Participation in JOBZ declines

JOBZ is the centerpiece of Gov. Tim Pawlenty's rural economic development program. Businesses adding jobs in certain areas get big breaks on corporate, income, sales and other taxes. In JOBZ's first three years, the tax reductions totaled nearly $46 million.

With incentives like that, JOBZ got off to a fast start. About 120 companies signed up the first year, 2004.

Since then, the number of new projects has fallen an average 26 percent a year. That decline accelerated last year.

"I wouldn't describe the whole outlook as bleak," said Dan McElroy, commissioner of the Minnesota Department of Employment and Economic Development, who oversees the program. "But JOBZ needs clarification by the Legislature, and we're working hard to get that."

But right now there's a battle in the Legislature over whether JOBZ will be clarified or canceled.

One legislative effort to prop up the program would extend the number of years companies receive tax breaks. Currently, JOBZ benefits are on a sliding scale. Based on JOBZ's 2015 end date, a company signing up this year gets eight years of tax breaks. A business entering the program in 2004 received 12 years of benefits.

While some legislators work to revive JOBZ, others want to stop the program. The Senate tax bill contains a provision to end JOBZ.

McElroy said some companies are waiting to see what happens in the Legislature before they commit to the program. He said that's part of the reason for a slow 2008. There have been just two JOBZ signups so far this year, compared to 17 in the same period last year.

"All evidence is that it will continue to decline."

"I'm a little surprised. I hadn't realized it was only two so far," said McElroy. "There are probably 10 more that I know that are in process. But it is not as robust as it would have been in 2006."

The slowdown in JOBZ is something Mankato business consultant Ed Tschida has seen first hand. He works mainly with city and county governments on economic development projects, often involving JOBZ.

"Certainly, all evidence is that it will continue to decline," said Tschida. "I don't see anything turning that around."

Tschida said companies are shying away from the Pawlenty centerpiece for a number of reasons.

Some businesses calculate the benefits aren't as rich as expected. Some are concerned that court challenges of JOBZ may prove successful and end the program. Tschida said others complain JOBZ requires them to pay construction wages that are higher than the going rate in the area.

"Having to pay several hundred thousand, or even millions of dollars more, up front was not worth the potential benefit of staying in the program," said Tschida.

Officials with Bedford Technology in Worthington decided against JOBZ for an expansion project when they learned the wage requirement would increase their labor costs 10 percent.

Another southwest Minnesota company figured the so-called prevailing wage obligation would increase costs nearly 25 percent.

Mankato consultant Ed Tschida said the JOBZ requirements caught some companies by surprise, and their difficulties have slowed participation in the program.

"Businesses that maybe would have rushed into the program a little bit in the past, have found out the program wasn't a good fit. I think maybe we steer some of these businesses away that aren't good fits," said Tschida. "And the cumulative effect of that, I think, has been to see a slowdown in the use of the program."

JOBZ took another blow earlier this year when a Legislative Auditor's report called the program "unfocused." The audit found "significant problems" in administering JOBZ, particularly with the business subsidy agreements. The report said those agreements too often lacked adequate job and wage requirements.

As with other JOBZ problems, the Legislative Auditor said it's up to the Legislature to fix the program.

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