Many in Republican majority hope to preserve Pawlenty jobs program
With a controversial history and a looming sunset date, Gov. Tim Pawlenty’s marquee rural economic development program, JOBZ, appeared to be headed for its grave before the November 2 general election.
But the election may have refigured the political landscape facing the JOBZ (Job Opportunity Building Zones) initiative. With Republicans poised to take control of both chambers in 2011, the program still has a future, according to Rep. Bob Gunther, incoming chairman of the House Jobs and Economic Development Finance Committee.
“JOBZ under the last régime looked pretty sick,” Gunther, R-Fairmont, conceded. “However, there might be something similar that will come out of the ashes, so to speak.”
The program provides exemptions on numerous taxes such as sales and corporate franchise taxes for businesses that choose to either locate or expand in greater Minnesota. Currently, there are about 10,000 JOBZ projects in about 325 communities, according to the state Department of Employment and Economic Development (DEED). In 2004 those tax expenditures cost the state $6.4 million; by 2009, the figure had grown to $24 million.
The JOBZ sunset date is December 31, 2015 – meaning the program’s appeal to prospective applicants is steadily declining as the deadline draws closer.
But if JOBZ stands to fare better in the Republican-controlled Legislature, its fortunes in the executive branch will grow markedly dimmer if Democrat Mark Dayton wins the drawn-out contest for governor. Dayton called for the elimination of JOBZ in his campaign’s budget proposal. He said doing away with JOBZ’s subtractions and credits would save $70 million in the next biennium.
Moreover, some suburban Republicans have opposed JOBZ. Notably, incoming Senate Taxes Committee Chairman Julianne Ortman, R-Chanhassan, criticized JOBZ for “picking winners and losers.” Ortman expressed frustration because her district has struggled in the economic downturn but hasn’t been eligible for JOBZ. A call seeking comment from Ortman wasn’t immediately returned.
Gunther, who represents a rural district in southern Minnesota, noted the regional disparities need to be addressed as lawmakers set out to reform JOBZ.
“It’s got to be a statewide program,” Gunther said.
No stranger to controversy, JOBZ has survived both legal and legislative challenges. In 2005, former state Revenue Commissioner John James filed a lawsuit alleging JOBZ unconstitutionally interfered with interstate commerce. The state prevailed in the case but challenges to JOBZ’s existence were also put forward in the Legislature. During tax conference committees, DFL leaders have proposed to abolish JOBZ.
As Pawlenty’s term has neared its end, JOBZ has become less of a political lightning rod. But the program continues to weather policy criticism.
In February 2008, the Office of the Legislative Auditor released a damaging report that found two-thirds of Minnesota businesses would have expanded to some extent without the subsidies. Eleven percent of the projects would have taken the same form even if JOBZ didn’t exist, the report said.
Because some of the jobs would have been created without JOBZ, the auditor offered an estimate of jobs created by JOBZ that was significantly lower than DEED’s estimate.
At that point, DEED made a series of administrative changes that gave them more authority to oversee the program. The agency has tried to highlight successes, like the expansion of energy-efficient window maker SAGE Electrochromics’ Faribault operation.
But for many legislators, especially DFLers, the program has done more harm than good by rewarding new businesses in a manner that disadvantages already established in-state competitors.
Sen. Tom Bakk, the new minority leader who served as Taxes chair in the last four sessions when DFLers controlled the Senate, said JOBZ has suffered from several ailments, including lack of scrutiny from state agencies. Although he’s willing to hear the new Republican majority’s policy proposals on job creation, he’s skeptical that JOBZ belongs in the mix.
“I guess my personal thought is, we tried something,” Bakk said. “We need to admit it didn’t live up to expectations and we need to move on.”
The complaints about JOBZ melt away among legislators who attribute business activity in their districts to JOBZ benefits.
In the jobs bill that passed before this year’s Easter recess, Dayton’s lieutenant governor candidate, Yvonne Prettner Solon, a DFL senator from Duluth, touted the bill’s extension of JOBZ so that a foreign wind-turbine company could locate its North American headquarters near Duluth.
Prettner Solon said in April: “Landing this contract would mean 1,350 jobs with an $80 million payroll for Duluth and the Iron Range, so I immediately introduced legislation to extend the JOBZ program for our area. We are one of two states still under consideration and we have confidence this incentive will provide Minnesota the competitive edge it needs.”
Rep. Joe Hoppe, who will become chairman of the House Commerce and Regulatory Reform Committee, is already planning to discuss the role of business subsidies as his party pursues a job creation agenda. Hoppe said he’s had conversations recently with business leaders in Minnesota border communities. Those areas are the most acutely concerned about the competitiveness of the state’s tax structure compared to those of its neighbors.
“My guess is there are a lot of people from both parties who like JOBZ,” said Hoppe. “They’ve seen businesses in their community either come in or expand.”
In addition to leaving out the suburbs and the core Twin Cities, the program has also been criticized by the legislative auditor and by legislators for failing to steer tax breaks to areas that are facing the most dire economic challenges.
Although the JOBZ debate won’t be as partisan when Pawlenty leaves office, the mammoth budget deficit will force Republicans to address JOBZ’s shortcomings.
“Clearly we’re going to have to make budget cuts to solve our shortfall,” said Hoppe. “I hope that in this area and others, we’re not making shortsighted cuts that in the long term wind up costing more money.”