Economic Analysis of Cook County

EXECUTIVE SUMMARY

Purpose………………………………………………………………………………….. 3

Background……………………………………………………………………………... 3

The Concern…………………………………………………………………………...... 4

Public Consensus-Building Process and Plan…………………………………………… 4

Justification……………………………………………………………………………... 5

Implementation…………………………………………………………………………. 6

How Residents and Visitors Win…………………………………………………………... 6

HISTORY OF COOK COUNTY

Mountains, Land and Lake……………………………………………………………… 8

Early Economy of Trapping, Fishing and Logging…………………………………….. 8

Origins and Evolution of Tourism……………………………………………………… 8

Set Aside of Parks and National Forests……………………………………………….. 9

People of Cook County………………………………………………………………… 9

ECONOMIC ANALYSIS

Overview……………………………………………………………………………….. 10

Employment……………………………………………………………………………. 10

Gross Sales……………………………………………………………………………... 12

Allocation of Support Economy to the Primary Business Segments………………….. 12

Leisure and Hospitality Sector Highest in State……………………………………….. 15

Government Economic Activity and Employment…………………………………….. 16

Tourism Wages………………………………………………………………………… 17

Per Capita Income……………………………………………………………………… 18

Housing………………………………………………………………………………… 24

Seasonality……………………………………………………………………………… 26

Tourism Visitation and Spending Patterns……………………………………………... 29

Lodging in Cook County……………………………………………………………….. 36

Winter Tourism………………………………………………………………………… 39

SUPPORTING AND ENHANCING THE ECONOMIC WELL-BEING AND QUALITY OF LIFE FOR RESIDENTS

Reducing Seasonality…………………………………………………………………… 46

County-wide Event/Group Organization……………………………………………….. 46

Public Recreation, Housing or Transportation Infrastructure…………………………… 48

Economic Impacts of Reducing Seasonality……………………………………………. 49

Wages and Employment Impacts of Reduced Seasonality……………………………… 52

Improving Quality of Life of Residents…………………………………………………. 54

Government Impacts…………………………………………………………………….. 54

Little Public Reinvestment in Cook County Economy………………………………….. 55

REFERENCES………………………………………………………………………………… 56-63

ATTACHMENTS

COUNTY BOARD RESOLUTION APPROVING 1% LOCAL SALES TAX

COUNTY BOARD RESOLUTION APPROVING 1%/3% TOURISM SALES TAXES

EXECUTIVE SUMMARY

PURPOSE:

The Cook County Economic Analysis Council was formed to identify and analyze some of the critical economic and quality of life issues facing County residents, to serve as a catalyst to stimulate further discussion, and to propose possible solutions. Information was gathered from governmental sources, individual businesses and public forms and meetings held over the past year.

This Council is a grassroots committee, founded by members whose businesses total approximately 20% of total sales in the County and employ a similar percentage of the County’s workforce. The Council represents an historic cross-County partnership with proportionate representation from three economic districts in the County (Lutsen/Tofte/Schroeder, Grand Marais and the Gunflint Trail) to protect, strengthen and enhance the economic and social well-being of Cook County residents. Its members are:

Bill Hansen, Sawbill Outfitters

Bruce Kerfoot, Gunflint Lodge

Charles Skinner, Lutsen Mountains Ski Area and Eagle Ridge Resort

Jan Sivertson, Sivertson Gallery

Scott Harrison, Lutsen Resort

Teresa Sterns, East Bay Suites

Tim Kennedy, Gunflint Realty and Grand Marais City Council

Other participants in the meetings of the Council have included:

Bob Fenwick, Sawtooth Lumber and Cook County Commissioner

Mark Sandbo, Grand Marais Mayor (through December 2006) and Manager of Aspen Lodge Hotel

Matt Geretschlaeger, Director of Cook County/Grand Marais Economic Development Authority

BACKGROUND:

Cook County is one of Minnesota’s most treasured and stunning natural recreation areas. From the rugged Sawtooth Mountains, to the Boundary Waters Canoe Area Wilderness and the shores of the world’s greatest freshwater lake, tourists are drawn to this corner of our State. It is no wonder that over 80% of Cook County’s economy is driven by tourism.

As business leaders and community servants, we are proud guardians of Cook County as an international tourist destination. We are concerned, however, that Cook County does not have the financial resources, professional expertise, or public tourism-oriented infrastructure to sustain, let alone improve, this tourism economy so vital to our residents’ livelihood and quality of life.

Cook County has some significant private tourism infrastructure: top notch lodging, retail shops, restaurants and outfitters, a destination ski area, a vibrant artistic heritage, and strong private sector non-profits such as North House Folk School and the Grand Marais Playhouse. Cook County also has some public infrastructure, including a hospital, art center, recreation trails, and protected wilderness and public lands encompassing 90% of the County. The Council’s research, however, indicates that there are significant areas that need immediate attention and critical investment.

THE CONCERN:

Decades’ long declines in logging, fishing and mining have made Cook County a one-factory community, and that factory is tourism. Tourism accounts for over 80% of the economy, making Cook County more dependent on tourism, by far, than any other Minnesota county. Until the late 1990s, tourism continued to grow, propelling growth in employment and sales.

Due to a lack of resources to invest in relevant public infrastructure or broaden tourism beyond snow-based recreation activities during the seven month low season (mid-October through mid-June), the economy of Cook County has stagnated and become highly seasonal. Lodging visitation, the engine of tourism in Cook County, has not grown since 1999, resulting in parallel stagnation at restaurants, bars, retail shops, recreation facilities and other businesses. The total dollars flowing through the economy fall to 35% to 55% of peak summer sales levels from mid-October through mid-June.

This economic weakness affects the entire County. Businesses are forced to take out credit lines to survive. Too few year-around positions with benefits are available, and seasonal unemployment is high. The County has been unable to attract or retain younger workers or families, or provide adequate housing, public transportation or other community infrastructure.

In order to solve these problems, Cook County needs to address the following issues:

§ Lack of Relevant Public Investment in Tourism Economy: Other tourism communities have made public investments in concert/performance halls, convention centers, movie theaters, museums or aquariums, shuttle transportation, and affordable workforce housing, or funded the activities of a convention, events and visitors bureau. Cook County has no events and visitors bureau and its few investments, such as Superior National Golf Course or the Gitchi Gami trail, provide benefits primarily during the summer when the economy is already at or near capacity. Cook County needs to invest in infrastructure and programming that will provide benefits during the seven-month low season.

§ Inadequate Promotional Funds for Tourism: For the last 15 years, one-half of the 3% lodging tax in Cook County has been diverted to pay for the County-owned golf course, Superior National, leaving Cook County with only one-half of the requisite promotional funds. There is an immediate need to restore the full 3% for promotional purposes for Cook County.

§ Lack of Event-Based Strategy to Reduce Dependence on Snow-Based Activities: During the seven-month low season, snow-based recreational activities (primarily alpine skiing, plus cross country skiing and snowmobiling) are the main draw for visitors. This makes Cook County vulnerable to low-snow years and results in a particularly anemic economy in November, April and May. Out-of-state tourism communities with a similar dependence on snow-based activities, as well as many Minnesota communities seeking additional tourists, have broadened their draw by hosting music events, cultural performances and festivals. Cook County needs to do the same.

PUBLIC CONCENSUS-BUILDING PROCESS AND PLAN:

Over the past year, this Council, in cooperation with other community groups, has held dozens of public meetings and public forums and discussions regarding solutions to the County’s infrastructure and event and festival needs. These public forums have included radio and call-in shows, newspaper stories and editorials, public township meetings, retail shop forums, meetings with restaurant and bar proprietors, forums with outfitters and other recreation businesses, meetings with non-tourism businesses, non-profit meetings and numerous other public forums, discussions and public meetings.

