SPECIAL REPORT: How some Midwestern cities loosen the rust belt

By John Foren

The design was scrawled on a napkin. It was no Rembrandt, but it communicated everything you needed to know about the hopes and dreams of what would become the Silvermine Stone Company.

That’s where Brian Doudna, who heads the Economic Development Corp. in Eau Claire, Wisc., comes in. The EDC helped turn the napkin plan into a real company with real jobs.

Doudna may epitomize every fight-for-each-dollar Midwestern development leader who has to compete against sunny climes and booming economies in other states.

He does it through a variety of programs – with names such as the Idea Challenge and the Creating Your Own Business contest — to hold fledgling business owners’ hands and steer them toward starting a company.

“Locally, we believe in entrepreneurship and try to advance it,” Doudna says.

It may be one reason Eau Claire – in west-central Wisconsin – was among Midwestern communities showing surprising economic growth between 2001-2008, according to gross domestic product figures from the federal Bureau of Economic Analysis. Eau Claire was one of eight regions that stood out in a Center for Michigan analysis.

Eau Claire might seem an unlikely spot for economic optimism. In fact, though, the Midwest economic express chugs through other cities like it, and its success may provide lessons for Michigan communities.

If you want to chart other Midwest communities experiencing high growth, start in the northern clime of St. Cloud, Minn., (23 percent increase in total industry), head south to Mankato, Minn. (24 percent), then east to Rochester (home of the Mayo Clinic and 30 percent growth).

Cross the border into Eau Claire, then Madison, Wisc., which boasts the main campus of the University of Wisconsin and scenery to die for (not to mention a nice-looking economy).

Then it’s time to head south to Indiana, whose communities have been rocked by the recession in the last year or so. Until then, though, Columbus, Elkhart, and South Bend each had total GDP growth in the 20 percent-plus range.

So what have been the keys for these communities? Some common threads emerge through conversations with their business leaders.

• Regional cooperation and downplaying turf wars between communities.
• Playing on an area’s existing business strengths.
• Boosting the livability of the community as a way to attract residents, with businesses following.

The Eau Claire experience

(Photo courtesy of the Eau Claire Area Economic Development Corporation)

In Eau Claire, Doudna had met Rich Mickelson, a mason by trade who wanted to run his own business, at a town function and told him to stop by the office with his plans. Maybe the EDC could help.

From there, Doudna helped the business work toward getting a patent and line up financing. He directed it to folks who could write a business plan, and steered it to the Creating Your Own Business contest.

Silvermine, which makes mortarless stone siding for homes (motto: “Simplest stone in the world to install!”), won a crucial $10,000 in the contest. That helped it get financing from banks; it also received a $50,000 low-interest loan from the EDC, a countywide public-private partnership.

“Ten thousand dollars doesn’t really get you very far once you get going, but it helped a lot,” said Bob Flynn, who co-owns the business with Mickelson.

“They were very, very instrumental,” Flynn says of the EDC.

Silvermine is a small but telling part of the 26 percent industrial growth that Eau Claire experienced from 2001-2008, using inflation-adjusted figures.

Success in St. Cloud

“Let’s not steal from each other.”

That’s the message Tom Moore, president of the St. Cloud Area Economic Development Partnership, emphasizes to the six cities and three counties that belong to his organization.

It’s a nonprofit entity that partners public and private officials in the quest to lure and retain business.

“Neither can do it alone,” Moore says of the public-private facet.

The St. Cloud area has seen healthy growth in recent years in its information industry (such as software and data processing businesses) and durable goods manufacturing.

Some of those businesses were targeted in a 2001-02 assessment that looked at what industries could bring high-paying jobs to the area. While that helped focus the partnership’s goals, a lot of work needed to be done to get them working together.

“Each of these cities wants plants in their community,” he says. “Part of our job is to say, ‘You know what? It really doesn’t matter where the next manufacturing plant locates in our six-city area. It matters if it stays here and comes here.’”

The partnership asked major employers for the ZIP codes of their workers to show local officials that many communities benefit from a new plant, regardless of its specific locale, Moore says.

Still, it’s no easy task to break down the barriers and parochial interests between political and business leaders from varied backgrounds and areas, Moore notes.

