June 5, 2015 / 5:29 AM / 2 years ago

On the Wisconsin border, little enthusiasm for Walker's tax cuts

7 Min Read

SUPERIOR, Wisconsin (Reuters) - Shortly after taking office in 2011, Wisconsin Governor Scott Walker traveled to this hardscrabble port city to unveil a new sign that announced his plan to slash taxes and lure companies from nearby Minnesota. "Open for business," it said.

In the years since, Walker has cut state taxes by $2 billion as his state has climbed out of recession. Unemployment in Superior now stands at 4.6 percent, down nearly by half since Walker took office. New businesses are opening downtown and the waterfront docks are humming.

As he lays the groundwork for an expected presidential bid, Walker says his tax cuts are a driver of his state's recovery - a big selling point in a crowded Republican field that includes several other current and former governors.

But ask local officials and business leaders, and they will say Walker's policies have little to do with a turnaround that has moved in tandem with the national recovery. Tax cuts haven't lured many businesses across the bridge from Duluth, Minnesota, they say, while the loss in revenue has prompted steep spending cuts to education, harbor maintenance and road construction.

For some, the tradeoff is not worth it.

"We should put the $2 billion in roads or education," said Superior Mayor Bruce Hagen, a self-described conservative.

Superior vs Duluth

At best, taxes are a secondary consideration to more tangible concerns like real estate and road conditions, according to six local officials and seven business executives who spoke to Reuters.

Walker's office declined to comment on the economic situation in Superior but pointed to the state's plunging unemployment rate and improved ranking in surveys of corporate leaders as evidence that he has made the state more attractive for business.

"Governor Walker's policies are working," spokeswoman Laurel Patrick said.

Walker has made no secret of his desire to lure businesses across the border from Minnesota, where Democratic Governor Mark Dayton has hiked taxes. Superior should be poised to benefit: the city of 27,000 has access to the same freeways and port facilities as Duluth, without the steep hills that make construction more expensive on the Minnesota side.

There are plenty of vacant storefronts along Superior's main street, where one bar advertises "BINGO EROTIC," and space is also available in weedy plots near the waterfont, where rust-colored freighters load up on coal and iron ore.

The tax difference between the two cities is dramatic. Manufacturers will see their corporate tax rate drop to 0.4 percent in Wisconsin in coming years, compared to 9.8 percent in Minnesota. Wisconsin firms also pay less in unemployment insurance, workers' compensation and sales tax, according to a comparison circulated by Walker's economic-development agency.

Yet Superior isn't pulling ahead, according to U.S. Labor Department figures. Private sector-employment in Superior grew by 5.6 percent in Superior's Douglas County between January 2011 and September 2014, the last month for which reliable figures are available. In Duluth's St. Louis County, jobs grew by 9.8 percent during that period.

Meanwhile, the number of businesses in Douglas County declined by 6 percent - double the rate in St. Louis County.

The Cason J. Callaway ship arrives beneath the Aerial Lift Bridge in Duluth, Minnesota, United States, May 28, 2015.Jim Young

Kicking the Tires

Local officials say they score the occasional victory. A Duluth-based pest-control company plans to break ground on a new headquarters in Superior soon, and Jason Serck, the city's planning director, says he's getting other queries. "I wouldn't call it an influx - I'd call it a lot of tire-kicking," he said.

Photographer Michelle Sternberg said she was lured from Duluth by cheaper rent and more parking. For Erin McFarland, an owner of the artisanal yarn-dying business Three Irish Girls, incentives from the city helped her make the move.

Heavy-equipment manufacturer Exodus Machines considered expanding in Minnesota but opted to add jobs in Superior after Walker's economic-development agency secured a loan, said chief executive Kevin Boreen. The tax difference between the two states wasn't a factor, he said.

For entrepreneur Brian Huebner, state parks could determine where he will set up a luxury-camping business that will feature candle-lit yurts with pillowtop beds. While Wisconsin is raising entrance fees to make up for funding cuts, Minnesota is building new hiking trails.

Slideshow (10 Images)

"It's awesome to reduce taxes and all that, but at a certain point does it take away from development?" he asked.

While tax cuts can be an effective way for the federal government to pump more money into the local economy, they must be offset by spending cuts at the state level, which undermines their impact, said Dale Knapp, research director at the Wisconsin Taxpayers Alliance, a nonpartisan research group.

"There's very little stimulative effect that you would see in the short term from tax cuts," he said.

At least one company in Superior has put the tax cuts to good use. With more money going to the bottom line, Kent Precision Foods Group has hired an additional research scientist and a new machine to bottle the thickened beverages it makes for people who have trouble swallowing regular liquids. The company plans to double its staff to 40 thanks in part to incentives from Walker's economic-development agency.

But chief scientist Doug Stetzer worries that Walker's education cuts to the local university will lead to fewer biology graduates.

"When it comes to the bottom line, the tax cuts are great. When it comes to my future..." He doesn't finish the sentence.

Slower Job Growth

Wisconsin has largely mirrored the national economy as the United States has climbed out of the deepest recession since the 1930s. The state's unemployment rate now stands at 4.4 percent, below the national rate of 5.4 percent.

But job growth has lagged. Private-sector employment grew by 6.4 percent in Wisconsin between January 2011 and March 2015, lagging the national pace of 10.7 percent, according to the U.S. Bureau of Labor Statistics. (Graphic: reut.rs/1GnlZsE)

Along the waterfront, Mike McCoshen surveys huge piles of limestone and road salt unloaded from freighters plying the Great Lakes. His company, Hallett Dock, tapped state harbor-maintenance funds to expand its operations in Wisconsin in the years before Walker took office. The program was all but eliminated in Walker's latest budget proposal - an unwelcome development for other shipping businesses.

As for Walker's tax cuts? "They haven't made us grow or recede at all," he said.

Additional reporting by Steve Holland, editing by Ross Colvin

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