WEDNESDAY, MARCH 13, 2019
N O R T H D A K O TA S T Y L E
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Change is all around us. I know that line is cliché, but it’s also true.
For instance, this past year the Bismarck-Mandan Chamber of Commerce merged with the Bismarck-Mandan Development Association (BMDA) to form the Bismarck Mandan Chamber EDC. While that was taking place, our members were adjusting to new regulations, changes in commodity prices and a labor market that continues to add jobs while others remain unfilled.
TABLE OF CONTENTS
That combination can seem daunting to even the most experienced of our membership, but through it all we see reasons for optimism. Between December 2017 and December 2018, Bismarck-Mandan and the surrounding area added another 1,000 jobs. Our members continue to make capital investments in the areas of healthcare, education and more. And new additions to the community’s quality of life make us even more attractive as a place to put down roots. Yes, we have much to be thankful for. However, there will always be challenges to our continued success and the Economic Outlook Forum will help us not only identify them, but ultimately address them. The combination of data gathered via the Economic Outlook Forum’s survey, and the Economic Outlook Forum itself, ensures that we’re able to pinpoint what those challenges are and discuss how we can overcome them. And make no mistake about it, this community has always and will always overcome whatever challenges come our way.
REAL ESTATE Jessica Knutson, CCIM/ Partner, Aspen Group LLP
HEALTH CARE Mike LeBeau, M.D., President, Sanford Bismarck
STATE REVENUE Ryan Rauschenberger, North Dakota Tax Commissioner
ENERGY Kristen Hamman, Director of Communications, North Dakota Petroleum Council
AGRICULTURE Julie Schaff Ellingson, Executive Vice President, North Dakota Stockmen’s Association Neal Fisher, Administrator, North Dakota Wheat Commission
SURVEY RESULTS facebook.com/bismancedc twitter.com/bismancedc
Brian Ritter, President Bismarck Mandan Chamber EDC
@bismancedc # BisManEOF19
INTRODUCTION } 2019 ECONOMIC OUTLOOK } 3
COMMERCIAL REAL ESTATE OUTLOOK BY: Jessica Knutson, Aspen Group LLP Looking forward into 2019 it is important to see the positive and celebrate the growth of Bismarck and Mandan, but it is also important to assess how we can make our communities better and position ourselves to attract and retain employers to our communities. Opportunity is knocking and when it does you open the door or in this case help facilitate, attract and retain their attention in the Bismarck -Mandan area. There is a positive future for growth and updates to infrastructure with the help of the half cent sales tax increase and The Prairie Dog fund. Bismarck opened a second Cashwise location on 43rd Ave in north Bismarck. Which is certainly needed as traffic and residential growth continue to expand Bismarck to the North, North-west and North-east. Look for new residential developments including Elk Ridge, Heritage Park Addition and Silver Ranch. Along with this residential growth is the need for additional schools and infrastructure. This is great news for Bismarck as there is an increased interest from national companies looking to expand into the area. This expansion would bring employment opportunities, increased tax revenue and additional consumer options for our community. The extension of services and development of roads and public infrastructure is good for everyone. Our community functions as a whole and as such should be developed, explored and planned as a whole. There are many new restaurant options along Highway 83. Opening their second North Dakota location is Charras & Tequila located at Skyline crossing which offers authentic Mexican food. A second Pizza Ranch location is opening at Hay Creek Shops in 2019 and Ale Works with craft beer and contemporary Midwest cuisine with a German flair.
4 } 2019 ECONOMIC OUTLOOK } REAL ESTATE
Downtown continues to add new bars, restaurants and developments. If you are hungry and thirsty check out Butterhorn, located on Main in downtown Bismarck. This spot has fresh cocktails, a seasonal menu and Chef Steph Cornelius. Another new option is the addition of the Roundhouse Gastropub to the Elbow Room downtown. Maybe you are looking for a little fun and a craft beer, then check out, CraftCade on 4th St, Laughing Sun at their new location on Front Ave., or Edwinton Brewing Co in the old depot on Main in Bismarck.
