Interest in economic development program drops dramatically

Only two businesses have signed up

so far this year

Associated Press

WORTHINGTON, Minn. — An economic development program that rewards Minnesota businesses with tax breaks for creating jobs is finding fewer takers this year than in the past.

The Job Opportunity Building Zones program has seen two sign-ups so far this year compared to 17 in the same period last year. JOBZ allows businesses to operate mostly free of state taxes if they promise to relocate to or expand in economically distressed regions.


In 2004, the program’s inaugural year, about 120 companies signed up. The number of new projects since then has fallen an average 26 percent a year. In the program’s first three years, the tax reductions totaled nearly $46 million.

"Certainly all evidence is that it will continue to decline," said Mankato business consultant Ed Tschida, who works with city and county governments on economic development projects, often involving JOBZ. "I don’t see anything turning that around."

Department of Employment and Economic Development Commissioner Dan McElroy said the number of new signed agreements reached so far this year doesn’t tell the whole story.

"There are probably 10 more that I know that are in process," he said. "But it is not as robust as it would have been in 2006."

The program is due to expire in 2015, but state lawmakers are debating whether to curtail it even sooner. Gov. Tim Pawlenty, who championed the measure in his first year, wants it expanded.

One legislative effort would extend the number of years companies receive tax breaks. A company signing up this year gets eight years of tax breaks; a business entering the program in 2004 received a dozen years of benefits.

The Legislative Auditor recently questioned whether the state was getting its money’s worth, saying that many of the companies would have expanded even without the tax breaks.

Experts also say that a provision that requires participating businesses to pay wages for new construction above a certain level is turning off other companies.


"Having to pay several hundred thousand or even millions of dollars more upfront was not worth the potential benefit of staying in the program," Tschida said.

At Bedford Technology in Worthington, officials decided against JOBZ for an expansion project when they learned the wage requirement would increase their labor costs 10 percent.

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