By the end of 2006, a consensus had developed to raise funds through a combination of a reauthorization of the current 1% local sales tax (set to expire in late 2007 with the full funding of the hospital infrastructure) and new tourism-targeted local sales taxes. In mid-February 2007, the County’s three tourism associations (Gunflint Trail Association, Lutsen Tofte Tourism Association and Grand Marais Area Tourism Association) formally approved this package. On February 27, 2007, the Cook County Board of Commissioners, by a unanimous vote, adopted resolutions approving the sales tax package:

· 1% Local Option Sales Tax for Cook County Infrastructure: The County Board recommended that “the Minnesota Legislature amend existing legislation to allow use of the 1% local sales tax for Cook County infrastructure that benefits recreation and economic development (and to defray operation costs and physical maintenance costs for such infrastructure), which infrastructure benefits county citizens, enhances the county economy, and supports county economic development [which] if approved by the Minnesota Legislature, the Board would impose continuation of the 1% sales tax . . . subject to voter approval in November 2007.” This will raise approximately $1.1 million per year for these infrastructure improvements. Approximately $200,000 per year (out of the $1.1 million) is intended to be used for the first four years to pay off the remaining bonds on the County-owned golf course, which will restore the full 3% lodging tax proceeds to the Counties tourism associations for promotional purposes.

· 1% Lodging Tax/3% Recreation/Entertainment Sales Tax for a new Cook County Event and Visitors Bureau (“CCEVB”): The County Board recommended that the Minnesota Legislature authorize “the following tourism-focused sales taxes to fund a new Cook County Event and Visitors Bureau (CCEVB) that will primarily organize, operate and promote events and festivals, and community-wide branding and general marketing during slower tourism periods of the year (currently mainly mid-October through June) to increase tourism visits during such periods for the benefit of economy and residents of Cook County.” The new tourism sales taxes consist of (i) a new 3% tax on recreation/entertainment sales (i.e. admissions to ski, golf and other recreation or entertainment facilities and rental of recreation equipment such as skis, canoes and kayaks) and (ii) a new up to 1% lodging sales tax matched by the use of ½% of the existing 3% lodging sales taxes from the three tourism associations. This will generate approximately $650,000 per year ($520,000 in new taxes) to fund the new CCEVB.

JUSTIFICATION:

The Council’s analysis indicates that the investment of $650,000 per year for the new County-wide event/visitors bureau to implement a series of events and festivals throughout the slower periods (bolstered by the $1 million per year investment in community infrastructure that will also help spur economic activity) will increase total sales by $31.4 million. This investment will increase the year-around, full-time employment with benefits for residents, and generate $11.4 million in additional wages for Cook County residents. The additional wages will average $5,856 per worker based on an estimated 1,948 affected workers (out of a total workforce of 2,500 workers).[1] The new events, festivals and recreation amenities will increase entertainment options and enhance the quality of life for both residents and visitors.

Using sales tax proceeds to support tourism economies is a common and effective practice in local economies comparable to Cook County. Similar out-of-state tourism-dominated communities, such as Crested Butte, CO, Sand Point, ID, and Telluride, CO, have successively used public funds to coordinate tourism planning, invest in public tourism infrastructure, and organize events and festivals to improve the economy and quality of life for their residents. Many Minnesota communities have also invested general sales tax and tourism-targeted sales taxes in both infrastructure and to promote tourism and festival and events (e.g. the Duluth DECC) for the benefit of their communities.

The overall sales tax plan is consistent with both Minnesota and out-of-precedents. Cook County already has a 1% sales tax for hospital infrastructure which will be fully funded in late 2007, and so this component of the sales tax package will not increase overall taxation in Cook County. Since the lodging and recreation/entertainment sales taxes will be paid almost entirely by visitors to Cook County, this component will have no impact on local resident spending. Additionally, the total state and local sales taxes on visitor spending in Cook County will remain well below combined taxes on tourism sales in other tourism destinations around the country (which are often 20% or more), and will also be less than many Minnesota communities (which impose up to 7% taxes on lodging and 3% on recreation/entertainment, and up to 3% on restaurant and bar sales).

Events and festivals have proven effective in Cook County. Examples include a ski race held at Lutsen Mountains in early April, which has transformed a slow time near the end of the ski season when most ski areas are already closed to a week-long event that fills more than 50% of the lodging capacity in the Lutsen/Tofte/Schroeder area. Other examples include music performances (jazz and bluegrass festivals) and other cultural events or festivals whose potential has not been fully realized due to a lack of a marketing budget and that organization, execution and promotion of the event did not benefit from any professional expertise or staffing and were held solely through the efforts of a few unpaid volunteers. Cook County, with only 5,000 residents, does not currently have the resources, either through the efforts of volunteers, the already-struggling tourism businesses or under-funded tourism associations, to mount a coordinated or consistent strategy of festivals and events during the seven-month low season.

IMPLEMENTATION:

This Council is preparing organizational documents for the formation of the CCEVB[1] and gathering additional information relevant to the formation and initial activities to be undertaken by the CCEVB. It is anticipated that approximately one-third of the budget of the CCEVB (approximately $220,000 initially) will pay for professional staffing and other administrative costs to operate the CCEVB and that the balance (approximately $430,000) will utilized to pay for the programming and promotional costs of the various events, festivals and performances organized by the CCEVB. This Council is also developing benchmarks (such as increases in lodging sales and overall sales) to evaluate the success of the events and festivals.

Infrastructure improvements funded by the 1% local sales taxes will be approved by the County Board of Commissioners. The Board’s resolution lists three specific recreation projects that community groups have been working on for a number of years including a swimming pool, a public library addition and community center amenities (including a skateboard park, ball fields, tennis courts, youth activity room and group meeting space), and notes the intention that approximately $200,000 per year (out of $1.1 million) be utilized for approximately four years to make the remaining payments on the bonds for the County-owned Superior National Golf Course. The stated goals of the resolution include providing recreational amenities for both visitors and residents that will support economic development efforts by enhancing the appeal of Cook County for residents and visitors, help the County retain service workers for the tourism industry and contribute to the tourism industry. This Council will work with the Board and other community groups to accomplish these goals.

HOW RESIDENTS AND VISITORS WIN:

A. Improved Economy

1. Reduced seasonality and $31.4 million in additional sales

2. Less dependence on snow or good weather

3. $11.4 million additional wages ($5,856 per worker for 1,948 workers)

4. More universal year-around employment with benefits

5. More affordable home-ownership and improved young worker housing options

B. Enhanced Quality of Life for Visitors and Residents

1. Opportunities for local musicians to perform and local artists, photographers and craftspeople to showcase their work and learn from top artists from around the world

2. New events, concerts, performances and recreational amenities to enjoy

3. Free shuttle service will permit travel around the community to restaurants, retail shops and performance venues, or workplaces, without driving

ECONOMIC ANALYSIS[6]

Overview. The threshold question for any economic analysis is to determine the primary economic activities for the area being studied. These primary economic activities are differentiated from the support economic activities: i.e. the variety of businesses that provide the basic goods and services (such as grocery stores, banks, post offices, government services and schools) to residents of the area being studied.

The analysis of Cook County is less complex than in many cases due to the small size of the economy, the relatively few primary economic industries present in the County and the isolated location of the county. The total sales (taxable and non-taxable) reported by the MN Department of Revenue for the County in 2004 were $135 million from 377 reported businesses. There were 5,168 residents and 2,668 resident workers according to the U.S. 2000 Census. The only primary economic industries that exist or have existed in Cook County are farming, fishing, logging, manufacturing, trapping, mining and tourism.

Employment. Employment by non-tourism primary economic sectors (i.e. commercial fishing, mining, trapping, agriculture, logging and manufacturing) has declined from 68% in 1920 to around 7.5% today. Tourism has increased from 1% in 1920 to approximately 50% currently. The balance of the employment, 30-40%, is support economy employment.

The support portion of the economy increased from around 30% of the workforce in 1920 to around 40% currently, with most of this increase occurring between 1990 and 2000. This is likely due to two factors. First, Cook County successfully retained more of spending by residents within Cook County as opposed to migrating out of the area, such as to Duluth. The growth in health care services with the building of the hospital is one example. Second, the types of services and goods offered to tourists (e.g. more varied restaurant choices, spa services, etc.) have expanded, and tourist spending per visit has likely increased.

Following is a breakdown of the employment sectors reported in the 2000 U.S. Census between tourism related businesses/services, other primary industries and support businesses/services, based on which of these broader categories the subcategory seemed to best fit.

