Lawmakers discuss JOBZ's usefulness

BYLINE: Lawrence Schumacher lschumacher@stcloudtimes.com

ST. PAUL — East Side Glass is still on St. Cloud's East Side, and Dave Ferkinhoff said that's because of JOBZ.

After the Minnesota Legislature passed the Job Opportunity Building Zone program in 2003, East Side Glass became the first St. Cloud business to use the reduced-tax package when the company relocated to Franklin Avenue in 2005.

"Quite honestly, without it I probably would've moved outside St. Cloud to where the property was more affordable," said Ferkinhoff, East Side Glass' president and CEO. "We had to move. We were locked in to a space that didn't work well for us anymore."

Since then, eight more St. Cloud businesses have taken advantage of JOBZ — 34 overall in the St. Cloud area since the program became available in 2004.

In return for benefits that last until the end of 2015, those companies promised to retain 809 jobs, create 706 new jobs and invest $22 million in new or improved facilities.

Statewide, JOBZ has resulted in commitments to retain more than 2,000 jobs and create 4,300 new ones as well as lead to $400 million in investments.

But state lawmakers are unsure whether the program has returned on its investment.

Senate DFLers who say the program has primarily helped cities within the orbit of the Twin Cities such as St. Cloud, Rochester and Mankato — instead of smaller towns farther away — want to cut it off.

Gov. Tim Pawlenty, who proposed the idea as a way to improve outstate economic prospects, asked the Legislature to extend the program.

Others say there hasn't been enough time or transparency to tell whether JOBZ is doing what it was supposed to.

"It's an imperfect program. The benefits are uneven and you may or may not like the tradeoffs," said Jack Geller, president of the Center for Rural Policy and Development at Minnesota State University-Mankato.

"But you could say the same for most economic development tools out there," he said. "And it's too soon to tell what effect it's having on Minnesota's economy."

Local impact

Bruce Thielman is a believer.

The St. Cloud Housing & Redevelopment Authority's executive director has helped obtain JOBZ status for several businesses that stayed in or moved to St. Cloud since the program began in 2004.

He points to Arctic Cat's new engine plant that opened in St. Cloud this year and employs more than 50 people; Gold Leaf Plastics, a Waite Park company that moved to St. Cloud as it grew; and ING Direct, the online banking company that expects to double its almost 400 employees downtown when its new office building opens.

Those jobs would have gone to other states if not for JOBZ, Thielman said.

"We really needed JOBZ to level the playing field," he said. "Even JOBZ is pretty conservative. Other states offer cash up front as an incentive."

Another city that has used JOBZ extensively is Little Falls, where eight companies have obtained JOBZ status.

"Some moved in. Some are local companies," said Carol Anderson, executive director of the nonprofit Community Development of Morrison County. "We want to diversify our economy, so it's been very good."

Rural benefit?

The man behind the push to eliminate JOBZ is Sen. Tom Bakk, DFL-Cook, chairman of the Senate Taxes Committee.

Bakk was instrumental in creating the program in 2003.

"It is very hard to argue that it is doing what the Legislature thought it was going to do," Bakk said. "It is doing very little for economically distressed parts of the state."

Bakk and other critics argue that the program has been good for cities such as St. Cloud that are already growing, but not for smaller towns.

At the Department of Employment and Economic Development, Commissioner Dan McElroy disagrees.

"Some of the more high-profile (JOBZ projects) such as Arctic Cat have been in larger cities, but there've been hundreds of projects in every corner of the state," he said. "Five or 10 jobs created or saved in a smaller town might not get as much attention, but it's just as important to that town as 50 or 100 jobs is in a larger city, if not more so."

St. Cloud received JOBZ eligibility primarily because of the loss of more than 2,000 Fingerhut jobs in 2002, Thielman said. It's taken several years to recover from that hit and JOBZ was an important tool, he said.

Southern Minnesota has benefited most from JOBZ, but more than half the counties in the state have at least one JOBZ business, Geller said.

Oversight

Pawlenty calls the Senate's move to eliminate JOBZ "a shot across my bow" and chalks it up to end-of-session political jockeying.

But one place where McElroy, a Pawlenty appointee, admits JOBZ needs improvement is in oversight and making sure the businesses that receive the benefits live up to their promises.

He supports a move to give State Auditor Rebecca Otto's office about $300,000 and access to tax and wage information it needs to add JOBZ oversight to its duties.

Otto said more oversight is needed, but her office won't go forward without the needed money or information.

"Some people think (JOBZ) is working very well, some people think it isn't," she said. "But we can't do a true cost-benefit analysis without that data."

Local agencies in charge of promoting JOBZ are now the ones responsible for reporting its progress.

Thielman said none of the St. Cloud businesses that received tax breaks through JOBZ have failed to live up to the job-creation or capital investment requirements.

More recent beneficiaries are still within the 12-month period of time they have to meet those requirements, he said.

The Associated Press contributed to this report.

About JOBZ

¦ Where: Ten Job Opportunity Building Zones encompassing more than 29,000 acres in more than 325 subzone communities and one Agricultural Processing Facility Zone have been created. They have a maximum duration of 12 years beginning Jan. 1, 2004. Each JOBZ includes acres for primarily industrial, value-added or high-paying service businesses.

¦ Tax benefits: Corporate franchise tax; income tax for operators or investors, including capital gains tax; sales tax on goods and services used in the zone if the goods and services were purchased during the duration of the zone; property tax on commercial and industrial improvements but not on land; wind energy production tax; employment tax credit for high-paying jobs.

¦ Eligibility: Qualified businesses include those expanding, starting up, relocating from other states and relocating from Minnesota to a qualified zone if the business increases employment by a minimum of five jobs or 20 percent, whichever is greater, within the first year of operations.

A qualifying business must pay each employee compensation, including benefits not mandated by law, that on an annual basis is equal at least 110 percent of the federal poverty level for a family of four. Retail development is not eligible for JOBZ benefits.

¦ More information: Go to www.deed.state.mn.us/bizdev/jobz.htm for the most up-to-date information on Minnesota's JOBZ zones. Specific community and JOBZ site information is available at www.MNPRO.com.

Source: Minnesota Department of Employment and Economic Development