Opportunity is knocking and when it does you open the door or in this case help facilitate, attract and retain their attention in the Bismarck -Mandan area.
In Mandan check out the newly relaunched, high energy neighborhood Benniganâ€™s brand restaurant located on 27th St and Culvers on east Main St. Health care is expanding in our community with Sanford Childrenâ€™s Clinic on Interstate Ave and three new CHI Urgent Care Clinics located at: Pinehurst, in the Ace Hardware strip center on 43rd and the former Window and Door store on Main St. in Bismarck. Overall the forecast calls for strong expectations in 2019. There continues to be a lot to be excited about as we look at the future of both Bismarck and Mandan. It may not be the pace that we have seen in years prior, but with a terrific foundation we will continue to grow.
MEDICAID EXPANSION IMPACTS PATIENTS, WORKFORCE AND RURAL HEALTHCARE PROVIDERS BY: Mike LeBeau, M.D., Sanford Bismarck President Healthcare delivery sustainability is based, in large part, upon a complicated healthcare payment ecosystem. Because all North Dakota hospitals provide care to patients regardless of their ability to pay, it is critically important that as many patients as possible have health insurance coverage. While North Dakota has traditionally enjoyed low uninsured rates, North Dakota hospitals began experiencing alarming increases in bad debt a decade ago. Between 2008 and 2014, bad debt skyrocketed from $102 million to $274 million. North Dakota’s 36 critical access hospitals were disproportionately challenged, with 28 facilities operating at a loss and at risk for closure or serious reductions in services. When North Dakota Legislators authorized Medicaid Expansion with sustainable reimbursement rates— payments that cover the cost of care—they changed the face of North Dakota healthcare, stabilizing rural facilities and cutting hospital bad debt nearly in half by the end of 2016. LEVERAGING FEDERAL DOLLARS Since its implementation, North Dakota has leveraged Medicaid Expansion’s cost-share model—federal match rates are 93% in 2019 and 90% in 2020 and beyond. In the 2017 Legislature, leaders restored the $13 million needed to maintain 2015-17 reimbursement rates, leveraging an additional $212 million in federal funding for North Dakota hospitals. This session, legislators are asked to fund the $20 million necessary to avoid cutting reimbursement rates, an investment that will garner an additional $200 million in federal funding for North Dakota healthcare.
6 } 2018 ECONOMIC OUTLOOK } HEALTH CARE
SUPPORTING WORKFORCE Today Medicaid Expansion covers 20,000 North Dakota lives, many of whom who are the working poor, adults working part-time or fulltime in positions that do not offer health insurance— servers, sales clerks, cooks and construction workers. Medicaid Expansion has had a profound impact on North Dakota’s workforce, providing access to chronic disease management, mental health services and addiction treatment programs. By helping patients get well and stay well, adults enrolled in Medicaid Expansion are more likely to retain employment than those who do not have healthcare coverage.
When North Dakota Legislators authorized Medicaid Expansion with sustainable reimbursement rates—payments that cover the cost of care—they changed the face of North Dakota healthcare, stabilizing rural facilities and cutting hospital bad debt nearly in half by the end of 2016.
COST SHIFTING Medicaid Expansion also affects business owners by protecting them from payor cost shifting. When hospitals are underpaid by payor groups, e.g. Medicare and traditional Medicaid, the payment gap is shifted to private insurance companies. Because North Dakota’s Medicaid Expansion payments do cover the cost of care, North Dakota’s private insurance rates have increased less than in states without Medicaid Expansion.
