JOBZ analysis in Hibbing paper

One of the primary economic development strategies of Gov. Tim Pawlenty’s administration has been the use of tax-free zones in rural areas, called “JOBZ.” The program gives businesses a break from property, payroll and sales taxes during a fixed period to encourage growth. It’s one of those ideas that sounds foolproof at first blush, but has had mixed results. The jobs created have been OK or good, seldom great. On the Iron Range, almost every town applied for a JOBZ, so some businesses just moved over to the next town for lower taxes.

Mike Jennings of the Hibbing Daily Tribune wrote an interesting analysis over the weekend. The program has had some recent criticism for being overly secretive. Economic development professionals say that businesses are entitled to keep their records to themselves. On the Iron Range, public subsidy is rapidly becoming a key form of financing for new or expanding businesses. I’m not necessary against that in every case, but as an advocate for freedom of information and wise use of taxpayer dollars this thought comes to mind: If you don’t want public scrutiny, don’t take public dollars. I’m happy to invest my tax dollars in creating jobs, but not in secret.

Subsidies spur business growth
Some call program overly secretive

By Mike Jennings, Editor

HIBBING — Mike Stiglich says the tax break his company got to build a manufacturing plant in Nashwauk made a clear-cut difference.

With it, he said, Nashwauk will get a new business with a $1 million building, at least $400,000 in equipment, 10-15 jobs and an anticipated $3 million in sales during its first year. Stiglich said the new company, Midwest Manufacturing and Mechanical, will manufacture sizing screens, chiefly for export to mining concerns in other countries.

Without the Job Opportunity Building Zones (JOBZ) subsidy that Nashwauk officials approved in December, the town would get nothing, Stiglich said.

“It was a huge factor in deciding to go to Nashwauk,” he said.

The venture in Nashwauk will build on the design work done at Engineered Equipment Services in Hibbing, he said. Stiglich said he and Mike Anderson co-own both companies.

Under JOBZ, businesses that create jobs in special zones outside the seven-county area around Minneapolis and St. Paul are exempt from most state and local taxes. Since the program began in 2003, more than 300 companies have received JOBZ status.

The state has released summary information showing that, in 2004 and 2005, businesses with JOBZ status received $18.7 million in state tax breaks. Those businesses reported creating 3,669 jobs over the two years.

But the JOBZ law prohibits disclosure of the subsidies received by specific companies. Because of that, JOBZ, an initiative of Gov. Tim Pawlenty, has drawn fire from competitors of businesses that get the tax breaks. Several business owners have challenged the program in a lawsuit.

Stiglich said figuring out the benefit to his company should be a simple matter: Just multiply the costs of his building, equipment and anticipated sales by the applicable tax rates. All the same, he said, keeping specific subsidies confidential is a good idea.

“I think generally it’s just good public policy that companies’ business is their own,” he said.

Duane Northagen, Hibbing’s community economic development coordinator, agrees that disclosing specific benefits would be bad policy. He said that was proven a decade ago, before JOBZ’s passage, when the legislature forced disclosure of information on other subsidies and applications for those programs dropped sharply.

Businesses “don’t want to be open to that type of discussion, ridicule and abuse,” he said.

Northagen, who helps broker and monitor JOBZ arrangements in the Hibbing area, said JOBZ has in some cases motivated businesses “to actually make that leap from concept to reality.” Still, he said, the program is “not perfect, by any means.”

He said JOBZ was supposed to create a lot of jobs at high wages.

“And I’m continually dealing with, and I suspect most communities are dealing with, wages that are at least within the program guidelines, but they’re not high wages by any means,” he said. “And we’re not normally dealing … with large businesses.”

Among the five companies awarded JOBZ status so far, Iracore International has probably been the biggest success, Northagen said. He said Iracore accounts for about 40 jobs on its own payroll and in its sister company, Industrial Rubber Applications.

Northagen also voiced frustration with the “inflexibility” of some of JOBZ’s requirements, as applied by the state Department of Employment and Economic Development. He said that may cost Sunrise Gourmet Foods & Gifts, a spinoff of the Sunrise Bakery that specializes in mail and internet orders, its JOBZ status this year, he said.

House Majority Leader Anthony Sertich, DFL-Chisholm, said the legislators’ auditor is preparing a detailed report on JOBZ to address concerns about the program.

“I always had some strong concerns about it,” Sertich said. While it may work in some situations, “it doesn’t really go far enough to solve any of our rural economic development needs,” he said.

Comments

  1. I think everyone in Hibbing should pick up the whole town and move it into a JOBZ zone. It’s not like it hasn’t been done before.

    Seriously, though, the problem with these kinds of strategies is that they over look the entire spectrum of employers, and ignore the fact that the bulk of new employment comes from small businesses who are probably not in a position to benefit from these job zones in any case. In other words, we’re spending big tax dollars to support big business (once again.) Big surprise.

    I wish our government entities charged with economic development would quit trying to blast one out of the park, and focus their energies on scoring runs.

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