilized in the state, including the rural economic area partnership (REAP) zones, rural empowerment zones, rural champion community program, and urban and rural renewal communities. State economic development programs closely related to technology economic development, closely related to economic development with a focus on geographical region, or that have a strong federal link include the renaissance zone program, rural growth incentive program, and manufacturing extension partnership program.

Rural Economic Area Partnership Zones

The United States Department of Agriculture (USDA) has implemented a pilot concept for rural revitalization and community development called rural economic area partnership zones. The USDA reported that "the REAP Initiative was established to address critical issues related to constraints in economic activity and growth, low density settlement patterns, stagnant or declining employment, and isolation that has led to disconnection from markets, suppliers, and centers of information and finance."

In 1995 the first two REAP zones created were the Center of North America Coalition (CONAC) for Rural Development REAP zone and the Southwest REAP zone, both in North Dakota. The CONAC zone consists of Towner, Benson, Pierce, Bottineau, Rolette, and McHenry Counties and the Spirit Lake and Turtle Mountain Indian Reservations. The Southwest REAP zone consists of Billings, Dunn, Golden Valley, Stark, Slope, Hettinger, Bowman, and Adams Counties and the south segment of the Three Affiliated Tribes Indian Reservations. Since 1995 two REAP zones have been established in New York and one zone has been established in Vermont. The USDA reports that the REAP zone status of the two North Dakota REAP zones is scheduled to end September 30, 2005.

State funding for the REAP zones has been combined with the state funding of the champion communities. In 1999 the Legislative Assembly provided the Champion/REAP Alliance $50,000 in matching funds, in 2001 the Legislative Assembly provided $75,000 in matching funds, and in 2003 the Legislative Assembly, through discretionary funds of the director of the Division of Economic Development and Finance, provided approximately $70,338 in matching funds to assist the programs.

Rural Empowerment Zone

The USDA administers the rural empowerment zone and rural enterprise community programs as part of the community empowerment program, which was enacted into law in August 1993. The first round of designation of three rural empowerment zones and 30 rural enterprise communities was in December 1994; the second round, which was enacted into law by the federal Taxpayer Relief Act of 1997, resulted in the designation of five new rural empowerment zones (one of which is in North Dakota) and 20 new rural enterprise communities; and the third round, which was enacted into law by the federal Consolidated Appropriations Act of 2001, resulted in the designation of two new rural empowerment zones. The funding, benefits, and eligibility of rural empowerment zones and enterprise communities vary according to which of the three rounds the designation was made.

The Griggs-Steele empowerment zone was a Round II designation that includes all of Steele County and one census tract in Griggs County, including the cities of Hannaford and Binford. There is only one rural empowerment zone in the state, and there are not any rural enterprise communities in the state. The USDA reports that each Round II rural empowerment zone received $2 million in funds the first year, similar amounts for subsequent years, with the funding for the remaining years to be determined at a later date. Benefits of Round II designation include bond financing, work opportunity tax credits, federal income tax deductions, and brownfields income tax deductions.

Rural Champion Community Program

The USDA implemented the rural champion community program in 1999. Apparently the determination of which communities would be designated as rural champion communities was that communities that submitted applications in Round I or II for rural enterprise zone or empowerment community status, but were not selected, were invited to sign champion community agreements with USDA. The eight champion communities in the state are Rolette County champion community; Burke-Divide champion community; Cavalier County champion community; Dakota heartland champion community, which includes all of McIntosh County and the developable sites of Edgeley, Kulm, and Napoleon; Dakota partners champion community, which includes Pierce County, the city of Bowman, and the city of Hettinger; Dakota State Line Regional Alliance; Pembina County champion community; and Renville County champion community. State funding of rural champion communities is combined with the funding for REAP zones.

Urban and Rural Renewal Communities

The United States Department of Housing and Urban Development (HUD) administers the urban and rural renewal communities, urban empowerment zone, and urban enterprise community programs. The Renewal Community Initiative was established by the federal 2000 Community Renewal Tax Relief Act.

Over 100 applications were received by HUD for designation as a renewal community. The Turtle Mountain Indian Reservation is one of 40 renewal communities and is the only renewal community in the state. These renewal communities will be able to take advantage of approximately $6 billion in tax incentives that are exclusively available to renewal communities and as a distressed area, the renewal communities will also be eligible to share in an additional $11 billion in low-income housing and new market tax credits. Specifically, benefits of designation as a renewal community include access to tax credits, such as wage credits, work opportunity credits, and welfare-to-work credits; tax deductions, such as commercial revitalization deductions, Section 179 deductions, and environmental cleanup cost deductions; capital gains exclusions; and bond financing.

