Inside the grades-National economic report ranks Montana near the bottom of the region

One of the nation’s most well-known, state-by-state rating of regional economies gives Montana a near-failing grade.

By JILL FITZSIMMONS- Missoulian- Western Montana InBusiness

The Corporation for Enterprise Development, which will release in the fall its 17th annual Development Report Card for the States, gave Montana a D last year for performance, a D for business vitality and a C for development capacity. While the corporation doesn’t issue one overall grade, these poor grades put Montana at the bottom of the pack, said Bill Schweke, research and development director for the corporation, in Durham, N.C.

Those aren’t exactly the kinds of grades you’d want to bring home to the parents.

“If that was my kid, he’d be grounded,” said Joe McClure, executive director of the Big Sky Economic Development Authority in Great Falls.

However, for the most part, the grades are accurate, several economic development leaders around the state said.

“I think they are (fair),” said Tom Scott, CEO of First Interstate Bank in Billings. “You’ve got to look in the mirror and be honest about what you see and really want to change and improve that.”

While there are many benchmarking tools out there, the Development Report Card generally has a good reputation and is looked at as being a comprehensive tool for states. Because of that strong reputation, each year the report card draws serious attention from the states and their top leaders, Schweke said. For the most part, even states that get lackluster grades say it’s helpful, he said.

The corporation, a nonprofit organization that gets its data from government and private sector sources, believes that economic development should be viewed in a global context and measured in terms of quality of life: jobs, income, education, skills, health, and the environment. So the report card isn’t just about profits; it tries to measure success by how well people are living in a particular state, Schweke said.

The report card asks three main questions about state economies: The first question, the performance index, asks how well is the state’s economy is generating a more widely shared and sustainable standard of living. The second question, the business-vitality index, tries to assess the vitality of the state’s large and small businesses. The third question, the development-capacity index, focuses on the state’s capacity for future development. Each major index – performance, business vitality and development capacity – then tries to answer one of these questions and is broken into subindexes that provide more details.
So, the performance index looks at whether, in the race toward increased global competitiveness, a state economy is delivering a better life for its citizens. Its subindexes include employment, earnings and job quality, equity, quality of life and resource efficiency. It asks:

* Is the economy providing jobs for all those who want them?

* How well do these jobs compensate the work force?

* How widely shared is a state’s growth?

* Is its economy becoming more efficient in terms of its resource use?

* Does this state have a decent quality of life?

The business-vitality index gauges a state’s dynamism. The standing of each state in the economic race for the future depends – to a significant degree – on the vitality of the businesses in that state, according to the corporation. Its subindexes are broken down into competitiveness of existing businesses, structural diversity and entrepreneurial energy. It asks:

* Are the state’s businesses bringing in income from outside the state?

* Are the state’s entrepreneurs reacting to rapid change by creating new businesses?

* Are these businesses likely to grow in jobs and income in the future?

* Is the state’s economy diverse enough to withstand downturns in dominant industries?

And, finally, the development-capacity index assesses a state’s building blocks for future development. Its subindexes are broken down into human resources, financial resources, infrastructure resources, amenity resources and natural capital, and innovation assets. It asks:

How is the state investing in capacity-building investments in which states are principally involved – building an educated and skilled work force, supporting technological innovation, assuring available financial resources, creating and maintaining physical infrastructure, natural capital and amenity resources?

One downside to the report card is that every year the grades for the three indexes draw most of the attention; however, the actual details of the subindexes, called measures, are more important in determining where a state needs improvement, Schweke said.

Tom Power, chairman of the economics department at the University of Montana, has used the report card in class to talk about these measures and really look at what’s going on in Montana. Montana’s poor grades are tied to its levels of income or levels of economic activity – and, Power said, that assures the state of receiving low scores each year.

However, Montana received high marks in low energy costs, university spinouts, high school graduation numbers, new companies created, renewable energy sources, air quality and the low rates of heart disease. It received poor marks in the number of working poor, uninsured low-income children, science and engineering graduate students, and technology jobs and in average teacher salary, poverty rate, employer health coverage, average annual pay and per capita energy consumption.

Each year, the corporation announces which states received straight As. In 2002, they were Colorado, Connecticut, Massachusetts, Minnesota and Virginia. Colorado has been receiving straight As for the last 10 years. States such as Mississippi, Louisiana and West Virginia have been receiving failing grades from the report card for several years, Schweke said.

Looking at Montana’s neighbors, Idaho in 2002 received a C for performance, a B for business vitality and a C for development capacity. Washington, another honor roll member, received a B for performance, an A for business vitality and an A for development capacity. North Dakota received a C for performance, an F for business vitality and a C for development capacity. And Wyoming received a C for performance, a D for business vitality and a C for development capacity.

Montana did make the report card’s honor roll in 1995 by receiving nothing lower than a B. The state’s main problem is that its earnings aren’t very high, Schweke said. While there is a fair amount of entrepreneurial energy, the state doesn’t have many businesses that really take off, he said.

Schweke admits some of the measures aren’t fair for all states. For example, mass transit in Montana is undoubtedly going to get a lower rating than that in a more populated state. Some measures may also take years of effort to turn around, and while a state may be putting forth an effort, it just hasn’t happened yet. Thus, the report card doesn’t reflect policies a state may be putting into effect, he said.

The corporation also believes the report card shouldn’t be used to end analysis but rather to begin it, Schweke said.

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