2021 Economic Outlook Publication

ECONOMIC OUTLOOK FORUM Thursday, April 1, 2021

< Agriculture < Energy < Health Care < Hospitality < State Revenue

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Well, this year’s Chamber EDC Economic Outlook Forum (EOF) feels a little different. Doesn’t it?

I say that because all of us now have the shared experience of living and working through a pandemic. And while that’s not something any of us ever hope to go through again, it has made us all appreciate the little things just that much more.

Things like the ability to go to the office if we want, the ability to eat inside a restaurant and the ability to gather in groups like we are today. Yes, things are different and now that we have the ability to gather again, we’re going to take advantage of it with a great EOF! This year’s program is a little different. While we still have in an industry panel, we’ve got some great new faces in healthcare, education and energy to tell us what they expect in three of North Dakota’s dominant industries. We’ve also added a second panel that’s going to shed light on the experiences in retail, restaurant and hospitality; three industries that have been uniquely affected this past year. Then of course, we’ll have a fascinating keynote address from North Dakota State University Economist Jeremy Jackson. While we’re changing and improving certain aspects of our program, one constant remains, our Economic Outlook Survey. Each year, we survey the entire Chamber EDC Membership and ask them for their outlook on the coming year. We then consolidate and present all of that data in this publication so that you can see how your colleagues from across Bismarck-Mandan have to say about business in 2021.

As to how our community’s business leaders view the coming year, I summarize it in one word: optimistic. Are their challenges ahead? Yes, but our community has spoken, and they’re saying “Let’s go!” They’ve said that by investing in an economy that last year saw an increase in sales tax collections. They’ve said that by investing in a real estate market that saw an increase in both building permits and existing home sales. And they’ve said that by growing their families in a community that is still seeing growing school enrollments.

#BisManEOF21 TABLE OF CONTENTS 4

AGRICULTURE

5

ENERGY

6

HEALTH CARE

8

HOSPITALITY

10

STATE REVENUE

12

SURVEY RESULTS

Thank you for being a part of that growth and for your continued support of the Bismarck Mandan Chamber EDC! facebook.com/bismancedc twitter.com/bismancedc @bismancedc

Brian Ritter, President Bismarck Mandan Chamber EDC

Presented by:

# BisManEOF21

Gold Sponsors:

Production Sponsor:

BASIN ELECTRIC POWER COOPERATIVE A Touchstone Energy Cooperative ®

INTRODUCTION } 2021 ECONOMIC OUTLOOK } 3

AGRICULTURE Jiwon Kim,

North Dakota Trade Office Q: WHAT CHALLENGES IS THE NORTH DAKOTA AGRICULTURE INDUSTRY FACING? A: As a leading agriculture producer, North Dakota is a player in the global agriculture market. Much of this is due to our growing conditions, superior quality, farming technology and agriculture processing, and our experience exporter. However, one of the biggest challenges to the North Dakota agriculture industry is transportation, which includes a shortage of container supply, trucking from fields to container yards, moving the product by rail to export ports. Due to our geographic location, agriculture producers consistently pay higher transportation costs making it difficult to remain competitive in the global market. Recently, a rail facility and container yard in Minot opened, which is providing relief for agriculture producers in parts of our state.

Transportation issues are still present for many producers and exporters — especially on the eastern side of North Dakota — who typically transport their products to Minneapolis for further shipment throughout the U.S. or internationally.

Q: WHAT OPPORTUNITIES DO YOU SEE IN THE NORTH DAKOTA AGRICULTURE INDUSTRY? A: There are many food/agriculture trends that are growing both domestically and internationally as consumers become more conscious of what they eat and how it is produced.

Below is a list of current world food trends, which also happen to be practices that are already in place for North Dakota agriculture producers.

