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Bridging tax policy, economic development

Myron Frans

Myron Frans

Katie Clark Sieben

Katie Clark Sieben

Katie Clark Sieben — commissioner of the Minnesota Department of Employment and Economic Development — stopped by the Minnesota Manufacturers Summit on Oct. 1 for a panel discussion about “Helping Minnesota manufacturers grow in Minnesota.”

The Minnesota Chamber of Commerce, the lead critic of new business taxes passed in 2013, hosted the event and views taxes as an integral part of any economic development discussion. So it wasn’t a surprise when the very first question was about changes to state tax policies.

Sieben, though, said the issue isn’t in her purview.

“I’m the commissioner of DEED, not the commissioner of revenue, so I can’t specifically speak to whether there might be a tax proposal next legislative session,” she said. “That’s for [Revenue] Commissioner [Myron] Frans and the governor, if he’s re-elected, to discuss. So I can’t specifically give you an answer to that at this point in time.”

Sieben and officials with economic development experience under both parties say that a clear division of labor is important for coordinating efforts — and that there is substantial dialog across agencies behind the scenes.

But the approach can be a frustrating one for those like the chamber who see economic development and tax policy as closely entwined. Bill Blazar, the chamber’s interim president, said the business community would benefit from a commissioner who champions its causes in the open and commiserates with them about the obstacles to growth.

“I wasn’t surprised by [Sieben’s] response,” he said. “She seemed to take a hands-off view, which is unfortunate because she does interact with so many businesses.”

Blurred lines

Dan McElroy

Dan McElroy

Despite a public face that draws clear lines between agencies, insiders like Sieben and Frans have both formal and informal relationships that enable an administration to address issues that often cross administrative boundaries.

“It’s very hard to have a tax bill that’s not touching a lot of other agencies,” Frans said.

This administration is led by a governor who was himself commissioner under Gov. Rudy Perpich for two DEED predecessors — the Department of Economic Development and the Department of Energy and Economic Development. But officials described similar processes for both Democratic Gov. Mark Dayton and his predecessor, Republican Gov. Tim Pawlenty.

“An administration is, by its nature, a team,” said Dan McElroy, who was DEED commissioner under Pawlenty from 2007 to 2010 and commissioner of the Minnesota Department of Finance between 2003 and 2004. “On a workmanlike, day-to-day basis, DEED and the Department of Revenue had to work together — but DEED had to work with a lot of people.”

Bill Blazar

Bill Blazar

These exchanges are often as simple as Frans passing along a business incentive inquiry to Sieben or the DEED commissioner chatting with Revenue about tweaks to the Angel Tax Credit, Frans said.

“We’ve got a fantastic group of commissioners that all interact very well,” she said. “Ultimately, there’s one person in charge — and that’s the governor.”

But they’re also more formal. Deputy commissioners, in particular, have tight relationships across agencies, Sieben said. Communications directors, legislative directors and agency economists have regular meetings scheduled on their calendars. Staff members routinely talk with their counterparts in other offices about specific programs.

“The professional state staff far below the political appointees know how to get stuff done,” said Matt Kramer, DEED commissioner under Pawlenty from 2003 to 2006 and now president of the St. Paul Area Chamber of Commerce.

The inner circle

Across the country, state economic development agencies rarely take a public role in discussion of tax policy, said Lee Munnich, a senior fellow at the University of Minnesota’s Humphrey School of Public Affairs who directs the school’s state and local policy program.

That is partly because governors don’t want agencies running off in different directions or working at cross purposes, said Munnich, who was deputy commissioner between 1985 and 1991 for a DEED predecessor, the Minnesota Department of Trade and Economic Development.

In practice, this means commissioners consult with their counterparts before proposing policy changes publicly — or even among themselves. Dayton’s first question when commissioners make a suggestion that affects another agency is whether they’ve discussed the idea with the other commissioner, Sieben noted. Others echoed this.

“No one would dream of talking about an issue without first talking with the other commissioner,” Frans said.

“If you were doing it right, you’d never surprise another commissioner,” McElroy said in a separate interview.

Publicly highlighting business challenges could also conflict with economic development agencies’ goal of enticing more businesses to the state, Munnich said. Typically, they’ll broach those issues behind closed doors.

“They’re trying to present the most positive aspects of the state,” he said. “They would typically avoid the kind of role that the Chamber of Commerce does, where they talk more broadly about taxes and business environment.”

Yet Blazar said chamber advocacy isn’t a substitute for a commissioner’s efforts: “The commissioner is in the governor’s inner circle. The Minnesota Chamber is not.”

A business champion

Blazar said he’d like to see DEED tackle tax policies that affect businesses in the same way he’s seen Sieben take on issues like worker shortages. He praised her tour of the state this year to discuss the “three pillars key to Minnesota’s future economy” — talent, innovation and trade. Discussions like that about the business climate would lead to a more strategic conversation about growing the economy instead of just discussing specific deals.

“I think it’s great that the information is getting to the governor, that she’s sharing her views,” Blazar said. “But I also think businesses would be much more likely to share their views and view DEED as a champion if they see the commissioner as an advocate.”

The DEED experts counter that taxes aren’t the be-all, end-all of enticing businesses to the state. They’re just as interested in the workforce, education system, transportation network and other factors. Ultimately, the existing system can do the job it’s designed to do, they said.

“Every administration can have a different game plan,” McElroy said. “If the Dayton administration wants to have Katie talk about economic development and Myron talk about taxes, what’s the problem with that?”

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