All people in St. Cloud can do, is wait. Since January, when Federated Department Stores announced it would close down the Minnesota-based catalog company Fingerhut, city, state and union officials have been searching for a new owner. Last week, a Twin Cities investment group headed by Peter Lytle signed a nonbinding letter of intent to buy the company.

	Fingerhut, the Minnesota-based catalog firm, has begun idling its operation pending either a sale or a shutdown of the company. Officials in St. Cloud are working to provide tax incentives for the intended buyer, Peter Lytle of Wayzata. (MPR file photo)

St. Cloud city leaders say the economic health of the community relies on a successful sale of Fingerhut. They've offered up millions of dollars in tax breaks to help seal a deal. They say it's an investment that will pay back several-fold. But some economists say using any public money to help large corporations is risky.

When Federated Department Stores, the parent company of Fingerhut, announced plans to shut down the catalog company last month, it threw St. Cloud into a panic. City leaders promised to do what they could to help any potential buyer purchase the city's biggest employer. With more than 2,600 jobs at stake, city officials also wanted the state to pitch in financial help in the form of subsidies. They saw it as an investment that would help keep St. Cloud's economy afloat.

But Department of Trade and Economic Development Commissioner Rebecca Yanisch says there was little the state could do.

"People first say 'Where are the public subsidies?' But there are other roles (for the state) to play beside just throwing dollars at the problem," says Yanisch.

Instead of financial help, Yanisch says the most important tool Minnesota had to offer was the influence of Gov. Ventura. While Ventura was out of town when the Fingerhut announcement was first released, he did meet with Federated Department Stores officials a week later. Ventura encouraged them to sell the company instead of shutting it down.

Last week, when Peter Lytle announced the signing of a letter of intent with Federated, the investor said a deal would need to proceed without help from the state and little help from St. Cloud.

"There will be some assistance, in terms of perhaps tax rebates and more traditional Tax Increment Financing types of programs," Lytle said. "When you do a transaction like this you have to make an assumption that there will be some of the traditional financing tools available to you, but nothing extraordinary."

	These employees work at Fingerhut's call center in St. Cloud. Officials in that city are extending tax incentives to the potential buyer of Fingerhut, in an effort to save the company's 2,700 jobs. "We have preliminary indications that it's $80 million to $140 million a year to our economy,," says St. Cloud mayor John Ellenbecker. (MPR file photo)

Nothing extraordinary when compared to the size of the deal. Many economists believe it's in the neighborhood of $1 billion.

Here's what the city of St. Cloud is willing to offer Lytle, or whoever takes over Fingerhut - the owner won't pay property taxes for the next 17 years. That's because in 1994, Fingerhut lobbied the state for special legislation setting up a 25-year Tax Increment Financing deal, or TIF, worth nearly $13 million. That's a tax break of $300,000 a year. On top of that, St. Cloud and Stearns County are willing to negotiate further tax abatements that could be worth another $200,000 a year.

That doesn't amount to a lot of money in the world of big business. But one economist says using any amount of public money to help corporations doesn't make sense. Art Rolnick, director of research at the Federal Reserve Bank in Minneapolis, says giving tax breaks to large companies is bad public policy and can hurt a community.

"Because what you end up doing is taking money that would be going for public things - for schools and roads, and you're giving it to selective businesses - not all business but the ones who play the games," says Rolnick.

Rolnick says some companies threaten to move or shut down facilities in order to get financial assistance from a community. St. Cloud officials say that's not the case in the Fingherhut situation. They say it's clear that Fingerhut will shut down if a sale doesn't go through. St. Cloud Mayor John Ellenbecker says the city will offer what it can to keep the retailer in town.

"It is very, very significant for us to keep that Fingerhut payroll here in St. Cloud," Ellenbecker says. "We have preliminary indications that it's $80 million to $140 million a year to our economy, and everyone should understand that is very significant to us."

Ellenbecker says the few hundred thousand dollars the city offers up in tax breaks for Fingerhut is a necessary investment. The payoff of that investment is the increased overall tax revenue from thousands of employees who pay their own property taxes and shop at St. Cloud businesses.

"You may not like it, and it may not seem to you to be entirely appropriate. But nevertheless, if there are some things that can be done to attract that company, or keep that company here, you probably should do them." - SCSU economist Hal Loftgreen, on public subsidies for businesses

Even though the help St. Cloud offers to Fingerhut isn't worth much to the company financially, it's the gesture that counts. It gives St. Cloud the appearance of being friendly to business.

St. Cloud State University Economics professor Hal Loftgreen says that's important in the game of keeping big business in a community. Loftgreen says communities shouldn't have to use economic incentives to draw or retain companies.

"But they do. And since they do, you've got to play the game. You just can't say, 'We're not going to play.' You have to be part of the deal," Loftgreen says. "You may not like it, and it may not seem to you to be entirely appropriate. But nevertheless, if there are some things that can be done to attract that company, or keep that company here, you probably should do them."

Loftgreen says in the case of Fingerhut, the cost of keeping the company in town would be much less than the money the city would need to spend to attract a new business to take its place.

Art Rolnick, at the Federal Reserve, understands that communities are under pressure to provide tax breaks as a part of doing business. Rolnick says if city leaders decide that they want to go ahead and offer help to a company, they'd better be sure it's going to pay off in the long run.

"Otherwise, you get in this difficult dilemma where you have to try to decide whether this is a good investment or not," Rolnick says. "Is this company going to make it? How much should you forgive in taxes? Those are all difficult questions to answer at any point in time, because nobody knows the future for sure."

Rolnick says it's hard to tell if St. Cloud's efforts will pay off. St. Cloud city officials hope that the next owner of Fingerhut uses the tax breaks to build strong, stable company. They want the company to be a good investment for the city.

Offer made for Fingerhut