Tourism Related Businesses and Services Employment
Accommodation, Food Services, Recreation, Arts & Entertainment	574	22%
Retail Trade	341	13%
Construction	293	11%
Manufacturing	110	4%
Other Services	93	3%
Real Estate (and Rental and Leasing)	21	1%
	1,432	54%

Other Primary Industry Employment
Agriculture, Forestry, Fishing & Hunting	79	3%
Other Non-Tourism	55	2%
Mining	23	1%
	157	6%
Support Businesses and Services Employment
Health Care and Social Services	235	9%
Educational Services	207	8%
Public Administration	197	7%
Professional, Scientific, Management, Administrative & Waste Management	158	6%
Transportation & Warehousing	117	4%
Information	53	2%
Utilities	44	2%
Finance & Insurance	40	1%
Wholesale Trade	28	1%
	1079	40%

Total Work Force	2668

Source: 2000 U.S. Census[7]

The 2000 U.S. Census listed 165 “manufacturing” positions which are believed to contain significant tourism components such as the making and sale of glassware, birch bark and other natural craft items, log furniture and pottery, much of which is sold to tourists visiting Cook County. The above chart allocates two-thirds of these positions to the tourism category and one-third to the non-tourism category (i.e. “other non-tourism”). Not all of the subcategories listed under the tourism category contain exclusively tourism economic activity (construction, for example, may be mostly for vacation homeowners or indirectly tourism based, but there is also a non-tourism component). Likewise, much of the “support business” employment has a large tourism component (resorts, for example are large users of utility services, and tourists are significant users of health care services). See attached List of Cook County Businesses.

Data from IMPLAN figures for Cook County (for 2003) show an even smaller proportion of employment (4%) from non-tourism primary businesses:

Employees

Logging		22
Power generation and supply		39
Sawmills		26
Wholesale trade		12
Truck transportation		17
Sporting and athletic goods manufacturing		2

		118

As indicated above, although we have categorized “wholesale trade” and “sporting goods manufacturing” as non-tourism, these businesses may be largely tourism oriented. See attached List of Cook County Businesses.

Gross Sales. Gross sales in Cook County as reported by the Minnesota Department of Revenue have increased from $79 million in 1994 to $135 million in 2004. The rate of growth has been similar to the State as a whole but, due to logging industry contractions in the late 1990s, the overall growth rate (69%) has lagged behind that of the State as a whole (84%).

Data for Cook County based on Minnesota Department of Revenue figures for 1994, 1995, 1998, 2000, 2003 and 2004; other years calculated from relative changes in hospital tax collections (which is based on sales).

Allocation of the Support Economy to the Primary Business Segments.

In order to understand the economy of Cook County, we want to identify the portion of the economy represented by the primary economic segment. We then want to allocate the support economic segment among the primary economic sectors to understand which portion of the entire economy is attributable to tourism and which portion is attributable to other primary industries.

This allocation captures the indirect and induced economic impacts of primary economic activities. Indirect impacts include, for example, purchases by a hotel of food or building materials from local vendors or procuring the services of local accountants, lawyers or banks, and induced effects would include when the employees of a hotel take their wages and spend them in the community.

The Minnesota Department of Revenue breaks down the $135 million in County-wide sales into various categories. Lodging (and property management fees) is the largest category ($29 million, 22%) and other categories typically identified with tourism such as recreation and entertainment ($10.5 million, 8%), restaurants/bars ($8 million, 6%), gas stations/convenience stores (10.5 million, 8%) and retail sales ($19.5 million, 14%) together total $77 million (57%). The Department of Revenue lists Cook County has having the highest proportion of tourism in the State, approximately 800% more than the State average and 50% higher than the next highest County.[8] Mining, manufacturing and forestry represent only $4.4 million, or 3% of total sales.

Of course, not all sales made in such tourism categories as retail sales, restaurants or gasoline are made to visitors—residents also purchase these items. And some of these purchases are made by residents who are employed in mining, manufacturing or forestry. On the other hand, many of the support economy sales such as grocery stores, utilities and health care are purchased by both visitors and residents.

To separate spending by visitors from spending by residents, we utilized the average annual expenditures per household (2004)[9] to the 2,370 resident households in Cook County[10]. We then allocated the balance of the sales to non-tourism and among tourism visitors and tourism businesses, as pfollows:

	Gross Sales by Category (MN Dept. of Revenue--2004)	Estimated Visitor or Vacation Home Owner Spending	Estimated Tourism Business Spending (intermediate spending—not allocated)	Calculated Spending by Residents	Non-Tourism Industries
Resort Lodging Sales & Management Fees	$ 28,782,832	$ 27,804,022	$ -	$ 978,810	$ -
Recreation & Entertainment	$ 10,536,145	$ 8,845,302	$ -	$ 1,690,844	$ -
Restaurant and Bar Sales	$ 8,122,967	$ 5,604,982	$ -	$ 2,517,985	$ -
Retail Sales	$ 19,496,673	$ 12,380,534	$ -	$ 6,184,271	$ 931,868
Gasoline Stations	$ 10,434,069	$ 7,500,000	$ 619,674	$ 2,314,395	$ -
Grocery Stores	$ 12,513,846	$ 6,524,325	$ 724,925	$ 5,264,596	$ -
Building Materials and Construction	$ 15,163,423	$ 8,276,750	$ 3,558,664	$ 2,724,472	$ 606,537
Hospital and Care Center	$ 10,309,779	$ 1,752,662	$ -	$ 8,557,117	$ -
Electric Utility	$ 5,378,239	$ 2,151,296	$ 806,736	$ 2,151,296	$ 268,912
Manufacturing, Logging, Fishing, Wholesale, Transportation	$ 4,432,972	$ -	$ -	$ -	$ 4,432,972
Religious, Civic, Professional Organizations	$ 3,317,820	$ 364,189	$ 331,782	$ 2,621,849	$ -
Executive, Legislative, Other Government	$ 2,098,285	$ 1,468,800	$ 146,880	$ 419,657	$ 62,949
Personal, Professional, Educational and Other Services	$ 4,264,882	$ 389,750	$ 389,625	$ 2,966,133	$ 129,875
	$ 134,851,932	$ 83,449,110	$ 6,578,286	$ 38,391,424	$ 6,433,112
	Retirement earnings, social security and other non-wages portion (not allocated)			$ 11,632,601	30.3% of residential spending
	Residential Spending to be allocated among primary tourism and non-tourism industries			$ 26,758,822

Source for data in first column: Minnesota Department of Revenue—Cook County Sales for 2004.[11]

The category labeled “manufacturing, logging, fishing, wholesale and transportation” combines all of the non-tourism primary economic segments identified by the Minnesota Department of Revenue for 2004, and amounted to only $4.4 million in sales. We have assumed that some additional non-tourism primary economic activity is buried in some of these other categories, and thus have increased the non-tourism category by 45%, resulting in total non-tourism sales of $6.4 million, 5% of total sales. Residential spending is $38.4 million, or 28% of sales, of which we have assumed that 30.3%[12] (or $11.6 million) was funded by retirement or social security income, dividend or interest income or other non-wage income sources, and thus is not to be allocated to the primary tourism and non-tourism industries. Direct tourism spending $83.4 million and combined with spending by tourism businesses ($6.4 million) totals $88.3 million, or 67%.

By applying multipliers to the tourism and non-tourism portions of total sales, we can allocate the residential spending (other than retirement income and other non-wage earnings) between tourism and non-tourism. This analysis indicates that approximately 8% of the economy of Cook County is attributable to non-tourism sectors, 9% is attributable to retirement income, social security and other non-wage income and 82% is attributable to tourism.

This relative proportion of tourism for Cook County (82%) is validated by other economic data. The $81.4 million in direct tourism spending is validated by known tourism visitation figures and the tourism spending profiles discussed below. The multipliers for tourism of 1.27 and non-tourism of 1.70 are consistent with the IMPLAN and RIMS II economic impact models for Cook County. The proportion of non-tourism sales data (5% before the multiplier, 8% after) is consistent with the employment data indicating non-tourism employment ranging from 4-10% of total employment.