•

Health & Well-Being: Manufacturers of bakery products, processed foods, confectionery products, as well as retail/wholesale markets and stores are seeking high quality and healthy foods and food ingredients for health-conscious consumers, especially as the world has been and will continue to fight a global pandemic. Many North Dakota agriculture producers are small-to-medium size producers, so they are more willing to work with customers and clients to develop new products or improve existing products for their market.

•

Transparency & Tractability: Many customers and consumers want to know where their food comes from and how it is produced. Fortunately for North Dakota, our agriculture producers are equipped with identity preserved systems, which provide clear, transparent information to their clients regarding the production of their product.

•

Food Safety: North Dakota agriculture producers separate the value-added ag products from GMO products and follow strict non-GMO farming procedures for their non-GMO products.

•

Plant-Based Protein: North Dakota is the number one producer of pulses (peas, lentils, chickpeas, and dry edible beans) and a large producer of food grade soybeans, which are both great sources of plant-based protein and are exporter all over the world.

•

Sustainability: Many North Dakota agriculture producers are actively implementing sustainable farming practices — from crop rotation and cover crops to using natural irrigation to preserve water. Additionally, most North Dakota producers are small agricultural businesses that contribute to the local farming community by working with local farmers and processing facilities.

4 } 2021 ECONOMIC OUTLOOK } AGRICULTURE

COMMERCIAL REAL ESTATE

MATHEW REICHERT

SCOTT RITTER

MICHAEL ILSE

Broker, CCIM, Partner

Broker Associate, Partner

Broker Associate, Partner

701.391.0561

701.426.2368

701.400.7808

Commercial REALTOR®

JESSICA KNUTSON

Commercial REALTOR®

STEVEN ILSE

Commercial REALTOR®

NICK GOULET

CCIM, Partner

Business Broker, Partner

Partner

701.220.0724

701.226.7734

701.214.9914

Commercial REALTOR®

Commercial REALTOR®

Commercial REALTOR®

OFFICE | RETAIL | INDUSTRIAL LEASING & SALES LAND DEVELOPMENT SALES INVESTMENT PROPERTIES | BUSINESS BROKERAGE SITE SELECTIONS | BROKERS OPINION OF VALUE PROPERTY MANAGEMENT & LEASING LANDLORD | TENANT REPRESENTATION BUYER | SELLER REPRESENTATION

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HEALTH CARE } 2020 ECONOMIC OUTLOOK } 5

ENERGY Dave Goodin,

MDU Resources Group, Inc. MDU Resources Group, Inc., a member of the S&P MidCap 400 index and the S&P High-Yield Dividend Aristocrats index, is building a strong America by providing essential products and services through its regulated energy delivery and construction materials and services businesses.

Q: WHAT CHALLENGES IS THE NORTH DAKOTA ENERGY INDUSTRY FACING? A: The imminent challenge facing Montana-Dakota Utilities and WBI Energy is navigating the executive orders signed by President Joe Biden and the unknown legislation that might be taken up by Congress. Early indications point to major changes based on the administration’s stated focus on combatting climate change.

Our challenge will be working toward meeting new regulations while maintaining safe, reliable, and affordable electric and natural gas service for our customers. Within the regulated world, it’s a major challenge to develop plans regarding long-term investments when there are significant changes in policy direction from one administration to another.

Q: WHAT OPPORTUNITIES DO YOU SEE IN THE NORTH DAKOTA ENERGY INDUSTRY? A: The state has been on a path to take advantage of the state’s abundant natural resources and develop infrastructure that supports all types of energy. Pipelines and processing plants are needed to move natural gas and oil to market; electric transmission line additions and upgrades are needed to move power generated by coal, natural gas, wind and solar. Our company has been a part of North Dakota’s energy industry for 97 years. We have adapted over our 10 decades with the changing energy landscape, and we will continue to do so into the future.

Our challenge will be working toward meeting new regulations while maintaining safe, reliable, and affordable electric and natural gas service for our customers.