BEHAVIORAL HEALTH Sustainable Medicaid Expansion rates support North Dakota hospitals’ ability to recruit and retain medical and behavioral health staff, provide free and reduced-cost services to families in need, and support social determinants of health initiatives in the communities we serve. Last year, North Dakota hospitals provided more than $200 million in in free or reduced-cost services to patients and their families unable to afford the care; invested more than $100 million in initiatives addressing intoxication management, homelessness, dental care and hunger; and invested more than $20 million in health workforce education, training students pursuing careers in medicine, nursing, therapies and behavioral health. While Medicaid Expansion is not the panacea for North Dakota’s behavioral health and substance use disorder challenges, it has and should continue to positively influence the pursuit of sustainable solutions. Leveraging Medicaid Expansion reimbursement rates is critical to continue this work.
REVENUE TRENDS AND FORECAST OUTLOOK BY: Ryan Rauschenberger, ND Tax Commissioner The North Dakota economy remains strong, with reason to feel cautiously optimistic about the future. Consider these strengths and cautions: OIL PRICES AND PRODUCTION While still not robust, oil prices have rebounded from a low $20 per barrel of oil per day (BOPD) in February 2016 to nearly $55 BOPD today. Throughout the uncertain months of low oil prices, the technological enhancements and efficiency improvements made by North Dakota crude oil producers are truly impressive. Both oil and gas production reached a new record high in December of 2018, with oil production at just over 1.4 million BOPD, and gas production at 2.65 million MCF per day. Because of technological enhancements and efficiencies, these production records are being achieved with 65 rigs operating in the state, far below the record high of 218 rigs in May 2012. A harsh winter is upon us, so December’s record production may not be duplicated in the coming months. STATE REVENUE COLLECTIONS State revenue collections are strong, exceeding the official legislative forecast by $244 million through January, a 7 percent positive variance. Individual and corporate income taxes are especially robust, exceeding forecast by a combined $158 million, proof of a strong employment base as well as healthier than anticipated business sectors. SOUTH DAKOTA V. WAYFAIR On June 21, 2018, the U.S. Supreme Court announced its ruling on the remote seller sales tax case South Dakota v. Wayfair. Remote sellers can now be required to collect sales taxes in states where they do not have physical presence. Through the actions of the 2017 Legislature, North Dakota was primed to register remote sellers and begin enforcing North Dakota remote seller sales tax requirements in October 2018. The first quarterly returns have just recently been processed, which means North Dakota is now receiving its first revenues collected by remote sellers. The taxes will be a valuable revenue source for the state and for local communities.
Equally important, the U.S. Supreme Court decision brings fairness and a level playing field to the brick-and-mortar retail businesses that have been collecting and remitting North Dakota sales and use taxes all along. These businesses are a vital component of our state’s economy.
Individual and corporate income taxes are especially robust,exceeding forecast by a combined $158 million, proof of a strong employment base as well as healthier than anticipated business sectors.
AGRICULTURE SECTOR Spring planting in North Dakota is just a few months away. Adequate moisture, reasonable crop prices, the effect of the trade wars all impact the outlook for the agricultural producers in the state. Steadily climbing interest rates will be a concern as well.
The first of these meetings was held in September, in the Fargo-Moorhead area. A discussion of the Moody’s tax base forecast, the budgeting process itself, and the wealth of hands-on experience brought to the table by the business community provided valuable insight into the forecasting process for all participants. Similar meetings will be held in the northern and western parts of the state beginning the summer of 2019.
NATIONAL SLOWDOWN The country is experiencing one of the longest periods of economic growth in recent history. While most signs – employment, wages, stock market – point to continued growth, it is possible that the U.S. economy will begin to contract. During past U.S. recessions, North Dakota has managed to fare quite well, thanks to our production-based economy - and would likely fare well again. Still, it is important to consider a national slowdown as a caution.
Seeking a different type of review of the executive branch forecast process, the North Dakota State Legislature contracted with a separate national forecasting firm – IHS Markit – to provide an alternative view of the North Dakota economy including its own revenue forecast. This firm is as well-known and highly respected as Moody’s, the firm with which the state has had a long-standing forecasting relationship. Having access to this additional forecast information may positively impact the process of revenue forecasting in the state.