“It takes a lot of education, it takes a lot of trust, a lot of coming together,” he says. “You know, we don’t have a choice. Are we going to argue over where that company locates? Because they’re the customer, we’re not the customer.”

In fact, St. Cloud, Mankato, and Rochester share a regional, public-private approach, says Kevin McKinnon, director of business development for Minnesota’s Department of Employment and Economic Development.

The state has tried to encourage such partnerships by promoting ties to higher education institutions, which are key in workforce training and the research that spawns high-paying jobs. Each of the three Minnesota areas has thriving universities and colleges.

Minnesota also offers FIRST grants, providing money for regions to come up with collaborative economic development plans.

Madison: Building on strengths

That sense of partnership is evident in Madison, Wisc., whose GDP grew more than 20 percent between 2001-2008 thanks to upticks in manufacturing, information industries, and finance and insurance, among others.

But collaboration is more an economic necessity than anything, says Michael Gay, the city of Madison’s business development coordinator.

“I do it because we have no choice. With limited resources, you have to do the best you can with the resources you have,” Gay says.

That also means focusing on what Madison knows it’s good at – such as higher education and agriculture. The community doesn’t spend as much time as others on luring new businesses; it puts a priority on retaining and expanding existing industries, Gay says.

“You work your strengths, you work your workforce,” he says. “If you’re here, you’re here for a reason.”

An example: BioAg Gateway, a planned industrial park-campus that connects higher education with Wisconsin’s farmers. The project will try to attract high-tech agriculture firms to explore the latest technology, new crops, farming techniques, and the life sciences.

It’s being developed strictly by the city of Madison, without state money, and with help from an advisory board that includes officials from top companies, such as Kraft Foods Inc., Gay says.

“It’s all based on what we as city, we as a region, we as a state, are good at,” he says.

As Gay concedes, however, Madison has some very clear advantages over other regions. It’s the seat of state government and home to numerous hospitals and insurance companies. But it’s also a great place to live, with gorgeous lakes, a vibrant college campus, and overall high quality of life.

Rochester: Banking on Health Care

(Photo courtesy of Rochester Area Economic Development inc.)

Those kind of livability issues are on the mind of Gary Smith, president of the Rochester (Minn.) Area Economic Development Inc.

Like Madison, Rochester has some major built-in pluses, such as Mayo and IBM, that make other economic development leaders green with envy.

But Smith says he’s aware that like Michigan with the auto industry, Rochester can be overly dependent on health care.

“When they get a cold, we all get pneumonia,” he says of the world famous Mayo, which directly accounts for one-third of the city’s employment.

That’s become especially evident as local leaders follow the twists and turns of the health care reform debate and how it could affect Mayo’s revenues.

Rochester leaders have been focusing on improving the experience visitors have when they come to the city, working closely with hotels, restaurants, service stations and others on hospitality. Half of Mayo’s patients require an overnight stay and bring a couple people with them, Smith says.

Leaders also are working on a so-called “Urban Village,” a mixed-use downtown development including retail, housing, higher education and the like.

“Communities are going to have to start thinking about Main Street, not Wall Street,” Smith says.

“We have people who invest their money in Wall Street. We want them to invest in the community — invest it in building the infrastructure.”

Mixed Pictures

There are caveats to some of these Midwest success stories.

Some question using gross domestic product numbers at all, saying they don’t reflect residents’ income levels, which they contend are a truer measure of economic prowess. And the Bureau of Economic Analysis statistics don’t measure the full impact of the recession because the numbers don’t cover 2009.

In Indiana, for instance, local officials concede communities such as Columbus and Elkhart – home to the now-ravaged recreational vehicle industry – hardly reflect the prosperity shown in the federal economic numbers.

Don Inks, economic development director for the city of South Bend, Ind., says his community’s stats do seem a bit rosy, especially in manufacturing.

South Bend’s manufacturing GDP rose more than 60 percent, from about $1.9 billion in 2001 to $3.1 billion in 2008. It has dropped slightly since 2004, however, according to the federal statistics.

One of the city’s initiatives has a familiar ring: Using its higher education resources (the University of Notre Dame) to build economic development.

South Bend worked with Notre Dame and other entities to make the university the home of the Midwest Academy of Nanoelectronics and Architectures. The research consortium also includes the University of Michigan.