6 } 2021 ECONOMIC OUTLOOK } ENERGY

HEALTH CARE Kurt Schley,

CHI St. Alexius Health Q: LOOKING BACK, HOW WAS 2020 FOR THE HEALTH CARE INDUSTRY? A: If crisis reveals character, I can say 2020 revealed incredible strength and heart within our industry and the people who consider it their calling. We may want to forget 2020, but moments I will always remember are the advancements made in treating COVID-19; the rapid response as a healthcare system and healthcare community to safely care for COVID patients; and the implementation of processes to ensure we continue to care safely for all patients while keeping our associates safe and healthy.

Amid the crisis, health care providers remained committed to providing non-COVID-19 care. We enacted plans to ensure surgical patients could continue to have surgeries and recover in our hospital. In the midst of COVID-19, we maintained excellence in such areas as stroke care. In fact, our organization had a successful re-designation survey of our stroke program by DNV-GL and maintained our recognition as a GOLD PLUS Elite Stroke Hospital by the American Heart Association.

This past year was a time of immense cooperation and collaboration among hospitals and community organizations. COVID-19 was an all-hands-on deck effort, and we couldn’t have met the challenges without working hand-in-hand with our communities. The many ways individuals and businesses showed appreciation for health care workers quite literally kept us going through the most difficult days.

Q: LOOKING FORWARD, HOW WILL 2021 BE FOR THE HEALTH CARE INDUSTRY? A: The arrival of the COVID-19 vaccine brings with it the promise of getting back to normal — and we’re all ready for a healthy dose of normal. Rather than going back, I believe we will be moving forward into a future made better by the innovations and learnings the pandemic brought to our industry.

Virtual care is a prime example of this. It was leveraged to help prevent virus transmission. What we’ve discovered is it’s not only a convenience for patients but it improves care by making it more accessible — for example for those who lack reliable transportation or who live a distance away.

System strength will continue to be theme for health care moving forward. The coronavirus showed that individual hospitals are made more resilient by relationships which bolster their resources. That’s the story here as CommonSpirit and Essentia have signed a letter of intent to engage in strategic discussions for CHI facilities in Minnesota and North Dakota to join the Essentia family. With negotiations in our future, I am gratified the Benedictine Sisters of the Annunciation Monastery will continue to serve as our Catholic sponsors — because these roots matter to our communities.

HEALTH CARE } 2021 ECONOMIC OUTLOOK } 7

HOSPITALITY Sheri Grossman,

Bismarck-Mandan Convention & Visitor Bureau Q: LOOKING BACK, HOW WAS 2020 IN THE HOSPITALITY INDUSTRY? A: 2020 was absolutely devastating for the hospitality industry. The hospitality industry was the first to be hit with the effects of COVID-19 and likely will be the last to recover. Business and leisure travel stopped dead in its tracks; and bars, restaurants, and hotels were practically shuttered with painful economic consequences. Hotel industry income quickly plummeted to almost nothing in a relatively short time. Hotel occupancy dropped to 19.3 percent in April, resulting in income down 74.8 percent from the previous April. Unfortunately, the initial decline was only the beginning. Although still low, July and August showed some improvement. Sadly, that was short lived, and the business for the remaining year declined. Traditionally, our community experiences a fall season that is boasting with conferences and sporting events. The conference and meeting hiatus continued, and event attendee guidelines kept attendance to a minimum. The year ended with income down 38.5 percent, prolonging the severe economic strain throughout the year.

Q: LOOKING FORWARD, HOW IS 2021 LOOKING FOR THE HOSPITALITY INDUSTRY? A: Nationally, conferences and meetings are on hold; and, unfortunately, that trend is true for North Dakota. This industry usually reaps the benefits of the legislative session, and that business is minimal this year. Sports and events are showing the first signs of recovery and are starting to come back with modified formats. A few conferences are implementing hybrid opportunities. Our community has secured a couple of new events for 2021. Although off to a slow start, we are hopeful things will begin to see an upward trend near the end of the second quarter. Experts indicate it could take three years for the hospitality industry to see strong signs of recovery. We are optimistic that Bismarck-Mandan will continue rebounding faster, and we are excited to be working hard with our partners in the hospitality and travel industry to foster this result.