North Dakota’s economy is notoriously hard to predict. There are a few new initiatives that have been undertaken to aid with the forecasting process. The Governor’s Office, in conjunction with the Office of Management and Budget, has sought business and industry input by holding meetings with the Greater North Dakota Chamber and the Fargo Moorhead West Fargo Chamber of Commerce.
Although there will always be risks and uncertainties as we look to the future, there are many factors that justify a very positive outlook for North Dakota in 2019 and the years to come. The tools used to measure those risks and uncertainties, and to create the best possible revenue forecast are being enhanced and improved.
STATE REVENUE } 2019 ECONOMIC OUTLOOK } 7
WE PLAN TO KEEP SETTING RECORDS IN 2019! BY: Kristen Hamman, North Dakota Petroleum Council 2018 was a year of milestones and breaking records for the oil and gas industry in North Dakota, and we expect to continue the trend in 2019. The United States ended 2018 as the world’s top producer of crude oil for the first time since 1973. Increased production is due in large part to the shale revolution, which has opened vast new resources in the United States. The Energy Information Administration also projects that the United States will be a net exporter of crude oil and petroleum products by the end of 2020. North Dakota has contributed to this production as the second highest producing state, after Texas. After nearly a decade of operating at a discount, North Dakota now finds itself on an equal economic footing with other shale plays and basins around the country. North Dakota oil production hit an all-time high of 1.4 million barrels per day in December 2018. This is significant given current economics as well as the state’s gas capture requirements that have caused some producers to curb production. Today, our industry is leaner and more technologically advanced than ever before. Each drilling rig can do twice the work of rigs of the past, helping stabilize production while reducing impacts. The Bakken was once one of the most expensive plays, but thanks to the ingenuity of our companies, North Dakota now ranks first in rig economics as technology has boosted production per rig.
8 } 2019 ECONOMIC OUTLOOK } ENERGY
The industry is not without its challenges. We still require more infrastructure, especially to capture more natural gas. The depressed market inhibited investment in gas processing and transmission assets. Industry has announced more than 900 million cubic feet per day of new or expanded processing capacity that will help accommodate production in the short-term, but the industry will need to spend $3 to $5 billion or more to meet the state’s more stringent gas capture targets. This, however, also provides the opportunity for more great-paying jobs and other sectors to provide the products and services that will be needed to keep the Bakken a step ahead. All of this proves that the industry is not just alive in our state, but that it’s also doing very well. Even in the downturn, oil and gas remained a top contributor to North Dakota’s economy, accounting for more than 58 percent of its exports. Perhaps the most remarkable thing is that we are still only tapping less than 15 percent of its true potential, and both the industry and researchers are innovating to harness as much of this important resource as possible.
The Bakken was once one of the most expensive plays, but thanks to the ingenuity of our companies, North Dakota now ranks first in rig economics as technology has boosted production per rig. The benefits of Bakken development have been seen around the state. According to a recent study conducted by Jadestone Consulting, from 2008-2018, oil and gas extraction and production taxes have raised almost $18 billion for the state, which accounts for almost 44 percent of total tax revenues collected by the state during that period. Over the last five years alone, oil and gas extraction and production taxes accounted for more than 50 percent of all tax revenues collected by the state. This has not only benefited oil and gas producing counties, but eastern counties as well with Cass and Grand Forks Counties receiving more than $450 million in oil and gas tax distributions. Many speculators have talked about the Bakken as though it’s a play of the past, but that is far from the truth. The Bakken continued to stay a step ahead in the downturn through innovation and has emerged as strong as ever. The Bakken is Now.
