Shutdown's effects on business only to get worse

Replacing a horseshoe
Farrier Oswaldo Reyes replaces a horseshoe on one of his client's horses at Canterbury Park in Shakopee, Minn. Wednesday, July 6, 2011. Oswaldo, who works for 15 clients at Canterbury, said he's worried that government shutdown, which has stopped racing at the track, could jeopardize his business at Canterbury.
MPR Photo/Jeffrey Thompson

Activity is halted at the Canterbury Park race track facility and card club. Now in its eighth day, the government shutdown forced the park to temporarily lay off 1,000 of its 1,300 workers, not counting independent contractors.

The Minnesota Racing Commission, which oversees Canterbury, is one of the many agencies mothballed due to the state's budget impasse.

Some private-sector businesses reliant on state agencies are already in crisis. Economists warn that even if the shutdown ends soon, some negative effects could endure, including a hit to Minnesota's reputation.

Worker layoffs mean lost tourism and decreased spending for places like Canterbury. Lost revenue is one of the biggest costs of the shutdown, according to the economic forecasting firm Moody's Analytics. It estimates that the shutdown will siphon between $60 million and $75 million out of the Minnesota economy over a two-week period.

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Moody's Analytics economist Dan White says that drain is actually quite small, given a state domestic product of about $270 billion last year.

However, indirect costs will add up if the shutdown endures, White said.

"It kind of moves exponentially from there. The longer this lasts, the quicker the costs are going to add up," White said.

Costs accumulate because some businesses with ties to the state can draw from reserves or turn to alternatives for only so long. That's the case at HOURCAR, a car-sharing program run by a nonprofit in St. Paul.

Program manager Christopher Bineham checks the driving records of people who want to join HOURCAR and use its vehicles. State records are unavailable through the shutdown. In the meantime a third-party outfit provides the record service, but uses data that is slightly outdated. HOURCAR's insurance will tolerate that arrangement for only two weeks.

"At that point all bets are off, because the records are sufficiently out of date that our insurance company becomes nervous about accepting any new drivers," Bineham said.

Moody's Analytics economists say businesses' lost revenues may be recaptured later, as consumers release their pent-up demand after the shutdown. But even if the shutdown ends soon, some negative effects could endure, including a hit to Minnesota's reputation, White said.

It might be hard to make up for all the bad public relations Minnesota is getting, which carries another cost. White said two state government shutdowns in a 10-year period could repel business from Minnesota, and that carries a cost.

"That amount of uncertainty is very unsettling to a number of businesses and workers who might, if they have their druthers, go to another state as a result," White said.

The folks at Canterbury share that concern. They're worried that horse owners and trainers may pull out of Minnesota races this year, and stay out to their bad experience. Even people in the business of betting may not want to wager again on the state.

"Once you leave a bad taste in the mouth of these horsemen, they're likely not to come back, spokesman Jeff Malay said. "They need to go where they know they can race. That is the danger." But not all bets are off at Canterbury Park.

Horse trainer Troy Bethke still draws a salary from horse owners. But with no races running, any potential prize money is out of reach. That affects his ability to pay his 10 workers.

"You have a lot of seasonal help that comes in," he said. "I can't keep everyone employed if I don't have a job to keep them employed at. So that could make a big difference."

Bethke, of New Germany, is gambling that the state government shutdown will be over by the weekend. He's registering horses for a race on Saturday, even though the racetrack may not be open.

If it does open, riding the horse would be jockey Paul Nolan, another independent contractor. His earnings stem almost entirely from his cut of the racing purse money, which means he's not making anything now.

"You've got to cut down," Nolan said. "Every time you go to the supermarket, you're cutting down on things."

Nolan, who lives in Bloomington, doesn't want to leave Minnesota in search of other work. But as the shutdown drags on, he's getting worried.

"If things go bad, then you have to think of going somewhere else," he said. "So now you need to think of having money to ship somewhere else and set up somewhere new and then you've got to have a week or two to get started there."