Sports and events are showing the first signs of recovery and are starting to come back with modified formats. A few conferences are implementing hybrid opportunities. Our community has secured a couple of new events for 2021.

8 } 2021 ECONOMIC OUTLOOK } HOSPITALITY

STATE REVENUE Ryan Rauschenberger,

North Dakota Tax Commissioner Q: LOOKING BACK, HOW WAS 2020 FOR STATE REVENUE? A: Revenues in 2020 started out strong, with general fund revenue collection tracking 7.6 percent above the forecast in January 2020. During that same month, the tax collection for the major tax types (sales tax, motor vehicle excise tax, individual income tax, and corporate income tax) increased compared to January 2019.

When continuing to look at the 2020 general fund revenues compared to the May 2019 legislative forecast, the fiscal months throughout the year showed stronger impacts from the downturn in the economy, compared to the biennium to date. The first decrease in the year by fiscal month was in February — reporting a loss of 12.9 percent compared to the forecast. However, during that same month, the biennium to date remained firm at a 6.2 percent difference between the forecast and actual revenues. By March, the fiscal month actual revenues comparison to the forecast was back up to a 10.4 percent difference, while the biennium to date comparison held steady at 6.5 percent. The remainder of the year moved in waves like this, with fiscal months showing positive and negative actual revenues compared to the forecast, and the biennium to date adjusting to the turn in the economy, but not showing a negative difference between the revenue and the forecast.

Oil prices and activity were also closely watched during the last year. The actual average price per barrel started at $50.02 in January 2020. By April, the actual average price per barrel dipped to $9.54. Prices steadily increased from April, ending the year at $34.26.

While the state of North Dakota and the country experienced the negative economic impacts related to the coronavirus pandemic, some industries were impacted greater than others. The 2020 third quarter taxable sales and purchases — the most recent data available at the time of this writing — shows most of the industry sectors reported taxable sales and purchases declines, when compared to the third quarter of 2019. However, the retail trade sector experienced growth of nearly 8 percent compared to the third quarter of the previous year. This growth is attributed to remote (online) sales, which are on an overall upward trend.

Q: LOOKING FORWARD, WHAT IS THE OUTLOOK FOR STATE REVENUE? A: The overall economy for North Dakota shows a lengthy recovery ahead for the state. Job losses in the state’s core industries have been more severe than other states. For the 2021-2023 biennium, oil prices are expected to remain low but stable. Production is expected to decline slightly during the first year of the biennium to 1.1 million barrels per day, then increase to 1.2 million barrels per day for the second year. In the 2021-2023 biennium, sales and use tax collections are expected to decline, while motor vehicle excise tax collections, individual income tax collections, and corporate income tax collections are anticipated to increase, compared to the 2019-21 November revised forecast. It is projected that it could take up to five years for the North Dakota labor market to return to pre-pandemic levels.

STATE REVENUE } 2021 ECONOMIC OUTLOOK } 9

SURVEY RESULTS 2021 PARTICIPATING INDUSTRIES BUSINESS/PROFESSIONAL SERVICES

CONSTRUCTION

FINANCE/INSURANCE/REAL ESTATE

HEALTH CARE

LEISURE/HOSPITALITY

MANUFACTURING

NON-PROFIT

RETAIL

TRANSPORTATION/WAREHOUSING

WHOLESALE

TECHNOLOGY SERVICES

ENERGY PRODUCTION

AGRICULTURE

1%

4% 4% 2%

21%

3%

12%

9%

9%

4% 18% 10% 3% 2020 TOP 3 PARTICIPATING INDUSTRIES 17%

22%

11%

10 } 2021 ECONOMIC OUTLOOK } SURVEY RESULTS

2019 TOP 3 PARTICIPATING INDUSTRIES 18%

8%

17%

2018 TOP 3 PARTICIPATING INDUSTRIES 21%

14%

15%

SURVEY RESULTS

SURVEY RESULTS WHO IS YOUR PRIMARY TARGET MARKET? BISMARCK-MANDAN 37% NORTH DAKOTA 33% MIDWEST 19% NATIONWIDE 9% INTERNATIONAL 2% 2020 RESULTS

