Manufacturing report card gives Nebraska an average GPA

An annual assessment of state manufacturing and logistics industries by the Ball State University Center for Business and Economic Research finds that Nebraska ranks average among its peers, though the scorecard also notes Nebraska’s people and strong finances are advantages for its manufacturing potential.

While the 2020 Manufacturing Scorecard does not give Nebraska a single grade, all 50 states were ranked in nine areas the authors say would be considerations for site selection in the manufacturing and logistics industries.

If you average the nine measures, Nebraska achieves a C grade point, though in avoiding this conclusion in the report itself, the Ball State University economists may be highlighting that each state has its own strengths and unique features.

Here’s a rundown of each category:

Manufacturing is a significant sector in Nebraska. According to the National Association of Manufacturers, more than 11% of the state’s gross state product is from the industry, representing nearly 10% of the state’s nonfarm employment.

States like Iowa that have a larger manufacturing workforce or may have higher-paying manufacturing jobs were graded better here, while states like Hawaii or Florida, that have a smaller share of the population engaged in manufacturing, were graded lower.

Nebraska’s logistics industry was given a B, which should come as little surprise given the state’s position in railroads and trucking, and its emphasis on funding infrastructure. Iowa was the only neighboring state to rank as highly.

Nebraskans themselves were considered one of the state’s best attributes on the report card. Human Capital in Nebraska earned a B+, which can be attributed to the educational attainment of Nebraskans, which may be necessary to have in-demand skills for manufacturing.

The upper Midwest and a number of Mountain states ranked similarly in this area.

Nebraska earned average marks on worker benefit costs, in line with most east coast states, while states in the Southwest and Deep South tended to be graded more favorably on this measure.

From a manufacturing perspective, the study authors consider Nebraska’s tax climate much better than Iowa’s (potentially due to its high corporate tax rates, which Iowa is trying to rein in). Nebraska is also graded slightly better than Kansas or Colorado, while Missouri, Wyoming, and South Dakota are given more favorable grades.

It’s worth considering how this industry’s viewpoint might differ from what a layperson would consider an attractive tax policy. While there are few relatively high-tax states graded well on the report, the scorecard also shows that states which might have reputations for being “low-tax” may still have tax issues that are drawbacks for manufacturers.

For example, a number of states without a personal income tax nonetheless are graded as average. Of the five states that earned an “A,” three levy income, sales, and property taxes, just like Nebraska.

This means it’s not unrealistic to think Nebraska could also improve in this ranking if it looked at what more of the states earning As and Bs are doing with their tax structures. Generally speaking, a lot of them have lower, flatter tax rates.

Far and away, Nebraska’s best grade is for its Expected Fiscal Liability Gap. Nebraska earned an A in this area, along with North Carolina, South Dakota, Utah, and Wisconsin.

It might sound weird that a manufacturer would be concerned about something like how a state will pay its pension obligations, but the economists who authored this report believe site selection experts will weigh if they are inadvertently signing up for future tax hikes because of a state’s debts and spending obligations.

Simply put, the states earning As and Bs are paying their bills or are not heavily reliant on tax revenues that may not be there in the future.

Illinois, Kentucky, New Jersey, and Kansas are considered less of a safe bet because of their unpaid pension obligations and other financial obstacles, while states highly reliant on energy taxes like Alaska, Montana, and New Mexico seem to raise red flags for manufacturers, too.

Though Nebraska earns its highest marks for fiscal stability, the state’s weaknesses begin to appear in areas that tie back to diversification.

Though Nebraska earns a D in this area, the report stresses that there are positives and negatives to be considered. States that focus more on a specific kind of manufacturing might be more susceptible to recessions and industry shakeups, but they may also be on the cutting edge of breakthroughs in that field.

A focus on agriculture and food-related manufacturing is generally considered a point of economic stability for Nebraska, but where it may be more evident that a lack of diversification has a cost for Nebraska is in its rankings for productivity, innovation, and global reach.

Nebraska just barely avoids a failing grade in Productivity and Innovation, which measures research and development expenditures, and the number of new patents filed in states on a per capita basis. While no state in our region could be said to be knocking this measure out of the park, we are graded lower than all of our neighbors.

Then, on global reach, Nebraska is graded relatively poorly on measuring the growth and value of our exports, and foreign investment in Nebraska.

Overall, this scorecard provides useful insights into the strengths and weaknesses of each state. Nebraska may lag in some measures, but our state likely has more potential to overcome our deficits than states that do not already have strong manufacturing and logistics sectors, or that lack the flexibility to responsibly change their tax and spending policies.