Leisure and Hospitality Sector Highest in State

Cook County has, by far, the largest “leisure and hospitality” sector, as a percentage of total sales, in Minnesota according to the Minnesota Department of Revenue. “Leisure and hospitality” includes lodging revenue, recreation and entertainment revenue and restaurant/bar revenue. “Leisure and hospitality” is 50% of taxable sales in Cook County compared to 15% for the State as a whole; the next highest County was Cass County at 39%.

In Cook County, almost all of this leisure and hospitality spending is by tourism visitors whereas in other counties with their much larger local population or the State of Minnesota a much larger proportion of restaurant/bar and recreation/entertainment spending would be from local residents. As noted, the 50% for leisure and hospitality spending for Cook County does not include all tourism spending; spending by tourists on retail purchases is not included, nor is spending by vacation homeowners on their vacation homes.

Government Economic Activity and Employment.

Government is generally considered a support economic activity because its main source of revenue is taxes on other economic activity. As general economic activity changes, capacity for taxation increases or decreases proportionately, and so would the potential budget of government activities based on such tax capacity. Moreover, the functions that governments perform such as regulation of land use, the court system, law enforcement, and education are derivative of the size and nature of the underlying economic activity.

Government activity can be considered a primary economic activity in certain circumstances. St. Paul, for example, is the site for much of our State government and the State government is responsible for a major share of employment and economic activity in St. Paul. Other cities such as Duluth, because of their position as regional economic centers, also have attracted State and federal governmental units. With relative minor exceptions, however, government activity in Cook County is derived from the underlying economic activities within the County.

Most of the governmental activity within Cook County is County, City or township based. These local government units are funded primarily through local property taxes paid by local residents and businesses or local landowners or through a distribution back to Cook County based on complicated formulas of sales or income taxes collected by the State. Local governmental units also receive grants and project funds from the State and federal government for particular projects, such as road construction.

The activities of the State and federal government in Cook County are primarily based on management of their significant land holdings and the recreation by tourists within these State and national parks and forests. Processing of camping and other recreation permits is a large part the State and federal governmental activities within Cook County.

Although there is a degree to which Cook County can attract more governmental funding to Cook County through grants or re-location of governmental operations to Cook County, the potential is limited by Cook County’s small size and location in the northeast corner of the State next to the boundary of Canada. Thus, it is likely that governmental activity in Cook County will remain primarily derivative of the size and nature of the underlying economic activities of the private economy, and the recreation and other uses of the government’s land holdings within the County.

Governmental employment comprises approximately one quarter of all employment in Cook County. Private employment ranged from 73% (1990) to 76% (2000) of the total, and government employment ranged from 24% (2000) to 27% (1990).

Cook County has higher proportion of government employment than all Minnesota counties as a whole (24% compared to 13% for all MN counties). This is due primarily to larger local governmental employment. Local governmental employment in Cook County comprises 16% of total employment, compared to 7% for all Minnesota counties as a whole.

One explanation may be Cook County’s small size. With a small local government serving a County of only 5,000 people, there are no economies of scale that result from governments serving larger populations. The large geographic size of the County (approximately the same size as the State of Rhode Island) and the large population of non-residents (often far outnumbering residents) also places demands on Cook County that are not proportionate to the relatively small size of the County’s economy.

Tourism Wages.

There is a common perception that tourism wages are extremely low, and do not provide a living wage. Calculations of “living wages” have been made by the “Jobs Now Coalition” for each county in Minnesota, including Cook County. “Living wages” are calculated for 18 different “family types” and we will focus on three common “family types” in Cook County: a single worker, a family with two adult workers and no children, and a family with two adult workers and two children. We also have average hourly wages for Lutsen Mountains and three large resorts, and have compared the “living wages” for these three family types to average wages at these Cook County employers[13].

Tourism businesses also provide a significant number of higher paying jobs. Lutsen Mountains Ski Area (and affiliated lodging and restaurant businesses), for example, employed 31 year-around employees at an average annual wage of $36,937 (excluding owners) and an annual hourly wage of $16.16. The top ten most highly paid employees of Lutsen Mountains (excluding owners) earned an average of $51,900 in 2005, or $24.27 per hour worked. There are many other similarly well paid tourism positions at the County’s many other resorts, hotels, restaurants, retail shops, outfitters and other types of tourism businesses. The median hourly wage in Minnesota for 2002 was $14.50.[14]

A tourism economy such as Cook County’s economy also creates a number of support economy positions, including many higher wage positions. Support economy employment in Cook County includes physicians and other medical professionals, attorneys and accountants, governmental employees, computer and advertising professionals, insurance agents, real estate agents and many small business owners and entrepreneurs. Like many of the tourism management/skilled positions, many of these support economy positions pay wages at or above average wage rates.

However, as discussed in more detail below, economic activity in Cook County is highly seasonal. Economic activity peaks in July/August/September but then drops to only 35-55% of these peak summer levels for the seven months from November through May. Cook County’s economy could support many more higher wage, year around positions if economic activity from November through May could be increased from the current one-third to one-half of the summer levels to, say, 50-75% of the summer levels.

Per Capita Income.

Per capita income in Cook County is less than the United States and Minnesota averages.

Per capita income increased faster from 1990 to 2000 in Cook County than in Minnesota or the United States.

Source: U.S. Census figures from 1990 and 2000 Census.[15]

Much of this increase was due to the substantial increase in retirement and related income (including social security and interest, dividends and other income) in Cook County compared to Minnesota or the United States.

Cook County has approximately 50% more retirement-age (whether looking at 60 and over, 62 and over or 65 and over) residents than Minnesota or the United States.

Retirement and social security income is about 15% of overall income for Cook County residents and dividends/interest income (a majority of which is likely retiree income) accounts for another 12% of total income.[16] Wages (including self-employment wages), however, account for the lion’s share (70%) of income for Cook County’s residents, and approximately 90% of total income for non-retirement age residents.[17]

Given the significant increase in retirement income (and retirees) in Cook County since 1990, it is perhaps surprising that wages per capita in Cook County increased faster than for Minnesota or the United States.

Source: 1990 and 2000 U.S. Census figures.[18]

The decade of faster growth in per capita wages has coincided with the transition of the economy to be almost exclusively tourism-based today. Jobs in manufacturing, forestry and mining, which are generally perceived as high wage positions, were replaced by tourism-related employment or support economy jobs, which are generally perceived as lower wage jobs. One would have expected per capita wages in Cook County to have declined, and yet the growth in per capita wages for Cook County slightly outpaced Minnesota and grew much faster than the United States.

The Council, however, believes that wages in Cook County are too low, need to be increased and can be increased substantially by a coordinated County-wide effort to increase tourism visitation during the traditionally slower tourism period from mid-October through mid-June.

Housing.

Cook County has a scarcity of rental housing. Only 6.8% of Cook County housing consists of multi-unit structures that typify standard rental housing, compared to over 20% for MN and the U.S.

Much of Cook County’s rental housing is substandard (e.g. an old seasonal cabin that is not winterized properly) but due to the extreme scarcity of rental housing, the rents of the few available units are very high. Zoning and other limitations have largely deterred the building of newer rental housing despite the above-average rents being commanded.

The unavailability of acceptable rental housing is likely a significant reason why Cook County has experienced difficulty in attracting and retaining its young adults. Cook County only has about one-half of the proportion of young adults ages 20-24 as MN or the U.S.

Cook County also has about 50% lower proportion of residents between 25 and 34 than Minnesota or the U.S., and the median age in Cook County of 44 years old is nearly a decade older than the 35 year old average for MN and U.S. residents.

Young adults who choose to try to stay in Cook County often endure substantial hardships because of the lack of adequate rental housing. It is not uncommon for young couples to camp year around in semi-permanent tents for a year or two to save up sufficient funds to start to build a house. Elsewhere in the State, young couples would simply rent an apartment for a few years until they had accumulated sufficient savings for a down payment on a home.

Seasonality.