2019 RESULTS

45%

32%

12%

9%

2%

43%

31%

15%

10%

1%

BISMARCK-MANDAN

NORTH DAKOTA

MIDWEST

NATIONWIDE

INTERNATIONAL

BISMARCK-MANDAN

NORTH DAKOTA

MIDWEST

NATIONWIDE

INTERNATIONAL

2019

2020

2018 RESULTS 43%

32%

19%

6%

BISMARCK-MANDAN

NORTH DAKOTA

MIDWEST

NATIONWIDE

HISTORICAL UNEMPLOYMENT RATE 10%

8%

6%

4%

2%

0%

2008

2009

2010

2011

2012

UNITED STATES 12 } 2021 ECONOMIC OUTLOOK } SURVEY RESULTS

2013

2014

2015

NORTH DAKOTA

2016

2017

2018

BISMARCK-MANDAN

SURVEY RESULTS ON AVERAGE, HOW MANY FULL-TIME EQUIVALENT EMPLOYEES DO YOU HAVE? 2% 20%

13%

1-4 5 - 19 14% 20 - 49 50 - 99 100 - 499 500+

20%

31% 2019 RESULTS

2020 RESULTS 28%

27%

17%

9%

14%

5%

27%

35%

17%

5%

12%

4%

1-4

5 - 19

20 - 49

50 - 99

100 - 499

500+

1-4

5 - 19

20 - 49

50 - 99

100 - 499

500+

DO YOU EXPECT TO PREFORM BETTER OR WORSE IN 2021 COMPARED TO 2020?

2020 RESULTS

BETTER 68% WORSE 13% NO CHANGE 19%

74%

6%

20%

BETTER

WORSE

NO CHANGE

75%

8%

17%

BETTER

WORSE

NO CHANGE

66%

18%

16%

BETTER

WORSE

NO CHANGE

2019 RESULTS

2018 RESULTS

SURVEY RESULTS } 2021 ECONOMIC OUTLOOK } 13

SURVEY RESULTS WHICH BEST REPRESENTS YOUR FORECASTED CHANGES FOR 2021?

SALES REVENUE

TOTAL OPERATING COST AS A % OF REVENUE

CAPITAL EXPENDITURES

PROFITABILITY

NUMBER OF EMPLOYEES

20.83%

DECREASE

9.17%

NO CHANGE

70%

INCREASE

12.40% 32.23%

HOURS WORKED FOR EMPLOYEES

57.14%

55.38%

34.13%

10.40%

2.37%

52.80%

EMPLOYEE COMPENSATION

26.19%

36.80%

71.43%

20.33%

3.31%

22.76%

PRICES PAID FOR RAW MATERIALS

52.07%

56.91%

44.63%

6.35%

3.20%

53.97% 39.68%

14 } 2021 ECONOMIC OUTLOOK } SURVEY RESULTS

8.73%

PRICES RECEIVED FOR PRODUCTS/SERVICES

51.20% 45.60%

‘‘

SURVEY RESULTS

This is one of the best areas in the nation to raise bees.

’’

− Dusty Backer, Backer Bees

Environment isn’t just a buzz word at Basin Electric.

Backer Bees has bees at Glenharold Mine, a reclaimed coal mine that used to supply coal to our first power plant. The reclaimed pasture has a variety of flowers−alfalfa, clover, sunflowers, wildflowers−making it one of the best areas in the nation to raise bees.

Environmental stewardship has always been a guiding principle for us. That’s why we’re committed to reclaiming and restoring land back to its natural state, like Glenharold Mine.