State Program Background

Previous studies and legislation indicate a broad range of state programs designed to address economic development in some fashion. Three state programs address technology economic development, economic development with a focus on a geographical region, and state economic development programs that have a strong federal link.

Renaissance Zones

North Dakota Century Code Chapter 40-63 provides for the renaissance zone program, which was created in 1999. The Tax Commissioner implemented the program and the Department of Commerce Division of Community Services administers the program. The renaissance zone program provides for tax incentives to encourage investment in renaissance zones. The scope of authority of renaissance fund organizations was expanded in 2003 to allow these organizations to provide financing to businesses outside a renaissance zone. In addition, the 20-block geographical limitation was expanded in 2003 to allow cities of over 5,000 population to expand a renaissance zone beyond the 20-square-block limit at the rate of one additional block for each additional 5,000 population to a maximum size of 35 blocks.

Tax incentives under the renaissance zone program include a single-family residence tax credit, business or investment income exemption, business purchase or expansion tax credit, historic property preservation or renovation tax credit, and renaissance fund organization investment tax credit.

Rural Growth Incentive Program

North Dakota Century Code Section 54-34.3-13 provides for the rural growth incentive program. The program is managed and administered by the Department of Commerce Division of Economic Development and Finance. As initially enacted, the program was limited to providing loans to small communities; however, in 2003 the program was expanded to include grants to small communities. The expansion of the program is effective through July 31, 2005, and after that date returns to the original scope of providing loans.

Manufacturing Extension Partnership Program

The Dakota Manufacturing Extension Partnership, Inc., (TD MEP) program is a nonprofit organization with the mission to help its clients create new wealth. The Dakota MEP is a partnership of federal, state, local, and private sector resources and is part of a nationwide network of MEP centers serving all 50 states and Puerto Rico. The Dakota Manufacturing Extension Partnership, Inc., targets services to existing companies committed to grow and to companies that will create new wealth and opportunities in their communities. The Dakota Manufacturing Extension Partnership, Inc., provides training, assessment, and technical assistance services in the areas of people, management, manufacturing, marketing, and information technology, with a specialty in providing Lean Enterprise services. The Dakota Manufacturing Extension Partnership, Inc., receives federal funding, state funding, private sector fee-for-service funding, and private sector in-kind funding.

Red River Valley Business and Technology Development Zone Background

The concept of creation and support of a Red River Valley business and technology development zone has been a topic addressed by a variety of actors at the federal, state, and local levels.

Congressional Activities

Activities related to the creation of such a zone include promotion of a zone by United States Senator Byron Dorgan. As part of his support for this zone concept, Senator Dorgan has participated in several regional technology conferences, hosted several research corridor action summits, and helped to direct more than $100 million of scientific research funding to the University of North Dakota (UND) and North Dakota State University (NDSU).

State Activities

State activities related to technology in the Red River Valley appear in large part to cluster around the campuses of NDSU and UND. These activities clustered around the universities include federal, state, and privately funded programs.

North Dakota State University has committed resources to technology in the region. For example, NDSU has a Division of Research, Creative Activities, and Technology Transfer. The division is dedicated to:

• Advancing NDSU research, creative activities, and technology transfer.
• Fostering entrepreneurial projects.
• Interacting with the Legislative Assembly, the State Board of Higher Education, federal program officers and administrative personnel, and Congressional Delegations and their staffs.
• Providing leadership for enhancing NDSU's national status as a research and graduate institution.
• Establishing NDSU's new Research and Technology Park.

The North Dakota State University Research and Technology Park, Inc., is a university-owned, nonprofit corporation that is managed outside the University System. The mission of the park is to enhance the investments in NDSU by the citizens of North Dakota.

The University of North Dakota has committed resources to technology in the region, including the UND Energy and Environmental Research Center and the University Technology Park. The University Technology Park was developed by the UND Aerospace Foundation--a public, nonprofit corporation that serves as a link between industry and the John D. Odegard School of Aerospace Sciences at UND. The technology park includes technology tenants and the North Dakota Center for Innovation.

