DFLers are going all in on business subsidies

Secret Dayton trip follows $850M in subsidies in the 2013 session

Gov. Mark Dayton’s office set politicos and reporters abuzz this week with a late-arriving and mysterious addition to his daily schedule for Wednesday. The update said only that Dayton would be traveling out of state with Department of Employment and Economic Development (DEED) Commissioner Katie Clark Sieben for a “meeting regarding a possible economic development opportunity for Minnesota.”

Dayton spokesman Bob Hume said they released the information for the sake of being as transparent as possible, but would not give any more specifics on the governor’s trip or who he was meeting with.“The governor has been saying since his very early days as a candidate that he will go anywhere to bring jobs to the state,” Hume said. “That is what he’s doing.”

The private meeting surprised Capitol watchers, but it’s not the first time this year that the governor and DFL lawmakers have engaged in secret meetings to convince companies to move to Minnesota.

During this year’s legislative session, Dayton and DFL leaders participated in talks with Baxter International Inc., a fortune 500 biotechnology and pharmaceutical firm that was looking to expand in Brooklyn Park. But legislators initially didn’t know the name of the company when they were presented bill language for a multimillion-dollar tax break. Senate Majority Leader Tom Bakk and House Speaker Paul Thissen perpetuated the air of mystery by speaking of the venture as “Project Fern.”

While issues like gay marriage and tax increases took center stage for much of the 2013 session, tax breaks and incentives for private businesses to expand in or move to Minnesota were a major part of the work in the Legislature this year. The Baxter International tax break passed last session, along with about a half-dozen other incentives to private companies totaling more than $850 million. The largest and most high-profile of the projects was a subsidy to the Mayo Clinic’s Destination Medical Center project in Rochester.

Dayton’s staff wouldn’t comment on whether the talks could lead to legislation next session, but most expect business incentives to be a part of the conversation next year as the economy crawls back into recovery. And despite criticism of the secretive methods used to lure the companies and the economics of providing tax breaks to big companies, some lawmakers are defending their emphasis on pursuing those opportunities last session.

“You have Gov. Rick Perry running around the country saying, ‘Texas, Texas, Texas.’ He has a $200 million [economic development] fund to help him. If you don’t have something to offer, you are automatically out of the game,” said House Jobs and Economic Development Chairman Tim Mahoney, DFL-St. Paul. “It’s the best that can be done in a bad situation. It’s not my favorite way of doing business, but in the real world, you’ve got to be at the table.”

An uptick in incentives

With the Mayo Clinic project, the state will pay up to $455 million for infrastructure surrounding the development as part of the deal, and the city of Rochester and Olmsted County will spend another $128 million.

Meanwhile, other private businesses also scored significant wins last session. The Mall of America will receive up to $250 million in aid over the next two decades from the metro fiscal disparities tax pool. The retail center could more than double the size of its existing facility, and the new money will help pay for roads and new parking as part of the expansion.

3M headquarters in Maplewood will get a new $150 million research and development building through a special tax increment financing (TIF) district created last session, which will divert property taxes from local governments and school districts to pay for the project. St. Louis-based Emerson Electric will receive an $815,000 sales tax break to help renovate a vacant building in Shakopee.

On top of that, lawmakers pumped $30 million into the Minnesota Investment Fund, established in 1985 to offer loans to companies that commit to expanding and creating jobs in Minnesota. The loans are forgivable if the firms meet hiring and wage goals. Legislators also created the Minnesota Job Creation Fund, a $25 million pool that will provide up to $1 million in business grants to companies if specified job creation and capital investment goals are achieved.

These kinds of deals certainly aren’t new in Minnesota. More recently, lawmakers hatched deals to build the Minnesota Twins and Vikings stadiums in Minneapolis. In the early 1990s, lawmakers passed an $800 million package of loans, grants and tax credits — the largest the state has ever offered to a private business — to entice Northwest Airlines to locate two new aircraft maintenance bases in northern Minnesota.

The sudden spike in incentives last session, observers say, can be attributed to a recovering economy and to incentive-friendly lawmakers such as Dayton and Bakk — who was in talks with several companies before the session began — occupying positions of power.

Dayton is taking a cue from his old boss, former Gov. Rudy Perpich, who appointed him commissioner of DEED in 1978. Dayton was in that role in 1985, when Perpich led an effort to offer 30 years of tax breaks and other incentives to get a General Motors plant built in the state. Minnesota lost out on that bid, but Perpich was known for having private meetings with companies to woo them to expand in the state.

‘Power politics to the rich’

The politics of these incentives are simple, says Art Rolnick, former vice president of the Federal Reserve Bank of Minneapolis.  Lawmakers can court companies with tax breaks to move to Minnesota and then tout the number of jobs they created by doing so.

But it’s bad economics, Rolnick says, emphasizing that lawmakers should have been putting more money into education and creating a skilled future workforce instead of providing tax breaks to the “super-wealthy.”

“It’s a red flag when a private company comes to you for this kind of money. Either it’s very risky, or it’s going to pan out either way and the company wants to see what it can get from the state,” Rolnick said. “This is power politics to the rich. [Politicians] don’t sell it that way — they talk about jobs. They tell you about the jobs they attract to Minnesota.”

The incentives have their critics in the Legislature, too. House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, has long railed against tax breaks for companies. DFL Rep Ryan Winkler of Golden Valley is also a perennial critic of these methods.

“I recognize that these are politically necessary things that happen and you can’t stop it,” Winkler continued. “And it’s hard to draw the line between where government is playing a proper role and where you need to let the marketplace work. But overall, I don’t like the idea of taxing people in order to provide incentives to a corporation because people hear from lobbyists who say these companies are going to do good things.”

He plans to look at ways to reform the way the state handles such incentives in his role as chairman of the Select Committee on Living Wage Jobs.

In particular, Winkler would like to put more teeth into a state law that requires companies receiving incentives to meet a certain labor standard and pay a specific wage.

“We are not supposed to be in the business of providing people with tax incentives that are providing low-wage jobs,” Winkler said. “We need to hold companies accountable for what kind of jobs they are creating.”