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STATE OF NORTH DAKOTA AGRICULTURE BY: Julie Schaff Ellingson, North Dakota Stockmen’s Association; Neal Fisher, North Dakota Wheat Commission The outlook for N.D. agriculture remains relatively positive. Soil moisture reserves were replenished by fall precipitation, which also caused delays in the harvest of some 2018 later-season crops, resulting in some yield and quality losses. There are offsetting benefits, though, in that 2019 cash crops, hay and pasture should get off to a pretty good start. Favorable early-season conditions also boost the odds of continuing a multi-year trend that suggests N.D. agriculture is performing at a higher level with improved consistency, greater diversification and a tendency toward more reliability and resiliency in recent years. The farm-gate value of North Dakota’s primary ag commodities – soybeans, wheat, corn and cattle – are estimated at $2.2 billion, $1.9 billion, $1.5 billion and $1.1 billion, respectively. High-value specialty crops, with a collective value of $2.2 billion, round out the total estimated value of N.D. agriculture at $8.9 billion. Moving through the value chain, the total economic return to the economy in an average year is $30 billion and, in a very good year, $40 billion. CROPS Production of North Dakota’s major crops rose significantly in 2018, recovering from many of 2017’s drought impacts. Crop quality was mostly very good, particularly for spring wheat and durum. Pricing opportunities for most crops have been challenged by larger global supplies and a less-certain trade environment. Greater production in 2018 helped offset some of those effects, holding total values of major crops and their economic contributions at levels similar to recent years. As the 2019 production season approaches, growers are hoping for a more predictable trade outlook with expanded exports, opportunities for stronger prices and good growing conditions. Production costs remain high or continue to rise, with fertilizer as a primary feature. Land rents may have softened a bit, but remain high by historical standards. Fuel costs have moderated, and the rise in interest rates has paused a bit. 10 } 2019 ECONOMIC OUTLOOK } AGRICULTURE
The annual crop mix is a popular topic this time of year, with acreage shifts typically based on trade, foreign competition and other market conditions. Total demand for N.D. premium wheats has remained strong compared to other classes of U.S. wheat. North Dakota’s total wheat plantings rose 16 percent in 2018. Based on reports of increased seed sales, another bump in wheat acreage in 2019 could be seen.
Traditionally, when consumers have more jingle in their pockets, they also put more high-quality protein in their grocery carts.
LIVESTOCK Prices for most classes of cattle are similar this year to what they were last year. U.S. beef cow numbers reached a cyclical low on Jan. 1, 2014, at 29.1 million head. Since then, a historically rapid cyclical expansion occurred. On Jan. 1, 2018, the National Agricultural Statistics Service estimated the beef cowherd at 31.7 million. North Dakota accounts for just shy of 1 million of those cows. Further expansion likely occurred in 2018, but at a more moderate rate. Last year’s U.S. beef production at 26.9 billion pounds was the second largest ever, only behind the record high 27.1 billion in 2002. 2019 beef production is expected to break that record at 27.4 billion pounds. Similarly, record total U.S. meat production, which includes poultry and pork, is also expected to break the record again. Given the larger supplies of beef and competing meats, similar cattle prices the last couple years were due to increased foreign and domestic demand.
A strengthening U.S. economy bolstered consumer incomes. 2018 GDP growth in the second and third quarters was the best since 2014, and national unemployment rates were under 4 percent. Traditionally, when consumers have more jingle in their pockets, they also put more high-quality protein in their grocery carts. U.S. beef exports were record high in 2017 and 2018, even though the United States started 2018 in negotiations with its top-four customers – Japan, South Korea, Mexico and Canada. 2018 beef and variety meat exports were up 7 percent in volume and 15 percent in value, and they’re predicted to set another record in 2019. Looking ahead, weakness in the domestic or global economy would negatively impact beef demand. A setback in the U.S. stock market, unresolved trade negotiations and weather are a few potential headwinds, and because supply and demand fundamentals are dynamic, price volatility can be expected.
