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, III • I- twincities.buzjournals.com April 22,2005 'April 22,2005 JOBZ: Officials defend economic development tool weighed by the lost revenue of the other 19, which you would have gotten anyway." Borgman acknowledged there is no way of FROM PAGE 14 "This is a very good economic development knowing how many companies that have par- tool for us," said Kit Borgman, a spokes- ticipated in the JOBZ program wouldn't have home park in Bloomington. woman for DEED. invested in Minnesota without the tax breaks. The suit names Matt Kramer,commission- Department officials said the JOBZ pro- "But we do know that some companies have er of the Minnesota Department of gram has completed more than 140 deals told us they wouldn't have moved here other- Employment and Economic Development since its launch in January 2004,adding 2,200 wise,"she said. (DEED),and Daniel Salomone,commissioner jobs to Minnesota's economy and retaining of the state Department of Revenue,as defen- thousands more. Taking another look dants,along with the state itself.DEED over- Legislators are looking to toughen up sees the JOBZ and biosciences programs.The Critics question policy requirements on the JOBZ program, such as lawsuit claims the programs, which absolve But observers pointed out many of those increasing the number of jobs that must be companies that relocate to or expand into 13 "new"jobs are actually pledges for jobs yet to created before companies can qualify for the state-defined zones of paying taxes for as come,and about half of the deals resulted in tax break. many as 12 years,violate state laws. five new jobs or less. That amendment probably won't be wel- Last week,the state responded to the suit, Moreover, critics of the program claim comed by smaller businesses in rural denying most of its claims and reiterating many of the deals would have happened even Minnesota, said Jack Geller, president of the support for the JOBZ program. without the tax breaks. Center for Rural Policy and Development in "In many cases,you're giving tax breaks to St.Peter."But it's worth asking the question of "There'scompanies that were coming here anyway," whether it's worth giving such a significant very compelling said Art Rolnick, senior vice president and amount of tax breaks for a deal that may cre- evideneethat tax incentives aren t director of research for the Federal Reserve ate three jobs." Bank of Minneapolis.He said such tax-incen- Geller added supporters of the program five programs make for poor economic-devel- have argued that so far,cities that have grant- efficient. The one in 20 ventures that is opment policy. ed JOBZ deals have acted prudently and made "The bottom line is: If you're running a good decisions. moving to an area is outweighed by company that's moving to Minnesota, you might as well say you're only thinking about Constitutionality questioned the lost revenue of the other 19, which moving" and pocket the extra tax savings, The lawsuit targeting the JOBZ program „ Rolnick said. doesn't address the effectiveness of the pro- you would have gotten anyway. Michael Mazerov, an economist with the gram; instead, it focuses on the process of Center on Budget and Policy Priorities in granting tax breaks to companies—arguing Washington,D.C.,echoed those comments. the mechanism violates Minnesota's Michael Mazerov "There's very compelling evidence that tax Constitution. Economist, incentives aren't efficient,"he said."The one James pointed to a clause in the Minnesota Center on Budget and Policy Priorities in 20 ventures that is moving to an area is out- law that says the state's power of taxation may J THE BUSINESS JOURNAL 1 twincities.bizjournals.com Economic Development 23 J "These tax breaks are for 12 years,which is MORE ON JOBZ going to greatly impact the little guy who does "But it's worth asking What:An economic development program: n't get them," he said. "Somebody's going to launched in 2004,offeringbusinesses tax breaks have to pay these taxes,and it's the rest of us." the question of whether it's worth if companies move into designated zones,or ex- The suit also charges that by enticing busi- pandinto those zones nesses to move to Minnesota,the JOBZ pro- giving such a significant amount of Why:To promote job growth in outstate Minneso gram violates the Interstate Commerce clause to of the U.S.Constitution. tax breaks for a deal that may create Benefits:Companies that hire a certain percent of? That argument follows a groundbreaking new employees in given zonesare spared from case out of Ohio, in which a federal appeals three jobs': paying sales taxes,income taxes and taxes on court ruled that a tax-break policy with simi- capital improvement or equipment,for up to 12 larities to the JOBZ program was unconstitu- years. tional. The state and local governments are Jack Geller Does it work?The state reported 1,902 jobs considering an appeal to the U.S. Supreme President, were created in 125 JOBZ deals through Janu-. Court. Center for Rural Policy and Development ary„but can't say whether those jobs wouldn't' Peter Richfield, a law professor at have been created without the program. Northeastern-University in Boston, was the "The only people who win are the compa- Big deals;Most of the JOBZ deals have been for plaintiff's attorney in the Ohio case. He said nies who play the game,”Rolnick said. small businesses,'but Polaris received a 1OBZ he's convinced such tax breaks are bad policy, James said he's talked with many people designation for a new testing facility in Wyoming, ' but he empathized with the local economic- regarding the suit,"and nobody has said it's a Minn,,that will employ 300 people.Also,Wenon- development officials who employ them. bad idea."But few business groups have come ah Canoe Co built a large plant near Winona last "From their point of view,nobody wants to out and openly criticized the JOBZ program, year through the program. be the first off the roller coaster, because all either. the other communities will outcompete.you The Minnesota Chamber of Commerce for business investment,"he said."You never hasn't taken a position on the program. A not be surrendered or contracted away."Well, want to be the one to unilaterally disarm." spokesman said,"There is a wide variance of they've surrendered it to the local economic In such an environment,it's up to the courts views on the subject,"and that the litigation development officials in league with the to save the states from themselves, he said. could help clear up some of the questions sur- DEED people. "No state is willing to say 'no,' but the rounding JOBZ. "It becomes taxation without representa- Commerce Clause is designed to say'no'for Geller wondered if the suit could have a tion for everybody but the businesses that are them." "chilling effect"on the program as companies awarded these breaks,"he said. "You end up Without such a ruling, critics of tax-break question whether it will be invalidated. with giveaways to a few businesses,while the programs said states are doomed to a game of Borgman, of DEED, said the pace of JOBZ rest of the state's employers have to keep on one-upmanship in tax breaks. As evidence, applications has slowed in recent months,but paying taxes,and it's the local officials making "they pointed to a Wisconsin legislator who is attributed it to companies waiting to see if any the decisions,not our legislators." drafting a bill to create a JOBZ-like program legislative changes arise. That uneven tax burden is what prompted for rural areas that have to compete with Haverstat to consider a lawsuit. Minnesota's JOBZ zones. mreily@biijoumalscem i(612)2811-2110