Wadena is a small, central Minnesota town, stuck in the awkward transition from a family farm economy. About 4,300 people live there; mostly retirees and students at the local technical college. In the center of town is the Cozy Movie Theater, which looks much the same as it did in 1938, except now it has three screens instead of one. People work what jobs they can; there are two wholesale grocer distribution centers and a Wal-Mart that opened up a few years back.
But last summer, an economic disaster loomed. The Homecrest furniture plant shut down, scattering about 140 employees, a large part of the town’s workforce, said Mayor Wayne Wolden. The plant began to arrange relocation to China.
“JOBZ was the most important piece of the puzzle that was able to keep Homecrest in Minnesota,” Wolden said. “Homecrest Industries was 24 hours away from moving to China.” The plant reopened in Wadena and now employs more than 70 people.
But JOBZ, short for Job Opportunity Business Zones, doesn’t always play out that way, according to a February report by the nonpartisan Office of the Legislative Auditor. The report found that the program, designed to give tax breaks to new or expanding businesses in rural Minnesota, was often misused or unnecessary.
JOBZ launched in January 2004, and despite some abuse, has had its successes. The auditor’s report found that in the first three years, more than 300 subsidy agreements and $45 million in tax breaks were awarded to businesses in rural Minnesota. In some of those cases, jobs were created or salvaged when businesses threatened to move elsewhere.
However, the report raised questions of whether the program, which has no budget constraints, should be continued as it stands in the midst of a deficit.
Critics and advocates
It’s been a source of contention this session; referred to as a pet project of the governor. Some lawmakers want to scrap it, but JOBZ has fierce advocates that are willing to change it.
One bill, HF3599, sponsored by Rep. Paul Marquart (DFL-Dilworth) would inject $175.2 million of new money into the program. The program would still end in 2015, but the new money would allow a business that enrolls near the deadline to receive 11 years of tax benefits. Some businesses would qualify for two additional years.
Marquart focused his bill on the report’s criticisms. Those include:
• JOBZ wasn’t targeted to distressed areas. HF3599 would direct the program to areas with high unemployment and declining population. The bill takes into consideration other available forms of aid and whether the JOBZ contract would threaten a competing business in the area.
• Some businesses would have expanded anyway, without a JOBZ contract. HF3599 would require businesses to complete expansion agreements in two years and meet a job creation quota of five or 10 jobs. The Department of Employment and Economic Development would have to approve contracts instead of a local government.
• DEED was slow to identify noncompliant businesses and kick them out of the program. HF3599 would require businesses and local governments to submit detailed reports to DEED throughout the year about the progress on the contract. Businesses would lose the contract if they failed to meet their goals or didn’t provide information within 30 days of the request.
At an April 8 meeting of the House Taxes Committee, city officials from rural towns leaned into the microphone to say the same thing: JOBZ brought jobs to our city. Please don’t get rid of it!
Former state Rep. Dan Dorman (R-Albert Lea), now the executive director of the Albert Lea Economic Development Agency, said 600 jobs in his city have JOBZ behind them.
“By and large, most of those would have been in Iowa or South Dakota without it,” he said.
DEED Commissioner Dan McElroy said cities like Albert Lea have difficulty attracting new businesses. Border states offer more competitive tax incentives and can lure companies out of Minnesota.
“But the challenge is … could we do away with border wars?” McElroy said.
Rep. Ann Lenczewski (DFL-Bloomington), the committee chairwoman, said the data is unclear whether businesses actually migrate to other states, and the solution is more complex than offering tax credits to companies near the state line. She questioned whether government is the best entity to encourage business growth.
“In general, government is bad at this. This isn’t what we should be doing. We’re trying to battle in a world that we’re not qualified to battle in,” she said.
Marquart presented the bill to the committee on April 8. It was laid over, and could show up in the division’s omnibus bill in late-April.
“We are going to do something with JOBZ this year in the Minnesota House,” Lenczewski said.
Sen. Julie Rosen (R-Fairmont) sponsors the companion, SF3115, which was passed by the Senate in a slightly different version April 3 in the omnibus tax bill, SF2869, sponsored by Sen. Tom Bakk (DFL-Cook).