The economy of Cook County is extremely seasonal, with its highest revenue in July, August and September. The following chart shows 2005 monthly sales as a percentage of the peak month both for total Cook County sales and Cook County lodging sales.[19]

Total sales followed virtually the identical pattern of extreme seasonality evidenced by lodging sales (further validating our finding that the economy is tourism driven). The peak months for both lodging sales and total County sales were July, August and September. Sales were only about 30% of these levels in April, May and November and about 50% during the winter months.

The seasonality in sales causes seasonality in employment. Cook County’s unemployment rate is the same or less than the State’s as a whole during the summer (May through October) but is 1-2% points higher (30-45% higher) than the State from November through April.

Cook County’s seasonal underemployment is believed to be far more prevalent than unemployment, and to affect many more workers.[20]

High seasonal unemployment and underemployment places a social and economic strain both on businesses and employees, and on the community as a whole. Businesses are forced due to low revenue levels to lay off many workers. These workers are then forced to live on partial employment wages of 50-80% of full time wages or if laid off completely to live on 60% of full time wages (after two week waiting period). With such a large seasonal variation in income, it is also difficult for many residents to sustain mortgage or rental payments, which further undermines the market for entry level housing.

Reducing the seasonality of tourism even moderately, as discussed more fully below, will have dramatic impacts on making year-around employment more universal as well as increasing overall levels of compensation. All businesses and virtually all residents will benefit, directly or indirectly, by a higher level of sales and employee wages flowing through the economy that will result from reducing seasonality.

Tourism Visitation and Spending Patterns.

Visitors to Cook County number over 1.1 million per year. Visits peak at over 200,000 per month in July and August and drop to fewer than 40,000 per month in April and November. The influx of camping visitors during the summer months amplifies the peak summer visitation months.

Average visitors per day exceed the number of residents from late June through September and average about 1 visitor for each 2 residents for most of the rest of the year.

About 54% of visitors to Cook County stay overnight at a hotel or resort. The balance is split among campgrounds, vacation homes and day visitors. (A party-day refers to a day visit by a family, couple or other group: e.g. a family visiting for two days equals two party days.)

Not all visitors however, spend the same amount. Visitors staying in hotels or resorts generally spend more than other visitors--$291 per party-night compared to $69 to $99 per party-day for camping visitors, vacation homeowners and day visitors—as shown in the following chart.

These spending profiles are based on known sales amounts for Cook County, such as lodging sales and restaurant and bar sales, and are validated by comparison with tourism spending patterns observed in other tourism studies, such as a 2002 State of Michigan study.[21]

Vacation homeowners spending includes not only the per party-day expenditures shown in the above chart, but also occupancy items as electricity, and repair and remodeling services, as well as construction materials and builder’s services. In 2004, there were 2,539 vacation homes and an increase of 85 vacation homes from the previous year. Based on an average of $2,097 per vacation home on electric utilities or remodeling or home improvement services or materials and an estimated average per new home of $60,000 spent on construction materials, builders and subcontractors, this would have resulted in $8.3 million in sales for the County.

These occupancy/construction expenditures by vacation homeowners increase the relative proportion of overall visitor spending in Cook County by vacation homeowners to 19%. Likewise, the greater spending per party-day by overnight lodging visitors increases their proportion of overall visitor spending in Cook County to 70%. Camping visitation expenditures are 8%, and day visitor expenditures are 3%, of total visitor spending.

The camping visitation sales (and day visitor sales) further amplify the seasonality of tourism visitor spending because almost all of camper (and day visitor) spending occurs during the summer months.

Visitors to Cook County staying in hotels or resorts are responsible for almost three-quarters (72%) of all direct tourism spending in the County. (Note these figures do not include the secondary or induced economic impacts of this visitor spending.) After accounting for secondary and induced economic impacts, visitors staying in hotels or resorts are responsible for 53% of total Cook County sales.

Lodging in Cook County.

Cook County is a large county with three distinct lodging districts. The Lutsen/Tofte/Schroeder is the largest, with 66% of the year-around lodging capacity; the City of Grand Marais has about 25% and the Gunflint Trail has 9% of the year-around lodging capacity. The following chart shows the average number of lodging units on a year-around basis (adjusting for units that are closed during the winter—approximately 40% in Grand Marais and nearly 50% on the Gunflint Trail) by lodging district.

Revenue per lodging district is proportionate with the average number of units for the Lutsen/Tofte/Schroeder area (at 66%) but is less for Grand Marais (20%) and more for the Gunflint Trail (14%).

This is because the Gunflint Trail realizes higher revenue per unit than Grand Marais or Lutsen/Tofte/Schroeder.

All three lodging districts follow a similar seasonal pattern of strong summers (peaking in July or August), softer winters and very slow spring and fall shoulder seasons (April, May and November). The Lutsen/Tofte/Schroeder area has more winter visitors due to its proximity to Lutsen Ski Area.

Lodging revenue peaks in July and August, falls to around 20% in April, May and November, and from December through March it averages around 20% per month in Grand Marais, from 20% to 36% per month on the Gunflint Trail and from 40% to 60% per month in the Lutsen/Tofte/Schroeder area.

Winter Tourism.

In the winter, Cook County is similar to a prototypical Western ski town due to the predominance of alpine skiers. From December through April, approximately 73% of all hotel visitors are alpine skiers, 11% are cross country skiers, 7% are snowmobilers and 9% are general tourism visitors.

The number of alpine skiers has ranged from 80,000 to 100,000 for the past decade. Based on the number of downhill skier-days in 2005 (from which skier party-days can be derived) and the number of rooms occupied (i.e. total party-days), the remaining party-days can be allocated among x-c skiers, snowmobilers and general tourism visitors for each month, based on the following allocation:

· November and April: 10% X-C skiers; 90% general tourism visitors

· December and March: 35% X-C skiers; 20% snowmobilers; 45% general tourism visitors

· January and February: 45% X-C skiers; 30% snowmobilers and 25% general tourism visitors.

This analysis provides the following distribution of winter visitors by month.

Downhill skiers spend about $97-$122 more per party-day than other hotel visitors due to higher average lodging costs and higher recreational costs.

The higher average spending by downhill skiers increases the economic impact of downhill skiers to nearly three-fourths (74%) of November through April tourism sales.

On an annual basis, over one-fourth (27%) of overnight lodging tourism sales are due to downhill skiers.

Alpine skier based tourism sales play a vital role in moderating the seasonality of overnight lodging tourism sales in Cook County.

Combined with the non-winter sales of the ski area and the other businesses located adjacent to the ski area, total alpine skier and ski area based tourism sales represent 35% of all overnight lodging tourism spending in Cook County.

The ski area experienced a period of growth in the late 1980s due to the expansion of skiing to Moose Mountain, the advent of on-mountain lodging and the installation of the gondola. From 1980 to 1990, skier visit doubled, growing from 40,000 to 80,000 skier days. In the past 15 years, however, skier visits have grown on average 1% per year, and for the past 10 years have fluctuated between 90,000 and 100,000 skier visits per year.

Because of the County’s small population and the presence of a government owned ski area in the closest population center of Duluth, most of Lutsen’s customers drive at least four to five hours to reach Lutsen (many from the Twin Cities) and spend at least two days vacationing here. Lutsen’s principal competitors are Western ski resorts reachable within a similar travel timeframe from the Twin Cities, and Lutsen is evaluated by customers based on the standards set by Western ski areas.

Over the past 15 years, Western ski areas have made major investments in high speed lifts, upscale chalets and expansive shopping villages. Lutsen has made some improvements recently (e.g. new Moose Mountain chalet), but many of the more expensive improvements have yet to be made. A single high speed chairlift costs $3 million dollars, and Lutsen will need several to reasonably service the ski area’s four mountains. Several million dollars more will be required to bring the ski area’s aging base area up to the standard of a modern mountain ski village with new buildings and attractive pedestrian walkways.

Finding a means to pay for these improvements poses a substantial obstacle for the ski area given its small size. The investments made by the Western ski areas have caused a paradigm shift in customer expectations, including customers of Lutsen, but the sheer cost of the improvements necessitates more skier visits than Lutsen currently has. Western ski areas typically have 200,000 to over one million skier visits, and Lutsen will need to increase the number of skier visits to around 150,000 in order to pay for the types of improvements that are necessary for the ski area to survive over the long term.

