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The Economic War Among the States: The Pizza King and the Perils of Bidding

This is a transcript of a story by Minnesota Public Radio's Mark Zdechlich. It aired on public radio's Marketplace April 9.

ITS ALMOST UNHEARD OF today to build a major new factory or expand a corporate headquarters without financial help from state and local governments. Public grants, low-interest loans, tax breaks and land giveaways...all make up the government support that some people call "corporate welfare". Shrewd business owners know they can pit states against each other in a race to provide subsidies for jobs. In the first of three reports this week on the economic war among the states...Minnesota Public Radio's Mark Zdechlik tells the story of Minnesota frozen food giant Jeno Palucci.

At 78, Jeno Paulucci has a long record of business success. He started ChunKing, Jeno's Pizza and now Luigino's...a frozen pasta dinner company. Paulucci's made millions selling food and created hundreds of jobs. He's fiercely independent and a shrewd dealmaker. But critics say Paulucci dangles jobs in front of politicans to seduce them into offering financial incentives.

Tape: "Come on...I have made no promises any place that I haven't kept. And if some politicans get in my way and change the signals on me, I'm a businessman, I'm not going to say oh gee, I'm a nice guy."

In 1982, Paulucci moved more than 12 hundred Jeno's Pizza jobs from Duluth Minnesota to Southeastern Ohio after Ohio gave him a low interest loan. Paulucci started Luigino's, the frozen pasta company, six years ago in Duluth with help from Minnesota taxpayers. But now most Luigino's jobs are in Ohio. Paulucci even moved a production line to Ohio that was partically financed with Minnesota taxpayer's money. So far Ohio has showered the savvy businessman with more than 27 million dollars in low interest loans. Paulucci says Minnesota would have more of his jobs if the state followed Ohio's example.

Paulucci's back with another deal for that just might revive an economic development debacle.

Rewind to the mid 1980's.

SFX: ...rewind

Public officials in Northern Minnesota are panicking. The iron ore mining industry has caved in. One in four workers is unemployed. Scrambling for developement, politicians jump on a proposal to make chopsticks by the millions in mining town of Hibbing Minnesota. The developer, Ian Ward, promises almost 100 jobs but he brings little to the table when it comes to cash and expertise.

Tape: "The plant is designed to produce in excess of five million chopsticks a day. When you consider the Japanese market alone consumes about 130 million sticks a day, it's a very small percentage of the market."

Ward promises machinery designed to stamp out wooden tongue depressors can easily be converted to make chopsticks. But he's wrong. The factory never makes a cent. It becomes a laughing stock and taxpayers lose nearly four million dollars that built and equipped their chopstick factory. The town, filled with unemployed miners is left with an empty building.

SFX: forward

Fast forward to 1996. The Chopstick Factory has a shot at a second life with the King of Frozen Food Jeno Paulucci who says he might put a frozen pasta dinner production line in the building.

SFX: ... Jeno microwave entree cooking

For more than four years, Jeno Paulucci's TALKED about using the idled plant to expand his Luigino's frozen pasta empire. But he says local development officials have made that impossible.

Tape: "With all these delays and fights with officials up there in the state of Minnesota, we expanding our operations in Ohio. As for Hibbing, we'll do something there if we need it."

Jim Gustafson is the Minnesota official who spent years trying to land an agreement with Paulucci."

Tape: "It has not been a pleasant deal."

Gustafson says Paulucci never provided financial information to prove he could repay the taxpayer backed loans he wanted. Talks dragged on for four years. Paulucci attacked Gustafson in newspaper ads accusing him of standing in the way of jobs. Gustafson says Paulucci was trying to pressure him into easing loan guarantees and jeopardizing the public's money.

Tape: "That same kind of pressure is often applied to people in economic development circles. If they are too tough and the company goes elsewhere, and this can happen to a governor or mayor, they are criticized as not being good economic development people. On the other hand there's a lot of cases where public officials have been too free with public money and in the end there is not much to show for it and the chopsticks factory is a good example of that."

The Director of Research at the Federal Reserve Bank of Minneapolis, Arthur Rolnick, says the competition for jobs is so out of control Washington should intervene.

Tape: "If Congress would step in here you wouldn't have these negotiations going on. Mr. Paulucci would make his decisions on the economic fundamentals. No politican would get involved in this. And Mr. Paulucci might be a hero up north here or somewhere in Ohio but somewhere he would be a hero. You just get the politicans out of it."

But Paulucci says financing business is a way for government to help people find work.

Tape: "I think it's a great thing for government to be involved in in areas where unemployment and welfare rolls are loaded with people who are deteriorating in character because they get give aways from welfare. As long as that company you are dealing with is going to create a base of steady employment."

But critics of corporate welfare say the national economy loses when states shower business with money for jobs. They business would still creat jobs if there were no incentives.

Ohio officials defend the millions in loans they've given Paulucci, saying he's created more than two thousand jobs in the most depressed area of their state. They characterize their relationship with the Pasta King as "a good marriage... so far."

As for the deal in Hibbing, Paulucci says he doesn't know what he'll do with the chopstick factory. Under a court settlement, if Paulucci fails to create jobs there within three years, the state will take back the building. Minnesota officials say they've learned from risky deals like those surrounding their chopsticks factory. They say more than ever before, they're demanding guaranteed returns on public investments. There are moves in several states to ensure incentives benefit taxpayers. Some lawmakers say government assistance should be linked to wages. For those who think the solution to bad deals for jobs lies in outlawing public incentives for business, Jeno Paulucci says the competition is by no means limited to the United States.

Tape: In St. Paul this is Mark Zdechlik, for Marketplace.

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