JOBZ has created jobs. But at what cost to taxpayers?

by T.W. Budig
ECM Capitol reporter

To examine the Job Opportunity Building Zones (JOBZ) 2011 annual report is apparently to confront success.

Republican Gov. Tim Pawlenty’s signature rural economic development initiative, JOBZ was envisioned as kick-starting business development in distressed areas of Greater Minnesota by offering a menu of tax incentives for businesses willing to expand or locate in select locations outside of the metro.

In exchange, businesses agreed to create jobs and offer specific wages to their employees.

Empowerment zones predate the creation of JOBZ, the idea having been tried in other states and used in Minnesota for decades in cities along the state’s western border in honing their competitiveness against neighboring North Dakota, according to a Legislative Auditor’s 2008 JOBZ report.

The Department of Employment and Economic Development (DEED), which oversees the JOBZ program, credits JOBZ with creating more than 7,100 jobs paying an average wage of $17.36 an hour.

Additionally, JOBZ is credited with sparking, either directly or indirectly, an additional 21,600 jobs with an annual yearly wage of $38,000.

Against this, the program cost in 2010 an estimated $26 million in state tax expenditures and about $14 million in property tax exemptions.

The business tax incentives expire at the end of 12-year JOBZ program in 2015.

From the beginning, JOBZ was controversial and uneasiness remains today.

The state auditor’s 2008 JOBZ report — some 300 business subsidy agreements worth some $45 million in tax breaks had been signed by then — credited the program as having “some value” as an economic development tool, but criticized it for a lack of focus, granting tax breaks to businesses likely to expand in Greater Minnesota anyway, subsidizing some businesses that competed against others for the same customers, other reasons.

Former State Auditor Pat Anderson, who could look out her office window to ponder the State Capitol a block away, never supported her fellow Eagan resident’s signature rural economic development program, arguing it would distort the marketplace and ask the state to pick winners and losers.

Minnesota Chamber of Commerce President David Olson and Minnesota Business Partnership Executive Director Charlie Weaver both express uneasiness with the state reaching into the marketplace.

Still, some businesses would like to see a JOBZ-style incentive program introduced into the metro, Olson said.

“We’re trying to figure that out as we speak,” he said of chamber’s position toward tax-incentive programs.

Business can be scared away from the state, regardless of tax incentives, if taxes are too high, Olson said.

Weaver views tax-incentive programs as having a role in economic development.

“It’s kind of like stadium funding — nobody likes it,” Weaver said.

Yet, can the state afford to adopt a purist attitude when neighboring states, such as Wisconsin and Iowa, actively compete to lure business to their side of the border? Weaver asked.

“Every arrow in the quiver helps,” Weaver said.

Senate Majority Leader-designate Tom Bakk, DFL-Cook, authored JOBZ legislation and wrestled with it as Senate Tax Committee chairman, he explained.

“I was hopeful,” Bakk said.

Bakk now gives a coolish appraisal.

The idea behind JOBZ, Bakk explained, was to have a program targeted to economically distressed areas of Greater Minnesota.

“That’s not what happened with it,” Bakk explained, questioning whether window maker Andersen Corporation’s JOBZ-aided move to North Branch or Polaris Industries’ testing center in Wyoming fulfils the original intention of the legislation.

Bakk tried to screw down the geographic parameters of JOBZ in the 2007 tax bill, basing eligibility on county population dynamics.

But for other reasons, Pawlenty vetoed the bill, he said.

“In a few little pockets it worked,” Bakk said of JOBZ.

Bakk is not faulting anyone.

“At least we tried something,” he said.

Instead of focusing on tax incentives, the wiser approach to economic development could be a focus on infrastructure and workforce education, Bakk suggested.

“I think that’s what I learned from it,” Bakk said.

House Speaker-designate Paul Thissen, DFL-Minneapolis, indicated House Democrats will make  a sharp, skeptical appraisal of JOBZ.

But some argue the whole tax-incentive-as-business-bait approach ought to be tossed out.

Former Federal Reserve Bank of Minneapolis official Art Rolnick, senior fellow at the Humphrey Institute at the University of Minnesota, has long opposed tax-incentive zones.

In general, offering tax incentives is a zero-sum game, he explained.

“It’s a bidding war,” Rolnick said.

States that place higher value on education funding, for instance, are forced to compete against other states that do not.

Beyond this, financial institutions, not government, are best judges of business worthiness in terms of financing.

The tax-incentive issue needs to addressed nationally, Rolnick explained.

“You can’t just unilaterally withdraw,” Rolnick said of a given state backing away from offering tax incentives.

More than 8,000 state and local economic development agencies nationwide compete to retain and attract businesses through the use of preferential taxes and subsidies, Rolnick said in testimony before Congress in 2007.

According to a recent article in the New York Times, Minnesota spends at least $239 million per year on incentive programs.

That’s about $45 per capita, the paper notes.

Dayton Administration officials indicated Democratic Gov. Mark Dayton views the use of tax incentives as constructive.

The governor heard a lot about JOBZ this fall in listening sessions in Greater Minnesota, said Dayton Press Secretary Katharine Tinucci in an email.

“There are certainly aspects of the program that are valuable and the governor is interested in finding a way to continue providing valuable incentives to companies across the state,” she said.

DEED Commissioner Katie Clark offered the same sentiments.

“I know he (Dayton) was hearing from developers across the state that it’s a very important program for them. And I think he also heard there are some challenges as well,” Clark said.

She plans to travel state in upcoming months to ask business people and developers, how DEED is doing.

“Ultimately, we’ll be taking all that feedback back,” Clark said.

“I don’t think the discussion will be around whether we keep it (JOBZ) or discard it. I think the discussion will be how do we tweak or refine the program to be as effective as it can be,” she said.

Outgoing House Tax Committee Chairman Greg Davids, R-Preston, views JOBZ as useful and argues it should be renewed.

Coalition of Greater Minnesota Cities President and City of Cloquet Mayor Bruce Ahlgren said the shortness of the time left in the program has dulled it as an economic development tool.

Tax increment financing is a more useful tool at this paint, he explained.

“It’s in our toolbox,” Ahlgren said of JOBZ.

And yes, there are concerns about cities grabbing businesses away from other cities, negative impacts on school districts, other concerns.

“Nothing is perfect,” Ahlgren said.

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