The ski area, however, is well positioned to play a vital role in increasing winter hotel occupancy and winter tourism sales. Lutsen ski area is, by far, the largest ski area in the Midwest, and can compete effectively for Midwestern customers against Western destinations on the basis of convenience, price and an overall high quality family ski experience.

SUPPORTING AND ENHANCING THE ECONOMIC WELL-BEING AND QUALITY OF LIFE FOR RESIDENTS

Reducing Seasonality. Over 80% of the County’s economy is derived from tourism. Sales (and employment) are highly seasonal with sales during the peak summer/early fall months that are two to three times the levels during the rest of the year. In order to support and enhance the economic wellbeing and quality of life of Cook County’s residents, tourism visitation levels from mid-October through mid-June must be increased to be somewhat closer to the peak summer levels.

Cook County already has in place much of the private tourism facilities and natural amenities necessary to increase tourism business during this period. With monthly hotel occupancies ranging from 20% to 40%, there is ample hotel capacity and area restaurants, gas and convenience stores, and retail and other stores frequented by tourists are also all operating at much less than full capacity. The County is also home to a major destination ski area that can handle many additional skiers during much of this period. In addition, the magnificent scenery of Lake Superior, Sawtooth Mountains and inland lakes and forests and abundant recreation trails provide a strong year-around draw that is not just limited to the warmer months.

The County has a unique and varied collection of artists, crafts people, musicians, performers, photographers, writers, storytellers, teachers and others, many of whom are well known nationally and regionally, but there is no coordinated effort to utilize these cultural resources to help support and grow the economy. There are also private or government conference, meeting or performance venues that could be used for larger events or to draw large groups that are also underutilized during most of this time.[22]

The County lacks, however, a few key public infrastructure components necessary to realize this potential:

§ County-wide Event/Group Tourism Organization: Cook County currently has three separate tourism organizations, each with a relatively narrow mandate to provide general marketing and play an informational role for three separate regions of Cook County; none of these tourism organizations has the staff, expertise or financial resources to plan, coordinate or host large events, festivals or group functions. What Cook County needs is a new County-wide organization (such as Duluth’s DECC) with the resources and expertise to coordinate and organize community-wide festivals, performances or other events that would be capable of attracting significant numbers of additional tourism visitors during the slower tourism months from mid-October through mid-June. (The three separate tourism organizations could continue in their current marketing/informational role much in the way Visit Duluth provides general marketing and informational functions for tourism in Duluth while the DECC organizes the events and festivals.)

§ Relevant Public Tourism Infrastructure: In contrast to other tourism economies, Cook County’s investment in public tourism infrastructure, e.g. shuttle transportation (for both workers and tourists), workforce housing and event/community centers, has been extremely limited. Moreover, the public infrastructure investments that have been made in Cook County, such as Superior National Golf Course or the Gitchi Gami trail, are beneficial primarily during the peak summer season when the economy is already at or near capacity.

County-wide Event/Group Organization. It is common for economies dependent on tourism to have a central organization that organizes, markets and coordinates group functions and events. Duluth, for example, has the Duluth Entertainment Convention Center (DECC) and the Duluth Convention and Visitors Bureau (called Visit Duluth) that organize and coordinate a wide variety of events, festivals and conventions, including:

· Concerts and orchestra performances

· Comedy performances

· Broadway plays

· Sporting events (e.g. North Shore Inline Skating Marathon)

· Arts and craft festivals

These events have enabled Duluth to achieve visitation levels in April, May and November 2-3 times greater than in Cook County. The following chart, for example, shows April hotel revenues of 41% of the peak month for Duluth (September) compared to 16% for Cook County, and 66% in November for Duluth compared to 18% for Cook county. These events have also enabled Duluth to match Cook County’s winter occupancy levels despite lacking a significant winter destination draw such as Lutsen Mountains Ski Area or the cross-country trail systems of Cook County.

These events (coupled with improvements in quality of lodging units) have also enabled Duluth to outpace Cook County since the late 1990s.

Like Duluth, Cook County could utilize events, festivals and groups functions to increase tourism during the fall, winter and spring periods for the benefit of the tourism economy of Cook County.

The impact of even modest events and festivals can be substantial. Examples in Cook County include the Spring Series ski race held at Lutsen Mountains in early April, which has transformed a slow time near the end of the ski season when most ski areas are already closed to a busy week-long event that fills one-third to one-half of the lodging capacity in the Lutsen/Tofte/Schroeder area. Another example was the recent musical festival held at Lutsen Resort the second weekend in November; held on one of the slowest weekends of the year, the music festival increased occupancies at several resorts from the typical 10-20% range to 60-70%. Although occasional events are possible through volunteer efforts or the efforts of a one or two businesses, in order for this strategy to raise occupancies over the entire seven-month period from mid-October through mid-June, the County will need a professional organization (such as Duluth’s DECC) to organize, coordinate and communicate a multitude of events and festivals throughout this entire timeframe.

Public Recreation, Housing or Transportation Infrastructure.

Cook County does not have the type of public investment in tourism infrastructure common at many tourism destinations. Crested Butte, Colorado, for example, has a publicly funded shuttle bus system for tourist and residents that runs continuously from the Village of Crested Butte to the mountain village at the ski area. Telluride, Colorado, built an 11,000 square foot convention, meeting and performance facility with public funds. Duluth has built a convention center, performance hall, meeting spaces, movie theater, aquarium, museum and other tourism buildings with public funds.

Instead of public funding, most of the meeting spaces in Cook County were funded by private businesses. In addition, private businesses have also had to shoulder most of the burden of building seasonal employee housing. The burden of investing in infrastructure that is often publicly funded comes at the cost of investing in these businesses’ core infrastructure, such as upgrading hotel rooms or adding amenities or services necessary to attract customers. This burden is at least one factor for the lack of recent growth in Cook County’s lodging industry.

As shown in the following chart, after experiencing a normal pattern of growth from 1994 to 1999, lodging sales (in inflation adjusted dollars) have not grown at all since 1999 through 2005.

This lack of growth is undermining the financial stability of the lodging sector and, given the central role to the economy of Cook County, will imperil the entire economy of the County if allowed to continue.

Economic Impacts of Reducing Seasonality.

The sustainability of Cook County’s economy can best be improved by increasing tourism visitation during the currently slower months in the spring, fall and winter. The following chart shows current monthly lodging occupancies and reasonable near-term targets.

Increasing hotel occupancy to these levels would increase annual occupancy from 41% to 60%, which is still below nationwide hotel occupancies (65-67% historically). Attaining these levels will generate $26.7 million in direct tourism spending and, together with indirect and induced impacts, $31.4 million in economic impact to the County.[23] This would add an average of more than $3 million per month to the economy of Cook County during the weaker fall, winter and spring time periods.

Added to the existing tourism and other sales, these additional tourism sales would substantially reduce the seasonality of sales for the County and its residents.

It is possible that future efforts targeted more vigorously at April and November, perhaps including a corporate group effort, could bring the levels of April and November up closer to the other months, and thereby further balancing out monthly sales figures for the entire year.

Wages and Employment Impacts.

The $31.4 million in additional tourism sales will deliver $11.4 million in additional wages for Cook County residents.[24] This is an increase of 15% in total wages for the County (2000 U.S. Census--$77.1 million). The additional wages will increase per capita income from $21,175 to $23,382, bringing Cook County up to the State average ($23,198—2000 U.S. Census) and 8.3% above the U.S. average ($21,587—2000 U.S. Census).

The additional wages, moreover, will be concentrated in traditionally low wage months for many Cook County residents.[25]

These additional wages could reduce or eliminate unemployment and underemployment in Cook County during the slower seasons of the year, from mid-October through mid-June, as well as increase wage rates significantly. The additional wages would average $5,856 per worker assuming that 1,948 workers (out of the total 2,668 workers in the County) would benefit from the increased economic activity from mid-October through mid-June. Workers would benefit from a combination of more universal year-around employment as well as increased wages with some workers receiving less than the average of $5,856 per worker and some receiving more.

Improving Quality of Life of Residents.

