Downturn could mean givebacks for JOBZ businesses

Doug Deel once envisioned 25 people making aluminum decks and rails around the clock at his factory in Jackson as homeowners snapped up improvements they wouldn't have to maintain.

It was a vision the state got behind through its Job Opportunity Building Zones program to benefit rural businesses, by cutting Deel a break on property and sales taxes.

Five years later, Deel is hanging onto a dozen employees - mainly to keep those tax breaks.

State officials expect a quarter of the 320 companies with current JOBZ deals will miss job-creation goals as the recession drags on. It's another blow for a program that has weathered political opposition and hard questions about its management and effectiveness.

"I'm just hoping that we actually survive until next year," Deel said. "That's how ugly it is out there. I may be gone in six months because of the downswing here."

As JOBZ businesses struggle to meet their job goals - or just to survive - the Minnesota Department of Employment and Economic Development is asking the Legislature to give them some breathing room.

But JOBZ was the focus of an unflattering legislative auditor's report a year ago, prompting lawmakers to tighten oversight and enforcement of program rules.

Some aren't in the mood to loosen up now, meaning the businesses could lose tax breaks or even be forced to repay some benefits.

"I'd like to make the whole state a JOBZ zone if we could."

"You have to honor what you signed onto," said Senate Taxes Committee Chairman Tom Bakk, DFL-Cook.

Since 2004, JOBZ has offered breaks on everything from property taxes to sales tax on office supplies, vehicles and construction materials. In exchange, businesses in struggling rural areas promised to create new jobs, keep existing jobs or make investments. Most are manufacturers, a sector hit hard by the recession.

Mark Lofthus, DEED's head of business and community development, said some JOBZ projects need more time to make good on their promises, but lawmakers took away his agency's authority to grant extensions. DEED wants that authority back.

"There are some very good projects that we've talked with that are facing layoffs and some downsizing," Lofthus said.

He added: "In some cases, if they can just hang onto their business they'll be successful."

Bakk - who sponsored the 2003 bill that created JOBZ but has soured on the program - said a significant number of companies were missing targets even before the downturn, and he wants to see more evidence that JOBZ is working before granting any leeway.

Republican Gov. Tim Pawlenty has long championed JOBZ, pushing to expand the program and defending it from critics. His administration wants to give businesses the flexibility to stay in the program through hard times, spokesman Brian McClung said.

"I'd like to make the whole state a JOBZ zone if we could," Pawlenty said last week.

The state Department of Revenue estimates total JOBZ tax breaks at $46 million through 2006, the latest year tallied.

Companies that go out of business can be forced to repay two years of tax benefits, which were averaging $75,000 a year before the recession. But some JOBZ businesses expect to weather the downturn without major problems.

That's the story at Tischler Wood Products in Avon, Minn., a family-owned cabinet maker with 20 employees. Sales were down 12 percent last year and the company laid off one worker, but owner Bryan Becker said he expects to remain in good standing with JOBZ through 2009. He said he's still ahead of his job goal.

But Becker said he couldn't rule out more layoffs, and wouldn't avoid them just to stay in JOBZ.

"I'm not going to go bankrupt over keeping the JOBZ," he said.

In Bagley, Minn., Real Stone LLC, a family-owned company that produces stones for landscaping and buildings, has already met an October goal of nine full-time workers. Marketing manager Angela Soderstrom said no layoffs are planned.

"We've been happy with it," Soderstrom said of JOBZ. "I think it's a really good program."

Things haven't gone as well at Last-Deck, where Deel entered JOBZ in 2004 promising to create 25 full-time, $12-an-hour jobs by the end of 2007. Deel said the program encouraged him to set aggressive job goals, while companies that entered JOBZ later were able to set less ambitious targets.

Deel got an extension on his goals in 2006. By March 2008, he downgraded his target to 12 jobs and the state withdrew five years of promised tax breaks - they're now scheduled to end in 2010, a moment Deel dreads.

He estimated the program has saved his business more than $150,000 in taxes since he got into it in 2004.

"We're going to be absolutely killed the day it trips," Deel said. "When we're out of JOBZ, I might as well hand the keys over to someone at the state."

(Copyright 2009 by The Associated Press. All Rights Reserved.)

Gallery

Fullscreen SlidePrevious Slide

1 of 1

Next Slide