The University of North Dakota Center for Innovation helps entrepreneurs, students, and researchers launch new technologies, products, and ventures; develop business and marketing plans; and access talent and sources of venture financing. The center manages the Technology Incubator and coordinates the development of the University Technology Park. The Center for Innovation Foundation serves as a link between successful entrepreneurs and the Center for Innovation and its Rural Technology Incubator in the University Technology Park on the UND campus to encourage and foster entrepreneur outreach and new ventures in the region.

Federal Programs

Federal business and technology programs associated with the universities include the Experimental Program to Stimulate Competitive Research (EPSCoR) and the North Dakota Small Business Innovation and Research and the Small Business Technology Transfer (SBIR/STTR) (NDSS).

The EPSCoR is a joint program of the National Science Foundation and 27 states and territories, of which North Dakota is one. The program promotes the development of the states' science and technology resources through partnerships involving a state's universities, industry, and government and the federal research and development enterprise.

Located at the Center for Innovation, the NDSS assists small businesses in seeking federal assistance in developing products and services based on advanced technology. Through a federal and state technology (FAST) partnership program grant from the United States Small Business Administration, the NDSS assists small businesses in participating more competitively in the national Small Business Innovation and Research (SBIR) program and the Small Business Technology Transfer (STTR) program.

Testimony and Committee Considerations

The committee received a status report from a representative of the Division of Economic Development and Finance, Department of Commerce, for comments regarding the Red River Valley Research Corridor. The $200,000 appropriated to the Division of Economic Development and Finance during the 2003 legislative session to market the Red River Valley Research Corridor was leveraged with a federal grant. On September 8, 2004, the United States Department of Commerce Economic Development Administration awarded the Department of Commerce, University of North Dakota, and North Dakota State University with a grant of $155,000 per year for the next three years. This new funding, with the new funding being requested by the division for the 2005-07 biennium, will be used to pursue the following targeted activities:

1. Providing technical assistance.
2. Conducting applied research.
3. Disseminating results of these activities.

The remainder of the testimony and committee considerations relating to the economic development efforts study are addressed in the Primary Sector Business Congress Activities portion of this report.

Recommendations

The committee recommendations relating to the economic development efforts study are addressed in the Recommendations portion of the Primary Sector Business Congress Activities portion of this report.

BUSINESS CLIMATE STUDY

The three main areas of the business climate study are creation of a business climate index, consideration of methods of creating business partnerships with Indian tribes in the state, and participation in the activities of the Primary Sector Business Congress.

Business Climate Index

Background

There are a myriad of studies comparing state business climates and ranking the states based upon a variety of factors. Each study has a slightly different approach or focus; therefore, how a state ranks in a study depends on the unique factors or methodology used in that particular study.

Testimony and Committee Considerations

The committee received and reviewed several examples of state business climate studies that rank the states and the committee received testimony regarding several of these rankings. Testimony was received that the goal of the Legislative Assembly should be to create a stable environment, which will in turn result in and support a healthy business environment. Examples of how state policy may impact the business environment include unemployment insurance premium rates, corporate tax rates, state insurance issues, workers' compensation rates, workforce availability, the health of the transportation system, water issues, and funding and treatment of intellectual assets.

A representative of the Department of Commerce testified regarding business climate indexes. Reasons for the disparity between the variety of business climate indexes is multifold, including:

• Reports are often released by nonprofit special interest groups with an agenda that is often reflected in that group's factors or rankings.
• Nonprofit special interest groups often use factors and methodology that is difficult to understand or is simply not entirely revealed.

As can be expected, within the large spectrum of indexes, some indexes are favorable to the state while others are not. Another issue to consider in comparing business climate indexes is that because there are virtually 50 different tax systems in the United States, it is difficult to accurately compare states to each other. Although it was requested that the Legislative Assembly be very cautious in using and evaluating rankings and indexes on a surface level, the committee also received testimony that when a company looks at locating within the state a third-party index is not the basis for site location.

A representative of Workforce Safety and Insurance testified that under a 2002 Oregon state premium rate ranking, North Dakota was ranked as having the lowest premium rate in the nation; however, under the ranking compiled by North Dakota's Workforce Safety and Insurance, North Dakota ranks 20th in the nation. The critical issue in rate ranking workers' compensation is to consider what the states are paying to injured workers.

