JOBZ supporters: Fix, don't ditch, vital rural development program
By Don Davis
St. Paul Capitol Bureau
ST. PAUL - Signs are that rural Minnesota's primary economic development program will survive a legislative attack, but there is no guarantee.
The 4-year-old program that Republican Gov. Tim Pawlenty and rural lawmakers from both parties established is under fire this year for two reasons - it costs the state millions during a tough economic time and an audit discovered 30 problems with the program.
"This has been a very valuable economic tool for rural Minnesota," Rep. Paul Marquart, DFL-Dilworth, said. "Changes will be made."
Marquart and Sen. Julie Rosen, R-Fairmont, drafted a bill to repair many of the changes the auditor found, such as lack of accountability and state oversight of the JOBZ program. JOBZ provides deep tax cuts for many new and expanding businesses in rural Minnesota.
During House and Senate hearings on the bill Tuesday, JOBZ continued under attack, especially by Twin Cities lawmakers whose districts are not part of JOBZ. However, JOBZ supporters like Marquart said it looks like the program will survive, although no votes were taken during Tuesday meetings.
"It's obvious we need to fix it," Sen. Rod Skoe, DFL-Clearbrook, said.
But Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said he preferred replacing the program with grants to eligible businesses.
Pogemiller asked questions indicating that he feels the Twin Cities should be eligible for aid when losing jobs, such as 900 from a Macy's office closing and the potential of thousands of job losses if Northwest Airlines merges with Delta Air Lines.
Rosen said there are enough businesses in the Twin Cities to absorb such unemployed workers, while in rural Minnesota laid-off workers would have to move to find jobs.
Sen. Julianne Ortman. R-Chanhassen, complained that Norwood Young America in her district is economically struggling, but because it is considered to be in the Twin Cities area it is not eligible for JOBZ.
In the House Taxes Committee, Chairwoman Ann Lenczewski, DFL-Bloomington, said as the program stands now, JOBZ would cost $296 million through its end in 2016. The Marquart-Rosen bill would cost $471 million by then, she said.
"This committee is dealing with the bill in the light of a $1 billion deficit," she said.
Rep. Morrie Lanning, R-Moorhead, told the committee that there would be costs if JOBZ dies.
"We also need to be aware of the cost if we don't allow enable communities to grow jobs," Lanning said, adding that Twin Cities taxpayers would have to pay more if rural communities lost businesses, and thus their tax bases.
"It is a struggle, folks, for a small community to have any kind of job growth, to have job expansion," Lanning said.
The Marquart-Rosen bill would allow current businesses working under JOBZ to continue to receive tax breaks. It also would allow areas in the most economically distressed rural areas to offer JOBZ benefits to new and expanding businesses for 10 or 12 more years.
Marquart and Rosen said they understand further work is needed to find a compromise lawmakers can accept.
For instance, Marquart said, they may need to postpone a JOBZ expansion until the economy improves.
"How are you going to kill this program that obviously has worked?" Rosen asked. "You can't go back."
Marquart is optimistic.
"Any program is going to have flaws, as this one does," Marquart said. "I do think there will be a happy medium between what we had and cleaning it up."
John Yunker of the Legislative Auditor's Office said the Marquart-Rosen bill fixes many of the problems his audit found earlier this year.
Senate Taxes Chairman Tom Bakk, DFL-Cook, said he understands why cities support JOBZ because 93 percent of the tax breaks offered new and expanding businesses are absorbed by the state.
"Cities don't have much skin in the game," he said, proposing that cities that get JOBZ businesses should take a hit in their state aid payments.
Bakk supported the JOBZ formation, but now says it has not worked as he hoped.
Added Pogemiller: "I think the evidence is overwhelming; it is not getting the job done."
A long line of testifiers from around Minnesota took to the witness stands in House and Senate tax committees to urge that JOBZ continue.
Rep. Sandy Wollschlager, DFL-Cannon Falls, said JOBZ needs to concentrate on smaller businesses.
"It is those types of manufacturing facilities that I see we need to compete," she said.
Rep. Dean Simpson, R-Perham, said witnesses in the House Taxes Committee showed a passion for JOBZ.
"From reports you are hearing from people, they are seeing results from it," Simpson said. "If we don't have prosperity in rural Minnesota ... it is not being to be a very good place to come to."
Gail Leverson, Cass County Economic Development Corporation's executive director, gave a list of businesses that have used the JOBZ tax-break program, including one that produced 52 workers.
"JOBZ was their main motivation to locate in Cass County," she said.
Another business has 72 workers, with a nearly $15 per hour wage average.
A third example was a mental health care business that pays more than $22 an hour in wages and benefits, which she called "an exceptionally high wage rate for Cass County."
Leverson said she doesn't seek out just any job when recruiting businesses.
"I look for things that are year-around jobs," she said.
Cass County's unemployment rate is twice the state's average and, like most of rural Minnesota, wages are lower than in the Twin Cities.
Cass County JOBZ jobs are "higher than the average income for low-income counties," Leverson said.
Wadena Mayor Wayne Wolden, vice president of the Coalition of Greater Minnesota Cities, said lower wages and higher unemployment in rural areas make JOBZ valuable.
Wolden delivered lawmakers statistics that show rural businesses generally plan smaller job increases than Twin Cities' firms, unless JOBZ gives them a boost.
He told of a Fargo, N.D., businessman who bought the Homecrest outdoor furniture maker in Wadena after being courted by North Dakota and China.
"Homecrest was literally 24 hours from going to China" when it opted to enter the JOBZ program, Wolden said.
Homecrest puts $2.4 million a year into the Wadena economy, he added.
Mayor Steve Cook of Hutchinson said JOBZ is part of a package his community has used to lure business.
"JOBZ is one of those tools," he said. "Instead of eliminating the program, let's make it better."
Miles R. Seppelt, Hutchinson's economic development director, said Customer Relations moved to Hutchinson after being wooed by a Wisconsin community. It provides 200 jobs under the JOBZ program, he said.
Now the city is talking to a European manufacturer of gear boxes for wind turbines. If Hutchinson does not get the firm, it will go to Iowa, Seppelt said.
Chuck Johnson, Perham's economic development director, talked about seven businesses that JOBZ attracted to town.
"The availability of JOBZ has not only helped bring the companies in ... but they are expanding," he said.
The firms now employ more people than they expected when they signed on to the JOBZ program, Johnson said. One company, he added, said workers come from 20 surrounding communities.
"JOBZ has been a significant tool for the city of Perham," Johnson said.
Hibbing attracted Iracore International, a firm that lines pipes so they last longer.
Duane Northagen, the Hibbing economic development executive director, said landing that operation could lead to a bigger factory.
"They are talking several thousand square feet," he said.
Without JOBZ, Hibbing would not have been able to get its foot in the door for the first plant, and thus would have missed even being considered for the bigger operation, he added.