Will Minnesota's JOBZ be AXED . . . for good?

It was about this time last year that I blogged about Minnesota's economic development golden child--JOBZ--which was on the legislative chopping block last year--largely criticized for the wage requirement attached to tax incentives offered. The JOBZ program, which was implemented in 2004 and offers tax breaks to businesses in designated zones, survived another year. However, after a not-so-great run in 2007, the program is (again) facing possible extinction. Governor Tim Pawlenty now has his fingers crossed that his beloved program will be resuscitated with some hearty revisions in the 2008 legislative session.

While the program's wage requirements are still an issue for some, it seems that mismanagement is another big concern: Just prior to the opening of the 2008 Minnesota legislative session in February, the Office of the Legislative Auditor reported that the "administration of JOBZ needs significant improvement."

The office maintained that:
* "The JOBZ program has not provided much help to certain economically distressed areas in Greater Minnesota."
* "DEEDŐs process for reviewing JOBZ compliance is slow, inefficient, and may fail to identify some businesses that are not meeting their obligations."
* "The program's effectiveness is reduced by the lack of a statewide perspective in the approval of JOBZ deals and the absence of any budgetary constraints."
* "The estimates published by the Department of Employment and Economic Development overstate the impact of the JOBZ program."
* "There are significant problems with the business subsidy agreements signed by local governments."

The office did, however, make note of the fact that the program "has been a useful economic development tool in some cases."

About 120 companies eagerly signed up the first year of JOBZ. However, since then, the number of new projects has fallen an average 26% a year, and that decline accelerated last year, according to an article on the Minnesota Public Radio (MPR) Web site where Minnesota Department of Employment and Economic Development Commissioner Dan McElroy said, "I wouldn't describe the whole [program's] outlook as bleak. But JOBZ needs clarification by the legislature and we're working hard to get that."

In the MPR article, Mankato business consultant Ed Tschida, who works mainly with city and county governments on economic development projects, often involving JOBZ, offered a bleak prognosis for the program. "Certainly all evidence is that it will continue to decline," said Tschida. "I don't see anything turning that around."

Tschida noted a number of reasons for this decline, including that businesses are finding the benefits of the program aren't as beneficial as expected, concern over court challenges of JOBZ ending the program, and that JOBZ requires companies to pay construction wages that are higher than the going rate in the area.

One legislative effort to "claify" the program involves an extension to the number of years companies receive tax breaks. As it stands now, benefits are on a sliding scale. According to JOBZ's 2015 end date, a company signing up this year gets eight years of tax breaks. A business entering the program in 2004 received 12 years of benefits.

Although some legislators are fighting to save the program, others have their sights set on putting an end to it. In fact, the Senate tax bill contains a provision to end JOBZ.

I guess we'll just have to wait a few months to see if Gov. Pawlenty's much-criticized pride and joy gets a makeover, or if JOBZ is finally AXED.

Minnesota JOBZ on the Chopping Block

So, it seems that Minnesota's shining star in the way of economic development programs--JOBZ--is under the gun in the Legislature according to an article in the Star Tribune last week.

The JOBZ program was created with the intent of stimulating economic development in areas of Minnesota that are struggling with job creation by giving companies state tax breaks. Interestingly enough, the senator behind the campaign to end JOBZ, DFLer (Democratic-Farmer-Labor party) Tom Bakk of Cook, MN, was behind the creation of the program in 2003.

According to a few companies who were interviewed in the article in the Star Tribune, one of the main problems with the program is that it requires a certain wage be paid to workers constructing any building using state money. (This requirement is intended to prevent a contractor from using cheap outside labor to undercut the local job market.)

An editorial piece in the Star Tribune ran the next day in defense of the JOBZ program.

So, is JOBZ really worth its weight? For now, that's up to the Legislature to decide.

For the most recent annual JOBZ program report, view the PDF here.