Your energy starts here. basinelectric.com SURVEY RESULTS } 2020 ECONOMIC OUTLOOK } 15

SURVEY RESULTS OVERALL, HOW WOULD YOU COMPARE YOUR ORGANIZATION’S EXPECTED RESULTS TO ACTUAL PERFORMANCE IN 2020 2019 RESULTS

30% EXCEEDED EXPECTATIONS

23% MET EXPECTATIONS

47% PREFORMED BELOW EXPECTATIONS

FACTORS POSITIVELY AFFECTING PERFORMANCE IN 2020 COVID-19 22.54% LOWER OPERATING COSTS 8.45% GOVERNMENT REGULATIONS 1.41% STRONG LOCAL ECONOMY 25.35% CHANGES IN OIL PRICES 1.41% INTERNATIONAL SALES INCREASE 0% DOMESTIC SALES INCREASE 12.68% OTHER 28.17% 16 } 2021 ECONOMIC OUTLOOK } SURVEY RESULTS

31%

EXCEEDED EXPECTATIONS

48%

MET EXPECTATIONS

21%

BELOW EXPECTATIONS

2018 RESULTS

27%

EXCEEDED EXPECTATIONS

41%

MET EXPECTATIONS

32%

BELOW EXPECTATIONS

2017 RESULTS

23%

EXCEEDED EXPECTATIONS

46%

MET EXPECTATIONS

31%

BELOW EXPECTATIONS

FACTORS NEGATIVELY AFFECTING PERFORMANCE IN 2020 COVID-19 60.64% DID NOT PERFORM BELOW EXPECTATIONS 30.85% CHANGE IN OIL PRICES 4.26% HIGHER OPERATING COSTS 1.06% GOVERNMENT REGULATIONS 2.13% INTERNATIONAL SALES SHORTFALLS 0% DOMESTIC SALES SHORTFALLS 0% OTHER 1.06%

SURVEY RESULTS WHAT FACTORS ARE MOST LIKELY TO ADVERSELY IMPACT YOUR BUSINESS IN THE NEXT YEAR? 14%

24%

ATTRACTING & RETAINING QUALIFIED EMPLOYEES INCREASING COMPETITION INCREASING RAW MATERIAL COSTS INCREASING REGULATIONS DIFFICULTY PROVIDING HEALTH INSURANCE FOR EMPLOYEES

12%

32%

INCREASING TRANSPORTATION/FUEL COSTS CHALLENGES IN ACQUIRING FINANCING

6%

COVID-19

7%

OTHER

17% 3%

1%

2020 RESULTS 57%

14%

7%

8%

2%

2%

28%

10%

5%

1%

5%

4%

6%

5%

8%

2019 RESULTS 38%

Colors correspond with categories listed above

SURVEY RESULTS } 2021 ECONOMIC OUTLOOK } 17

COMMUNITY STATS BISMARCK-MANDAN METROPOLITIAN AREA POPULATION PROJECTIONS, 2015 - 2040

POPULATION

200,000 114,300

137,200

129,100

121,500

145,800

154,900

100,000

0 2015

2020

2025

2030

2035

2040

YEAR

Projections adopted by Bismarck-Mandan MPO

BISMARCK-MANDAN 2020 SCHOOL ENROLLMENT NUMBERS DAY 1 ENROLLMENT NUMBERS FALL 2017

FALL 2018

FALL 2019

Bismarck Public Schools

12,861

13,039

13,312

13,318

457

3.55%

Mandan Public Schools

3,659

3,850

3,898

4,188

529

14.46%

Light of Christ Catholic Schools

1,285

1,331

1,375

1,335

70

5.45%

475

466

458

503

28

5.89%

18,280

18,686

19,043

19,364

1,084

5.93%

Shiloh Christian TOTAL

18 } 2021 ECONOMIC OUTLOOK } SURVEY RESULTS

FALL 2020 17-20 Change

% Change

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