Tax subsidies aimed at specific companies to encourage job creation

Mayo Clinic
The Mayo Clinic, Minnesota's largest private employer, pressed state lawmakers Wednesday, Jan. 30, 2013 to commit more than $500 million toward an ambitious development project tied to the renowned medical center in Rochester, Minn.
AP Photo/Rochester Post-Bulletin, Elizabeth Nida Obert

A jobs and economic development budget bill headed to the Minnesota Senate cuts the unemployment insurance tax for businesses, provides funding for job training and spends taxpayer money to jumpstart business expansion in the state.

It's a big part of a plan at the Capitol this year to foster economic development in Minnesota. Other parts of the strategy provide generous financial incentives to specific companies.

This year's budget bills spend significant amounts of money to land or retain companies in Minnesota. The bills include money to help 3M expand in Maplewood, to pay for the second phase of development at the Mall of America and to help Rochester handle Mayo Clinic's expansion. Additionally, taxpayer funds are being used to encourage Baxter Healthcare to expand in Brooklyn Park and Emerson Technologies to set up shop in Shakopee.

Senate Tax Chair Rod Skoe, DFL-Clearbrook, says he hopes the incentives will help shape the state's future economy.

Rod Skoe
Sen. Rod Skoe, left, D-Clearbrook, pictured on the floor at the State Capitol, Monday, April 29, 2013 in St. Paul, Minn., says he hopes the incentives will help shape the state's future economy.
AP Photo/Jim Mone

"Over the next number of decades, those are going to pay the state back many times over," Skoe said. "You invest in it today, you'll get your payback over time."

The Legislature typically tries to foster economic growth in Minnesota. But this year, lawmakers also have their eyes on a few major companies. It's partly coincidence because the Mayo Clinic, 3M and the Mall of America all approached the state at the same time. But it's also intentional.

Gov. Mark Dayton is a former commissioner of the Department of Employment and Economic Development and has not been shy about using taxpayer money to encourage job creation. Current DEED Commissioner Katie Clark Sieben says Minnesota does not spend as much as other states when it comes to incentives for companies. She said the latest round of taxpayer subsidies will help attract business to Minnesota. She downplayed talk that it could create a rush of companies asking for a handout.

"Ultimately, if we have fantastic companies like Baxter and 3M knocking on the door of Minnesota and saying 'Hey we're interested in expanding here. We're interested in relocating here,' that's a really good problem to have," Sieben said.

The jobs bill also includes $60 million in incentives to convince small, mid-size and large companies to expand in Minnesota and hire Minnesota workers.

Companies sometimes overlook Minnesota's educated and productive workforce, said Rep. Tim Mahoney, DFL- St. Paul, who chairs the House Jobs and Economic Development Committee. He said the slate of incentives will prompt companies to give the state another look.

"They're absolutely picking winners and losers with the tax code. It's really bad tax policy."

"We're well thought of once we get a chance to tell our story. Are we going to win them all? No," Mahoney said. "But once we get a chance to be at the table and that's what these incentives are. It's kind of like playing poker. It's the ante to get into the poker game."

But others say it's counterproductive for Dayton and the DFL-controlled Legislature to give tax breaks to individual companies while raising taxes on existing businesses.

"They're absolutely picking winners and losers with the tax code. It's really bad tax policy."

Sen. Julianne Ortman, R-Chanhassen, former chair of the Senate Tax Committee, said Dayton's administration and the DFL-controlled Legislature should focus less on targeting one or two businesses and focus more on keeping taxes low for all businesses. Ortman also said the DFL plan will have other businesses paying higher taxes so companies like Baxter can expand in Minnesota.

"If a company has lobbying clout, they can come to the Capitol to get special treatment. That makes it harder on every other taxpayer in the state of Minnesota," Ortman said. "Our tax code ends up looking like Swiss cheese instead of predictable tax policy that's simple to understand and is transparent."

It isn't clear whether the incentives in these budget bills will actually convince companies to relocate or expand in Minnesota. If the strategy is successful, it may happen more often in the future.

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