Audio JOBZ, one year old, is popular and still controversial (story audio) Photos Map: JOBZ jobs in Minnesota DEED Commissioner Matt Kramer U of M professor Laura Kalambokidis View full slideshow (6 images) More from MPR Measuring state's "bang for its buck" on JOBZ could be difficult, contentious Resources State of Minnesota official JOBZ site JOBZ deals completed to-date (pdf file) Sage Electrochromics Respond to this story Talk about this story in the MPR News Forum Submit a commentary Help us cover this story

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JOBZ, one year old, is popular and still controversial
by Jeff Horwich, Minnesota Public Radio
December 26, 2004

Mike Myser, vice president of sales and marketing for Faribault-based Sage Electrochromics, demonstrates the company's primary product: Windows that change their tint by remote control. Sage was one of more than 100 companies to receive JOBZ tax-free status in the past year. (MPR Photo/Jeff Horwich)

In the past year, the state of Minnesota has given massive tax holidays to more than a hundred businesses. It's not scandalous -- in fact, state and local officials are celebrating. With the start of 2004, Minnesota's Job Opportunity Building Zones went into effect. The so-called "JOBZ" economic development program has increased ten-fold the number of business subsidy deals done by the state. After one year, boosters and skeptics of the program aren't much closer to agreement, but no one can deny the program has been plenty busy.

Faribault, Minn. — Across a pond from Highway 35, on the outskirts of this southern Minnesota town, another JOBZ deal is turning into bricks, mortar -- and lots of windows.

Inside the new building of Sage Electrochromics, workers are getting a large manufacturing floor in order. In a conference room upstairs, Vice President Mike Myser walks to a deeply tinted window to explain why we might all see "electrochromics" in our future.

	Sage CFO Mike Kennedy

"This right here is a skylight, and it has the Sage glass inside," Myser says, "and it works with this, the remote control. We can press this button, and it does take a couple of minutes to get into its completely clear state."

As invisible ions of lithium move from one layer of glass to another, the skylight fades from tinted to clear. It's nifty stuff -- imagine dialing down the window in your den to get rid of glare on your computer. Now imagine all the windows on one side of the IDS Center in Minneapolis darkening in response to the western sun on a summer evening.

That, says Sage chief financial officer Mike Kennedy, is the business potential here. And it could have gone somewhere else.

"I had proposals in-hand for other states in the five-state area to look at," Kennedy says. "There are huge incentives out there. North Dakota was particularly aggressive. But at the end of the day, JOBZ was clearly what helped keep us here."

	Map: JOBZ jobs in Minnesota

Specifically what helped was a promise of 12 years without paying corporate income tax to the state -- or property tax to Faribault and the local school district. Kennedy says moving to this new facility, which will double Sage's payroll to about 60 jobs, looks to save the company about $2 million in taxes during that time. Another JOBZ plot next door will allow for additional tax-free expansion.

In a state generally considered "high-tax," the JOBZ incentive has brought plenty of companies running. And Minnesota officials have been ready to deal.

"When you look at the business subsidy agreements Minnesota does, before JOBZ we were averaging 10, maybe 15 a year," says Matt Kramer, Minnesota's Commissioner of Employment and Economic Development. "Now we're up to 104 in the first year alone of this program -- and that doesn't even include the month of December. We're doing literally seven, eight deals a month."

According to the state, the program created 1,547 new jobs in greater Minnesota, and locked-down another 1,683 that might have left the state. Companies with JOBZ deals plan to spend a combined $270 million on construction and other expenses related to their projects.

	DEED Commissioner Matt Kramer

A computer map analysis by Minnesota Public Radio shows the impact of JOBZ fell heavily in southern and central Minnesota. Albert Lea scored the most deals of any individual town -- seven in all. There is also a notable cluster of deals north and west of St. Cloud.

Commissioner Kramer says the program's popularity bodes well for the economic fortunes of rural Minnesota. And he says JOBZ struck a major blow this year in what he calls the "economic development wars" among the states.