In addition to the economic benefits to residents, investments in tourism events and infrastructure will also provide enormous social and recreational benefits to residents. Residents, as well as tourists, will attend concerts, movies, art and craft festivals, plays and dance performances, and sporting events. The demand for these types of events among residents is illustrated by the many events already held in Cook County solely through the efforts of volunteers.

Many of Cook County’s existing events, performances and festivals, in fact, could form the nucleus for attracting additional tourism visitation, and provide these volunteer organizations with additional sources of funding and attendance.

Additional tourism facilities, such as a recreation center, would also be enjoyed by residents as well as by tourists.

Government Impacts.

The $31.4 million in additional sales in Cook County and $11.4 million in additional wages to Cook County residents will generate the following state and local governmental impacts:

· $2 million in State sales tax

· $300,000 in local sales tax

· Substantial additional property taxes benefiting Cook County and the State of Minnesota

· Up to $1 million in unemployment compensation benefits savings to the State

· Approximately $1 million in State income taxes

It is uncertain what proportion of the State sales taxes would have accrued elsewhere in Minnesota had the visitors to Cook County made this spending elsewhere in Minnesota but it is believed that a majority of this spending would have occurred outside of Minnesota. Cook County competes for winter visitors (and late fall and early spring/summer visitors) against many out of state tourism destinations, such as ski areas in Colorado, Utah, Montana or Michigan, as well as many warm weather destinations such as Florida, Arizona, California or the Caribbean. Thus, it is believed that at least one half of the State sales taxes (and related income taxes) resulting from the additional tourism sales in Cook County are a net gain for the State.

Little Public Reinvestment in Cook County Economy

Cook County’s tourism taxes are on lodging only, and for the last dozen years (and scheduled to continue for 5-6 more years) the percentage has averaged approximately 1.4% of total County lodging revenue (two-thirds of the Lutsen/Tofte/Schroeder lodging tax is paying for golf course bonds). There are no tourism taxes on the other significant components of tourism spending in Cook County including recreation and entertainment, restaurant and bar spending and tourism-oriented retail expenditures.

Following is Cook County compared to other Minnesota jurisdictions:

	Lodging Tax	Food and Beverages Tax	On-Sale Liquor and Beer Tax	Recreation or Entertainment Tax
Cook County	Less than 1.5% for more than a decade
Duluth	5.5%	1.5%
Minneapolis	5.0%	3.0%		3.0%
St. Cloud	5.0%	1.0%	1.0%
St. Paul	6.0%
Bloomington	7.0%	3.0%	3.0%	3.0%

The following Minnesota jurisdictions also have 0.5% or 1% general sales/use taxes: Duluth, Minneapolis, Hermantown, Mankato, Rochester, Proctor, New Ulm, St. Cloud, Two Harbors and St. Paul.

[1] The $31.4 million in total additional sales is based on a multiplier of 1.27 to account for secondary and induced economic impact, which is consistent with IMPLAN and RIMSII multipliers for tourism in Cook County, based on a calculated $24.8 million in additional direct tourism sales. The $26.7 million in direct tourism sales is calculated based on the total additional party-days of 84,500 resulting from the assumed additional visitors multiplied times the average per party spending amount of $290.95 (see footnotes below). The $11.4 million is based on RIMS II employment earnings multipliers for Cook County based on the $31.4 million in additional sales.

[2] See the Minnesota Historical Society’s Gen Web Project at http://www.rootsweb.com/~mncook/history.htm

[3] The Superior National Forest, which encompasses most of Cook County, and extends beyond Cook County into adjacent counties to the west and south, includes 6,094 square miles. Quetico (and La Verendrye) Provincial Park just to the north of Cook County comprises 1,838 (and 71) square miles. Isle Royal has 893 square miles and Voyageurs National Park, 169 sq. mi.

[4] The entire private property within Cook County is 138 square miles of which 6 square miles are resort/commercial zoning classification and 11 sq. mi. are zoned residential—the balance of 120 sq. mi. is zoned forest/agricultural. Government forests and parks take up 1,347 square miles of Cook County land and a total of 9,065 square miles in the contiguous region.

[5] Source for 1880 U.S. census figure: Cook County Historical Society website, “History” page, http://www.rootsweb.com/~mncook/history.htm ; Source of other census figures: U.S. Bureau of Census website, http://www.census.gov/population/cencounts/mn190090.txt ; 1900--810; 1910--1336; 1920--1,841; 1930—2,435; 1940—3,030; 1950—2,900; 1960—3,377; 1970—3,423; 1980—4,092; 1990—3,868; 2000—5,168.

[6] Data of information not specifically cited was derived from U.S. 1990 and 2000 census information. Census information is available at http://factfinder.census.gov and other sources.

[7] The Minnesota Department of Employment and Economic Development (DEED) also tabulates employment by category. In 2000, DEED reported a similar size of the work force (2,712 “average number of employees” compared to 2,668 for the 2000 U.S. Census) but reported more workers in tourism and fewer in non-tourism primary industries. Manufacturing workers, for example, were only 12 as reported by DEED compared to 165 in the 2000 U.S. Census. DEED also reported significantly higher numbers of workers in the tourism sector: 668 at hotels, 32 at private campgrounds, 325 at recreation and entertainment centers, and 233 at eating and drinking establishments.

[8] The Department of Revenue has figures for a portion of tourism, which it calls “leisure and hospitality”, that includes accommodation/hotel sales, restaurant/bar sales and recreation/entertainment sales. In 2004, Cook County’s leisure and hospitality sales were $43.9 million (or 33% of the $135 million in total sales)—the State average is 4% for leisure and hospitality and the next highest state below Cook County was only 22% compared to 34% for Cook County. The leisure and hospitality category alone accounted for 49.5% of the County’s sales subject to sales tax. Other tourist sales categories not included under the “leisure and hospitality” category include gas and other transportation sales, retail sales, grocery and convenience store sales, construction expenditures by vacation homeowners, etc.

[9] “Consumer Expenditures in 2004”, published by the U.S. Department of Labor, U.S. Bureau of Labor Statistics, April 2006, Report 992. Average annual consumer expenditures per household in 2004 were: “restaurant, bar and recreation sales”--$2,434; “retail sales”--$4,270; “gasoline stores”—$1,598; “grocery stores”--$3,635; “building materials and construction”—1,646; and “health care”$2,574. For “recreation and entertainment”, we assumed that each household in Cook County spent $1,000 per year.

[10] Not all spending by residents, of course, occurs in Cook County, and so estimates of spending within Cook County were made for each category. To be conservative, we generally estimated that 70% to 90% of resident spending for each category occurred within Cook County: 70% for “retail sales”, “gasoline stations”, and “buildings materials and construction”, 80% for “grocery stores” and 90% for “health care”. For the relatively minor lodging expenditure category, we estimated 20% was spent in Cook County since residents generally do not need or desire overnight lodging in the County of their residence.

[11] Some of the categories shown are combinations of smaller categories: “retail sales”, for example is a combination of several retail sales subcategories. Also, a category labeled “undesignated”, which is where the Department of Revenue places businesses to maintain confidentiality, when there would be fewer than four businesses in one of its reported categories, was allocated between “health care” based on the financial statements of the hospital for 2004 and “electric utility” based on reported sales of Arrowhead Electric for 2005 (the hospital and Arrowhead Electric provided this information to the Council upon its request), with the balance allocated to “mining, manufacturing and forestry”.

[12] This data is based on 2000 U.S. Census data for Cook County. Wages account for 70% of income. Retirement/social security, dividend and interest income and other income account for 30% of income, which we have assumed is income not based on the economic activity reflected in the $135 million in total County sales, and is thus not attributable to the primary

tourism and non-tourism industries in Cook County.

