Legislators, businesses criticize JOBZby Mark Steil, Minnesota Public Radio
DFLers in the Minnesota Legislature are trying to end JOBZ. The JOBZ program is one of the cornerstones of Gov. Pawlenty's economic development efforts. Critics say the tax breaks it provides unfairly subsidize business expansions.
Participation in the program is falling, and even some supporters say the program is flawed. One business in southern Minnesota pulled out of JOBZ because of stringent wage requirements.
Fairmont, Minn. — The JOBZ program, short for Job Opportunity Building Zones, looked like an attractive option to Wayne Kahler when he explored ways to expand his business.
JOBZ companies and investors can apply for breaks on just about every tax the state levies, including sales, income and corporate taxes. Kahler examined JOBZ and reached a surprising conclusion. He found JOBZ actually increased the cost of putting up a new building.
"About 340,000 additional dollars on a $1.6 million project," says Kahler.
Kahler forged ahead without JOBZ. Today his company, Kahler Automation, is in a new building on the west side of Fairmont. Workers are busy assembling a wide range of industrial control equipment.
"What the governor laid out originally as far as the JOBZ program, was positive," says Kahler.
He says his main problem with the program is over something known as the prevailing wage. The prevailing wage is set by the state, and it must be paid to workers constructing any building using state money as part of the funding package. It's designed to prevent a contractor from using cheap outside labor to undercut a local job market.
Kahler says the problem with prevailing wage is that he believes it tends to be based on Twin Cities wages. As a result, he says it's much higher than what workers in the Fairmont area are paid.
"The prevailing wage requirement was going to cost us more than we would save in eight years of tax-free real estate taxes and sales taxes," says Kahler. "So, it didn't take us long to calculate or figure out that we would be better off not to be in the JOBZ program."
Other companies have reached the same conclusion.
Another business in Fairmont also withdrew from JOBZ. Farther north, a company in Alexandria elected not to use the program. In the southern Minnesota town of Janesville, the builders of an ethanol plant looked at JOBZ, then decided against applying because of the prevailing wage requirement.
Dan McElroy, commissioner of the state Department of Employment and Economic Development, concedes the prevailing wage has caused problems. He says that's especially true with projects employing a lot of construction workers.
"That has been more of a concern where new construction is involved, less of a concern where we may be refilling existing buildings," says McElroy.
McElroy says no one knows to what degree prevailing wage is responsible for falling JOBZ participation.
When the program began, Gov. Pawlenty called it the most significant rural economic development initiative in state history. There were about 130 JOBZ projects in 2004, the program's first year. Last year's participation was roughly half that, 67 projects.
McElroy says prevailing wage is one of several factors causing the drop. He says there was pent-up demand for a JOBZ style effort. That may account for the high 2004 numbers.
He also says participation may be falling because JOBZ has a hard ending date, 2015. That means 2004 sign-ups get 11 years of JOBZ benefits. Businesses joining now get eight.
Still, McElroy claims JOBZ is responsible for a great deal of economic activity.
"I believe the current number is about $400 million in investments," says McElroy. "A large number of jobs, and at wages really higher than we had anticipated."
JOBZ faces an uncertain future in the Legislature. Senate DFLers are trying to kill the program. The senator behind the push to end JOBZ is Tom Bakk, DFL-Cook, who was instrumental in creating the program in 2003.
"It is very hard to argue that it is doing what the Legislature thought it was going to do," Bakk said. "It is doing very little for economically distressed parts of the state."
Pawlenty sees the Senate bill as a ploy to give them leverage in trying to convince him to support other initiatives. "They're not going to get rid of the JOBZ program," the Republican governor said Thursday. "It is a shot across my bow. I get it. I am not going to take the bait. If they get into the negotiation session and they say they want 'X' for the JOBZ program, I am going to look them in the eye and tell them to go ahead and eliminate it."
Bakk said he isn't employing a negotiating tactic.
"I intend to get rid of it," he said.
If the program survives, Fairmont business owner Wayne Kahler says some changes should be made. He says the prevailing wage requirement is mostly a good thing. He'd like to see some adjustments though so it reflects differences in local economies.
(The Associated Press contributed to this report)
- Morning Edition, 04/13/2007, 6:49 a.m.