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2019 PARTICIPATING INDUSTRIES BUSINESS/PROFESSIONAL SERVICES
5% 1% 5%
2018 TOP 3 PARTICIPATING INDUSTRIES 20.75%
12 } 2019 ECONOMIC OUTLOOK } SURVEY RESULTS
2017 TOP 3 PARTICIPATING INDUSTRIES 19.80%
WHO IS YOUR PRIMARY TARGET MARKET? BISMARCK-MANDAN 43% NORTH DAKOTA 31% MIDWEST 15% NATIONWIDE 10% INTERNATIONAL 1% 2017 RESULTS
2018 RESULTS 43%
HISTORICAL UNEMPLOYMENT RATE 12%
BISMARCK-MANDAN SURVEY RESULTS } 2019 ECONOMIC OUTLOOK } 13
WHAT IS YOUR BUSINESS CLASSIFICATION? BUSINESS TO BUSINESS 24% BUSINESS TO CONSUMER 28% BOTH 48% 2018 RESULTS
BUSINESS TO BUSINESS
BUSINESS TO CONSUMER
BUSINESS TO BUSINESS
BUSINESS TO CONSUMER
PREFORMED BELOW EXPECTATIONS
OVERALL, HOW WOULD YOU COMPARE YOUR ORGANIZATIONâ€™S EXPECTED RESULTS TO ACTUAL PERFORMANCE IN 2018?
34% 14 } 2019 ECONOMIC OUTLOOK } SURVEY RESULTS
WHICH BEST REPRESENTS YOUR FORECASTED CHANGES FOR 2019? 8.16%
TOTAL OPERATING COST AS A % OF REVENUE
EMPLOYEE LENGTH OF WORKWEEK
PRICES PAID FOR RAW MATERIALS
PRICES RECEIVED FOR PRODUCTS/SERVICES
NUMBER OF EMPLOYEES
16 } 2019 ECONOMIC OUTLOOK } SURVEY RESULTS
ON AVERAGE, HOW MANY FULL-TIME EQUIVALENT EMPLOYEES DO YOU HAVE? 4%
5 - 19 20 - 49 50 - 99 100 - 499 500+
5 - 19
20 - 49
50 - 99
100 - 499
5 - 19
20 - 49
50 - 99
100 - 499
FACTORS POSITIVELY AFFECTING PERFORMANCE IN 2018 OTHER 21.88% LOWER OPERATING COSTS 9.38% FEDERAL GOVERNMENT REGULATIONS 2.08% STRONG LOCAL ECONOMY 31.25% TECHNOLOGY CHANGES 11.46% INTERNATIONAL SALES INCREASE 0%
FACTORS NEGATIVELY AFFECTING PERFORMANCE IN 2018 OTHER 40% RISING GAS PRICES 1.33% HIGHER OPERATING COSTS 20% STATE GOVERNMENT REGULATIONS 10.67% INTERNATIONAL SALES SHORTFALLS 1.33% DOMESTIC SALES SHORTFALLS 26.67%
DOMESTIC SALES INCREASE 23.96%
SURVEY RESULTS } 2019 ECONOMIC OUTLOOK } 17
WHAT FACTORS ARE MOST LIKELY TO ADVERSELY IMPACT YOUR BUSINESS IN THE NEXT YEAR? 5%
ATTRACTING & RETAINING QUALIFIED EMPLOYEES INCREASING COMPETITION INCREASING RAW MATERIAL COSTS INCREASING REGULATIONS DIFFICULTY PROVIDING HEALTH INSURANCE FOR EMPLOYEES INCREASING TRANSPORTATION/FUEL COSTS
CHALLENGES IN ACQUIRING FINANCING
2018 RESULTS 24.24%
2017 RESULTS 15.69%
Colors correspond with categories listed above
DO YOU EXPECT TO PREFORM BETTER OR WORSE IN 2019 COMPARED TO 2018? BETTER 72%
2018 RESULTS 66%
WORSE 8% 2017 RESULTS
NO CHANGE 20%
18 } 2019 ECONOMIC OUTLOOK } SURVEY RESULTS
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