[13] We also evaluated average weekly wage figures in the tourism industry as compiled by the Minnesota Department of Employment and Economic Development (DEED). These figures, however, are based on survey data and thus are not believed to be as accuarate as actual data provided by some of the Cook County tourism businesses that together represent a substantial portion of the overall tourism employment within the County. We also believe that the DEED data suffers from several methodological deficiencies that result in their providing an inaccurate depiction of total tourism compensation. Although further analysis of the DEED data would be necessary before making final conclusions, we believe that the DEED figures may suffer from one or more of the following deficiencies: (1) failure to include tip income which for tipped employees represents the largest share of total compensation (a server or other tipped employee, for example, that earns $15 or more per hour may only receive a third of that as wages and two thirds as tips); and (2) failure to include managers, bookkeepers, maintenance workers and other skilled workers in the pool of tourism employees and instead to focus exclusively on entrance level positions (the DEED survey seems to separate these other positions from the average weekly wage figures and if so by focusing on postions often filled by high school students or other people looking for employment on a temporary or seasonal basis, most or all of the higher paid tourism positions are ignored).

[14] Supplement to Minnesota Employment Review, November 2003, Minnesota Department of Employment and Economic Development, “A Look at Minnesota’s Wage Distribution”, by Mustapha Hammida, Labor Market Information Office.

[15] Per capita income in Cook County in 1990 was $12,067 in 1990 and $21,175 in 2000, an increase of 75%. Per capita income in Minnesota in 1990 was $14,389 and $23,198 in 2000, an increase of 61%. Per capita income in the U.S. in 1990 was $14,420 and $21,587 in 2000, an increase of 50%. This report focuses more on per capita income instead of household income because the household size for Cook County (2.25 per the U.S. 2000 Census) is significantly smaller than for the United States (2.65 per the U.S. 2000 Census) or Minnesota (2.59 per the U.S. 2000 Census).

[16] Retirees do not receive all of the social security or interest, dividend and net rental income. They also receive a portion of wages/self-employment income from full or part-time positions in the workforce. The following chart shows estimated income and sources for retirement-age (based on age 62 and over) residents of Cook County.

Retirement-Age Residents
Retirement Income	$ 8,482,000
Social Security--90%	$ 7,116,030
Interests/Dividends--70%	$ 9,106,720
Public Assistance/Other Income	$ 825,660
Wages--3%	$ 2,314,905
	$ 27,845,315

The estimated total income for these retirement age residents (who represent 20% of the population) of $27.8 million is 25% of total income, or 23% excluding the wage/self-employment portion.

[17] Non-retirement age residents receive about 90% of their income from wages.

Non-Retiree Residents	$ 27,845,315
Social Security--10%	$ 790,670
Interests/Dividends--30%	$ 3,902,880
Public Assistance/Other	$ 3,302,640
Wages--97%	$ 74,848,595
	$ 82,844,785

Non-retirement age residents comprise 80% of the population and have about 75% of total income.

[18] The “wages” in this chart includes both “wages and salary” figures and “self employment” earnings reported in the U.S. Census figures, and are divided by the population figures shown in the U.S. Census for 1990 and 2000. Thus, for example, wages and self employment earnings per the U.S. 1990 Census were $35,917,983 million ($28,628,528 wages/salary plus $7,289,455 self employment), divided by the population of 3,868 in 1990 yields a per capita wages/self employment of $9,286, and per the U.S. 2000 Census wages and self employment were $77,163,500 ($65,767,200 wages plus $11,396,300 self employment), divided by the population of 5,168 in 2000 yields a per capita wages/self employment of $14,931, an increase of 61%.

[19] Total Cook County sales for 2005 were $135 million for the year. Total sales were allocated by month based on monthly sales subject to the 1% hospital sales tax—this tax was levied on sales aggregating approximately $100 million in 2005.

[20]As of the 2000 U.S. Census, there were 2,668 workers including 2,021 private economy workers and 647 government workers. The number of unemployed workers per month for 2005 is based on MN Department of Employment and Economic Security figures, assuming a base level of unemployment of 3% (3% is a level of unemployment to account for change of jobs, people moving to a new area, or other normal and unavoidable transitions in employment—this is a figure commonly used by economists as an unavoidable level of unemployment during periods of “full employment”). The number of “underemployed” workers per month is based on an assumption that unemployment or underemployment affects 35% of private economy workers and 15% of government workers, or a total of 804 workers (30% of the workforce), and are allocated monthly based on total sales in the County (as reflected by 1% sales tax collections)—underemployment is reduced by 300 per month from January through March to reflect estimated full-time employment of seasonal workers at Lutsen Mountains and associated resorts.

[21] The amount of lodging sales is known based on lodging tax collections. Known quantities of sales from food and beverage, retail, recreation and other categories were split between residents and tourists based on the residential household spending profile derived from U.S. Department of Labor statistics, as discussed elsewhere in this Report. The remaining quantity of sales to tourists was split among lodging visitors, camping visitors, day visitors and vacation home visitors based on estimates of Council members and was validated with comparison to other tourism data collected in other studies, such as a 2000 State of Michigan visitor study entitled Michigan Statewide Tourism Spending and economic Impact Estimates 1998-2000, Daniel J. Stynes (January 2002).

Following are charts showing the spending profile developed for Cook County compared to the 2000 Michigan study. (The figures from the Michigan tourism study were adjusted for inflation from the date of the study (2000) to the date of the information used in the Cook County spending profile (2004).)

The total spending for Cook County of $290.95 was slightly higher for the Michigan study figure of $265.49 based mainly on a higher recreation figure for Cook County. The recreation for Cook County was derived from known Cook County sales published by the Department of Revenue (for 2004), and the higher figure for Cook County makes sense based on the predominance of alpine recreational spending by most tourists in the winter in Cook County. The known lodging amount for Cook County ($140.37, calculated based on lodging tax figures and estimated monthly occupancy percentages)was inserted instead of the Michigan state-wide average figure of $86.51 (adjusted for inflation) to provide a more accurate comparison.

Following is the Cook County spending profile for “day visitors” compared to the Michigan study:

Because of Cook County’s isolated location and Highway 61’s function as the major route from Duluth to Ontario, many of the day visitors to Cook County are believed to just pass through visitors, spending little time in the County, and thus spending slightly less ($68.60) than was observed in the State of Michigan study ($79.42).

Following is Cook County spending for campers compared to the State of Michigan study.

Overall per party-day expenditures in Cook County ($98.71) were similar to that observed in the Michigan study ($87.50). It is believed that restaurant expenditures are less because a portion of food sales were included in the “retail store” or “grocery” category by the Division of Revenue in the case of stores having both retail sales and restaurant type sales (such as the fish market or Lockport store).

Following is Cook County spending for vacation home visitors compared to the State of Michigan study.

Below is a comparative per party-day chart showing hotel visitors, campers, day visitors and vacation homeowner visitors.

[22] Facilities include:

· Arrowhead Center for the Arts (theater-style seating for 200+ with stage)

· North House Conference Room (1,000 square feet)

· Papa Charlie’s Stage (7,000 square feet with stage)

· Lutsen Resort Conference Room (3,000 square feet with 100+ capacity)

· Grand Marais Community Room (400 square feet with up to 50 person capacity)

· Moose Summit Chalet (4,000 square feet inside + 5,000 square feet of deck space)

· Lutsen Village Chalet (3,500 square feet)

· Lutsen Main Chalet (2,500 square feet per floor on two floors)

[23] The $26.7 million in additional direct tourism sales is calculated based on the total additional party-days of 84,500 resulting from the assumed additional visitors multiplied times the average per party spending amount of $290.95 (see above footnotes). The $31.4 million in total additional sales is based on a multiplier of 1.27 to account for secondary and induced economic impact, and is consistent with IMPLAN and RIMSII multipliers for tourism in Cook County.

[24] The $11.4 million is based on RIMS II employment earnings multipliers for Cook County based on the $31.4 million in additional sales.

[25] This chart allocates the $11.4 million in additional wages each month in proportion to the additional sales activity for such month. To the extent that such wages are paid to workers to higher levels as opposed to additional hours of work, some of the incremental wages would be paid in other months as well.

Final Preliminary Report

COOK COUNTY ECONOMIC ANALYSIS COUNCIL

TABLE OF CONTENTS

EXECUTIVE SUMMARY

HISTORY OF COOK COUNTY

ECONOMIC ANALYSIS

EXECUTIVE SUMMARY

HISTORY OF COOK COUNTY

ECONOMIC ANALYSIS[6]