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GOP budget squeezes economic development

Rep. Pat Garofalo, R-Farmington, chair of the House Job Growth and Energy Affordability Policy and Finance Committee, calls the lack of affordable workforce housing a “crisis issue” in some communities. (File photo: Bill Klotz)

Rep. Pat Garofalo, R-Farmington, chair of the House Job Growth and Energy Affordability Policy and Finance Committee, calls the lack of affordable workforce housing a “crisis issue” in some communities. (File photo: Bill Klotz)

There’s no such thing as a free market. Not in the marketplace of ideas, anyway.

Some companies, and some ideas, get advantages and become more likely to succeed than their less fortunate competitors.

In the recent past, the thought that states must be involved in the economic development field has grown to a widely held belief, as nearly every state sees itself competing against others to become the most “business-friendly.” Democrats and Republicans alike have designed tax carve-outs, write-offs and, in many cases, direct economic stimulus to encourage small, startup or reluctant businesses.

The popularity of that type of legislation could be put to the test this year. In setting their budget targets, House Republicans sketched out total spending for “jobs and economic development” at $330 million, $102 million less than the corresponding amount in the current budget.

The GOP figure is 20 percent less than Gov. Mark Dayton and the Democrats agreed to in 2013. By percentage, only the Department of Transportation — with a $133 million target, down from $277 million — would receive a bigger cut in the Republican budget.

House Ways and Means Committee chair Rep. Jim Knoblach, R-St. Cloud, explained the decrease as a mixture of the practical and philosophical. The previous budget was loaded with a number of one-time expenditures which had not been built into the base. Besides, Knoblach continued, government should not be in the business of creating jobs.

The picture for development advocates is no brighter when the DFL governor’s own budget is held up for comparison. With a total of $1.9 billion in projected surplus to work with, Dayton would allocate $30 million for broadband Internet expansion grants and $10 million for “workforce housing” initiatives.

Both proposals are atop the wish list for Greater Minnesota and its rural communities, but neither line-item figure approaches the amount those groups have lobbied for. Dayton’s own press packet indicates the housing outlay, which would be administered by the Minnesota Housing Finance Authority (MHFA), would cover only “about 10 percent of the state’s workforce housing needs.”

It’s all a bit disappointing for the previous two chairmen of economic development committees in the House. Rep. Tim Mahoney, DFL-South St. Paul, said previous experience had led him to expect Republicans to shrink that budget. He noted that the target figure is not only lower than the Democrats’ package in 2013, but also removes roughly $20 million from the starting base for the 2016-17 budget.

“That’s what the Republican caucus has always done,” Mahoney said. “They don’t believe government should have any business trying to help the economy grow.”

Mahoney said a similar stingy approach was taken under Rep. Bob Gunther, R-Fairmont, the committee leader in 2011. But even Gunther, who commented that the Democratic majorities had been “very generous” to economic development two years ago, hopes more money can be found to address critical needs and pay for novel new bill proposals.

“There are a lot of good ideas out there,” Gunther said. “There are a lot of great workforce development programs — more so than I’ve seen in a long time.”

The apparent paucity of available funds has left both House members in a strange mindset: rooting for the Senate, where both predicted that the DFL majority would hit a substantially larger target number than the House.

“I’m certainly hopeful some of that economic development comes out of the Senate,” Mahoney said.

Said Gunther: “The Senate’s a very creative bunch of people. They do bring in more money than [House Republicans] had, under our rules.”

Rep. Pat Garofalo, R-Farmington, chair of the House Job Growth and Energy Affordability Policy and Finance Committee, said both of his predecessors’ fear is misplaced. The committee budget target encompasses a number of state agencies and programs aside from the Department of Employment and Economic Development (DEED), such as the Department of Labor and Industry and the Public Utilities Commission.

“All of these things are contained within the job committee target,” Garofalo said, “We may very well end up spending more on economic development, or spending more on other areas.”

Garofalo called the lack of affordable workforce housing a “crisis issue” in some communities and said a properly structured system could pay for itself by adding well-paid new residents — who would, in turn, raise the demand for local business and services — to areas with flagging tax bases. Garofalo said he likes a proposal from Rep. Rod Hamilton, R-Mountain Lake, to create a workforce housing tax credit, which would make $40 million available to encourage housing construction in Greater Minnesota.

Tax increment financing is “absolutely a tool in the toolbox,” Garofalo said, though he said it might not solve the whole problem.

The committee chair seems far less interested in broadband Internet grants. Installing underground fiber-based systems is “very costly,” and misses the current trend toward satellite and wireless Internet.

“We are spending money in an area that’s going to be, technically, obsolete in a couple of years,” Garofalo said. “We shouldn’t be investing in candlesticks when we can buy light bulbs.”

Garofalo also said the state would be engaging in economic development by cutting taxes on its businesses, a position echoed by the Minnesota Chamber of Commerce. Beth Kadoun, the tax and development lobbyist for that organization, said they recognize the need for some “targeted and limited” incentives to spur growth, especially in attracting out-of-state businesses to relocate.

But those kinds of programs are rarely mentioned in member feedback, according to Kadoun, who said the Republicans’ $2 billion target for tax cuts would “have a much greater economic impact than any of those smaller economic development programs.”

Mahoney stuck up for the value, especially on a dollar-by-dollar basis, of minor development schemes already in place. The nine “small business development centers” funded in the DFL budget had provided assistance to 90-some small businesses over the past two years, he said, “a pretty good return” on an investment of around $500,000.

Already, DEED staff are preparing contingency plans for some development mechanisms in case the agency receives a cut in the next budget, Mahoney said.

Gunther, meanwhile, is committed to a more optimistic outlook. He recalled a previous tenure as committee chair when then-Gov. Tim Pawlenty proposed a $10 million cut to the state’s Centers for Independent Living, which assist people with disabilities. Gunther started “sweeping the floor” for unspent money or funds that had accumulated and were not used, and came up with nearly the same amount; ultimately, a federal aid program came to the rescue.

This year, untapped funds are easy enough to find in the GOP plan, which left $319 on the bottom line, with Knoblach explaining that the caucus would determine that money’s fate in the coming month.

“You don’t throw up your hands and cry, ‘woe is me,’” Gunther said. “You look around at those programs that were overfunded in the past … something accumulating money and being underspent. And if you don’t find enough of it, you go back to the ways and means committee and lobby for more.”

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