The Tax Commissioner testified that the broad range of business climate indexes frequently misreflect the North Dakota tax system. The Tax Commissioner testified that if the Legislative Assembly is looking to improve the tax climate in the state, it may be helpful to consider changing the state's two tax forms.

Business Partnerships With Indian Tribes

North Dakota Background

The Economic Development Committee was charged with considering methods of creating business partnerships with North Dakota Indian tribes in order to increase primary sector business growth in the state. This portion of the study focused on business opportunities that may be available to Indian tribes through the United States Small Business Administration (SBA) 8(a) business development program for small disadvantaged businesses (SDBs). Recent legislation pertaining to this particular area of the study included Section 13 of House Bill No. 1019 (2003), the Department of Commerce appropriation, which provided legislative intent that the Department of Commerce assist in the creation of business partnerships with Indian tribes in order to increase primary sector business growth on the reservations.

The five Indian reservations located in this state are the Fort Berthold Reservation, Spirit Lake Reservation, and Turtle Mountain Reservation, which are located wholly in North Dakota and the Lake Traverse Reservation and the Standing Rock Reservation, which include land in North Dakota and South Dakota. Data from the United States Census Bureau, 2000 census, provides:

Geographic Area	Total Population	American Indians and Alaska Natives Population (One Race or in Combination)	Median Age
Fort Berthold Reservation	5,915	4,091	30.0 years
Lake Traverse Reservation (North Dakota portion)	191	5	42.9 years
Spirit Lake Reservation	4,435	3,368	22.8 years
Standing Rock Reservation (North Dakota portion)	4,044	3,450	23.9 years
Turtle Mountain Reservation (includes off-reservation trust land in North Dakota)	8,307	8,043	23.6 years
North Dakota	642,200	35,228	36.2 years

United States Small Business Administration Small Disadvantaged Business Programs Background

The United States Small Business Administration administers two business assistance programs for Small Disadvantaged Businesses--the 8(a) business development program and the small disadvantaged business certification program. The Small Business Administration reports that "the 8(a) Program offers a broad scope of assistance to socially and economically disadvantaged firms. SDB certification strictly pertains to benefits in Federal procurement." Businesses that are 8(a) firms automatically qualify for small disadvantaged business certification. The Small Business Administration regulatory rules for the 8(a) program and the small disadvantaged business certification program are at 13 CFR 124. Both of these programs provide for special rules for a firm owned by an Indian reservation under 13 CFR 124.109. Additionally, the Small Business Administration Office of Native American Affairs is designed to assist Native-American-owned small businesses.

The three basic requirements an 8(a) applicant must meet are:

1. It must be a small business.
2. It must be unconditionally owned and controlled by at least one socially and economically disadvantaged individual who is a United States citizen and is of good character.
3. It must demonstrate potential for success.

The length of time an 8(a) program participant firm may participate in the program is limited. Participation is divided into two stages--a four-year development stage and a five-year transitional stage. A participant essentially graduates from the 8(a) program at the expiration of the participant's term. In addition to the time limit, 8(a) firms are required to maintain a balance between their commercial and government business and there is a limit on the total dollar value of sole-source contracts that an individual participant can receive while in the program.

The Small Business Administration reports a broad range of benefits of 8(a) program participation, including:

1. Participants can receive sole-source contracts, up to a ceiling of $3 million for goods and services and $5 million for manufacturing.
2. Federal acquisition policies encourage federal agencies to award a certain percentage of their contracts to small disadvantaged businesses. To speed up the award process, the Small Business Administration has signed memorandums of understanding with 25 federal agencies allowing them to contract directly with certified 8(a) firms.
3. Recent changes permit 8(a) program firms to form joint ventures and teams to bid on contracts. This enhances the ability of 8(a) program firms to perform larger prime contracts and overcome the effects of contract bundling--the combining of two or more contracts together into one large co ntract.

Although small disadvantaged business certification is available to 8(a) program participants automatically, a firm may qualify for small disadvantaged business certification independently as well. Similarities between the 8(a) program and small disadvantaged business certification eligibility requirements include the social and economic disadvantage criteria. Differences between the two programs include the ownership restrictions for nondisadvantaged individuals and how joint ventures are treated.

