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Tax-free zones clear first vote
by Tom Scheck, Minnesota Public Radio
March 5, 2003

Rep. Doug Magnus, R-Slayton, and Louis Jambois, with the Department of Trade and Economic Development, discuss a bill to create tax-free zones in outstate communities to encourage economic development. (MPR Photo/Tom Scheck)

A bill that would would create up to 10 tax-free zones outside the Twin Cities was approved Wednesday by a Minnesota House committee. Supporters say the bill would attract businesses and boost job growth. Gov. Pawlenty considers the proposal one of his top priorities. Critics say the bill is a form of corporate welfare.

St. Paul, Minn. — The House Jobs, Economic Development Finance Committee approved the tax-free zone bill on a voice vote. One member voted against it.

The bill would allow communities to designate up to 5,000 acres in each zone, which could be divided into subzones. Businesses and residents in the zone would be exempt from several taxes, including income, property and sales taxes for 12 years.

Rep. Doug Magnus, R-Slayton, is the bill's author. He says it would help attract businesses and jobs into greater Minnesota.

I view this as a first step in an economic development plan. We can't continue the way we're going with 20 percent population losses in many counties in this state. - Rep. Doug Magnus

"I view this as a first step in an economic development plan. We have got to make some changes here in this state," says Magnus. "We can't continue the way we're going with 20 percent population losses in many counties in this state."

While nearly all committee members voted in favor of the proposal, some expressed concerns. Several worry that some of the state's struggling communities may not be selected.

Rep. Tony Sertich, DFL-Chisolm, says he's concerned that businesses will move to Minnesota for the tax advantage, but move out after the tax break ends.

"I've seen companies take advantage of our subsidies and our business proposals in the IRRRB (Iron Range Resources and Rehabilitation Board) and then just head out of town," says Sertich. "And they leave us with a building, or just an eyesore, or a lack of developing it further. And that's a cost to the local communities."

Rep. Tim Mahoney, DFL-St. Paul, was the only member to vote against the bill. He says he's concerned that the proposal would cut into cities' and counties' property tax revenues. Mahoney says he's also concerned that the seven-county metro area is left out of the bill. He calls it corporate welfare.

"This is just opening up that can of worms -- that every company is coming back for a larger and larger and larger subsidy. It's kind of like socialistic business," Mahoney says.

This is just opening up that can of worms -- that every company is coming back for a larger and larger and larger subsidy. It's kind of like socialistic business. - Rep. Tim Mahoney

Rep. Bob Gunther, R-Fairmont, says the state needs to do something to make Minnesota more attractive to business. He says the proposal would make Minnesota more competitive with surrounding states that have lower taxes.

"There's an old saying I have used it often -- 'The best government there is is the government that helps me more than my neighbors.' Well, my neighbors have a lot better business subsidy than I have. By presenting this bill we're trying to level the playing field with our neighboring states," Gunther says.

The bill now moves to the House Taxes Committee. Gov. Pawlenty has expressed confidence the bill will become law. He says the state needs to attract and retain businesses, especially in the manufacturing sector.

Testimony in House Economic Development and Tourism Committee showed the severity of the situation. Jay Mousa, research director for the Department of Economic Security, says Minnesota, like most states, is in an economic slump. Mousa says in the current recession, Minnesota has lost almost all of the manufacturing jobs it gained in the 1990s.

"This is the worst manufacturing slump in the state's history. We lost more than 40,000 jobs there," Mousa says.

Several lawmakers say they're also concerned that the governor is proposing to eliminate funding for an organization that helps small- and medium-sized businesses in greater Minnesota.

Minnesota Technology, Inc. received about $11 million from the state in the current budget cycle to help businesses develop new products. The nonprofit says it will close if state funding isn't restored.

Rep. Lynne Osterman, R-New Hope, says Minnesota Technology provides quality research to the state and businesses. She says she's encouraged that Pawlenty is taking an active role in economic development. However, Osterman says she'll lobby her caucus to provide some funding for the agency.

"Are we basically contradicting ourselves to set that goal, and then disavow the brain trust that's there, right in front of our eyes? Because the need to recreate them possibly two years or four years down the road, if they're totally eliminated, will be cost prohibitive," Osterman says.

A spokeswoman for Pawlenty says Minnesota Technology does great work, but that the budget crisis forces some hard decisions.

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