"Probably our biggest win in terms of total number of jobs in one location -- that just staggered a neighboring state -- was in Luverne, Minnesota, right across the border from Sioux Falls" South Dakota, Kramer says. "It was credit card processing company. The Luverne economic development people, they went after that business and drew them from South Dakota over to Luverne. I can also tell you that the North Dakota folks have shared with a lot of our people through the proverbial coffee conversations in Moorhead and East Grand Forks that North Dakota sees this program as a real threat to them."

Skeptics point out big deals and popularity do not equal success. The program's popularity could, in fact, simply deepen the state's economic loss.

"At this point, it's impossible to say if ... any developments that DEED reports under the JOBZ deals are genuinely attributable to this program," says economist Laura Kalambokidis, an expert on economic development at the University of Minnesota. "My main concerns have not been alleviated."

	U of M professor Laura Kalambokidis

Kalambokidis says the more deals the state does, the more tax revenue it gives up -- much of it needlessly. She might raise an eyebrow at Sage Electrochromics, the window company in Faribault. Though the company says it scouted other states for its big expansion, it ultimately moved -- conveniently -- right across the street.

"There are a lot of companies that are receiving JOBZ tax exemptions that just relocated somewhere in Minnesota, and in some cases right within their own city or town," Kalambokidis says. "You don't know what would have happened 'but for' the subsidy. The companies can tell you what they were planning -- perhaps they would say that JOBZ influenced them to add jobs. But based on the information we have, I don't think it's possible to say."

In a state survey this summer, 97 percent of companies receiving JOBZ said their decision to expand or move here was "influenced" by the program. But the critical question is whether it actually made the crucial difference in that decision. Otherwise, the company would be here anyway -- and be paying taxes.

For example, when state officials announced in April that Iowa Turkey Products would move more than 200 jobs from Postville, Iowa to a plant in Marshall, the company's Vice President, Jim Brown, had this to say about JOBZ: "It's a good incentive program and a good chance to bring some jobs back to Marshall. But whether that was a major deciding factor -- I don't really think so."

Brown said what really mattered was that Marshall had a big, empty turkey processing plant perfect for the company's needs. The Iowa Turkey Products JOBZ deal is still being finalized.

Though his office has a theoretical veto, Commissioner Kramer says the state has left JOBZ decisions to local development officials. And he stands by the choices they've made.

"I'm perfectly happy to accept the criticism that some expansion would have happened without this program. Absolutely, it happens every day," Kramer says. "But if JOBZ helps accelerate that development and adds a couple more jobs than the company would otherwise have done, then you know what? Minnesota is stronger because of that."

	Senator Tom Bakk, DFL-Cook

This spring will bring new data both critics and supporters are hungry for. By April, the state will have tax returns from JOBZ recipients showing just how much revenue would otherwise be going to state and local governments. They'll also finish a more comprehensive survey of JOBZ companies.

One area ripe for clarification is how much jobs created under JOBZ actually pay. State figures list the average hourly wage, including benefits, at $11.87 an hour. This would put JOBZ jobs substantially below the average Minnesota wage of $15.25 an hour. State officials say the JOBZ wages are understated because companies have an incentive to low-ball their estimates, giving themselves a cushion to stay in compliance with their contract. Still, there's no sense yet whether JOBZ overall is attracting high-paying or even average-wage jobs.

State Sen. Tom Bakk, DFL-Cook, authored the original JOBZ bill. He is personally disappointed that his home region -- the Arrowhead -- saw very little action from JOBZ during the year.

"I'm surprised that we've seen almost nothing happen," Bakk says. "I really thought that this area was kind of tailor-made."

Bakk can't fix that, but he does plan a bill to tune-up other aspects of JOBZ in the coming legislative session. Among his concerns -- one shared by Commissioner Kramer -- is that JOBZ might have been a little too busy over the past year. More than 40 percent of the first year's JOBZ deals created fewer than five jobs -- deals that might not be worth the state's time and money.

"We need to take a look at some of the thresholds," says Bakk. "A project that adds only a couple of jobs probably isn't something we should consider."

Even that could be a touchy question -- five jobs can mean a lot in a town of 300. Any change to JOBZ this spring is unlikely to be more than a tweak. At the moment, there's little desire to put the brakes on a program going full speed ahead.

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