Program benefits of small disadvantaged business certification include price evaluation adjustments, evaluation factors or subfactors, and monetary subcontracting incentive programs. A certified small disadvantaged business may qualify for a price evaluation adjustment of up to 10 percent on certain federal procurements. Evaluation factors and subfactors allow qualified contractors to receive a credit when using certified small disadvantaged businesses as subcontractors.

Certification as a small disadvantaged business is good for three years. An 8(a) program firm that graduates remains on the small disadvantaged businesses certified business list for three years following 8(a) program graduation.

Testimony and Committee Considerations

The committee held a joint meeting with representatives of the Indian tribes in the state, held at the United Tribes Technical College in Bismarck. As part of this joint meeting, the committee received testimony from representatives of:

• MHA Enterprises, which is, in part, an umbrella agency over the Fort Berthold Development Corporation, Twin Buttes Custom Homes, Mandaree Solid Surfacing, and Elbow Woods Works.
• Nature's Way Tissue Corporation, an American Indian-owned business in Oneida, Wisconsin.
• Fort Berthold Development Corporation, an 8(a) tribally-owned business.
• Sioux Manufacturing Corporation, a tribally-owned business in Fort Totten.

The committee received testimony from the president of United Tribes Technical College that not only is the college growing but the American Indian population in the state is growing; therefore, educating the American Indian workforce and keeping American Indian students in the state following graduation is critical. The committee received testimony that all of the Indian tribes in North Dakota have economic development plans.

The committee received testimony that although the 8(a) program provides that a business is required to apply for a business code classification, such as being classified as a construction business, that business can participate in a variety of industries. Additionally, if an 8(a) business is designated under a specific industry code, that business can still partner with an appropriate mentor business to expand the scope of the kind of services the original business can provide. The 8(a) program provides an opportunity to have 8(a) tribal businesses work with new or startup nontribal businesses and this translates into significant business opportunities for North Dakota businesses through partnerships with tribally owned 8(a) businesses. Additionally, these partnerships are an opportunity for the tribes to address and resolve some of the economic problems that exist on the reservations.

The committee received testimony that the process of submitting bids under the 8(a) procurement process is complex. In looking at how the tribally owned businesses can partner with private businesses, one thing the federal government considers is the history of the tribal business. Therefore, there is a benefit to helping private businesses establish partnerships with the tribally owned businesses early in the process.

The committee received testimony that although there are barriers and obstacles present in the 8(a) program, sole-sourcing is a fantastic benefit. As long as the businesses' contractors are qualified and within the price guidelines, sole-sourcing bids can work. Testimony was received that it is unfortunate that the United States Department of Agriculture does not participate in sole-sourcing contracts in North Dakota. Additionally, the committee received testimony that although the 8(a) program does not have this requirement, it is important to tie jobs to the Indian reservations in order to help alleviate the high unemployment on the Indian reservations.

The committee generally agreed that as part of the Primary Sector Business Congress focus group discussions, it will be important to include participants from 8(a) businesses.

Primary Sector Business Congress

Overview

As part of the business climate study, the committee was charged with actively participating in the activities of the Primary Sector Business Congress. The Legislative Council contracted with the National Association of State Development Agencies (NASDA) to assist in organizing and conducting the Primary Sector Business Congress, synthesizing the data gathered in the course of the Primary Sector Business Congress activities, and drafting legislative and nonlegislative recommendations. In addition to participating in the focus group discussions leading up to the actual Primary Sector Business Congress, participating in the Primary Sector Business Congress, and working with NASDA in crafting an initiative resulting from all of the activities of the Primary Sector Business Congress, the committee spent considerable time reviewing and researching the definition of "primary sector business" as it applies to economic development in the state and the related difficulties in collecting data on the number of primary sector businesses and jobs in the state. The Primary Sector Business Congress Activities portion of this report addresses the committee's participation in the Primary Sector Business Congress and related activities.

Primary Sector Business Definition

The committee considered the use and definition of "primary sector business." Additionally, the committee considered how to best collect data regarding the number of primary sector businesses and jobs in the state. "Primary sector business" is used and defined in a variety of places in state law. The most common elements of these statutory definitions include the use of knowledge or labor to add value to a product that results in the creation of new wealth.

The term primary sector business is used and defined in several sections of the North Dakota Century Code, including sections:

• 10-30.5-01(4) - North Dakota Development Fund, Inc.
• 10-33-124(1)(b) - Certified nonprofit development corporations.
• 26.1-50-01(4) - North Dakota low-risk incentive fund.