*Disclaimer: The information
contained in this case study is to be used only as a case study example for
teaching purposes. The information
in the case study is both factual and fictional. Opinions formulated by the author are
intended to stimulate class discussion.
Suggested readings prior to
reading the case study:
http://www.dted.state.mn.us/PDFs/jobzFAQs.pdf
http://www.dted.state.mn.us/PDFs/jobz.pdf
http://www.dted.state.mn.us/PDFs/jobzBro.pdf
The
case study and the above listed documents will be handed out before my class
presentation so that you can all save on paper and printing
costs.
Beginning on
Prior to the official start
of the JOBZ program, Minnesota Governor Tim Pawlenty touted the program as “most
significant economic development initiative in state history”. In another statement Governor Pawlenty
had this to say, “Parts of Greater Minnesota have experienced economic hardship
and they need help. Today, we’re here to give it to them”. The interesting part about this
statement is that it followed huge reductions in the Local Government Aid (LGA)
to these exact same rural communities forcing emergency budget cuts at the local
level.
In many people’s opinions,
Governor Pawlenty’s reduction of the LGA to cities created much of the “economic
hardship” that he intended to help with the implementation of the JOBZ
program. Some where noted as
stating that Pawlenty somewhat created part of the need for his JOBZ program
with these cuts.
Governor Pawlenty, faced
with the massive budget shortfall in early 2003, had to come up with ideas to
trim the state budget. The Local
Government Aid cuts and other cuts hit the heart of many greater Minnesota
Communities (both City and County).
As a local reaction, cuts had to be made to make up for the LGA loss to
ensure that essential services would not suffer as the result. In many instances, economic development
programs suffered because they were not seen as “essential” as street repairs or
sewer and water service. This
further eroded the ability of greater
The Pawlenty Administration looked at ways to provide economic development incentives to these communities. Since LGA had already been cut, it was obvious they could not provide incentive programs such as extra grants through DEED because they did not have excess money to put towards this purpose. They needed a way to offer attractive incentives at the local level without directly spending money. The result was the JOBZ program, a prime example of a Tax Expenditure Program.
According to informational
materials published by the Department of Employment and Economic Development
(see the attachments to this case study), 10 JOBZ areas were created by DEED
effective January 1, 2004 throughout Greater Minnesota and are scheduled to last
12 years. Also, according to JOBZ
program information, industrial and commercially zoned land and industrial and
commercial businesses qualify for the tax exemptions. One note specifically made is that
retail establishments are not prohibited, but are strongly discouraged for JOBZ
approval. During the early
legislative session of 2004, bills were proposed to specifically prohibit retail
establishments from participating.
Greater Minnesota cities,
counties, and townships throughout the late summer and fall of 2003 put together
applications for specific sub-zone areas (jointly with other cities, counties
and regional development commissions) to show what land they specifically wanted
to include in the JOBZ program.
Each sub-zone area, usually a city, had to provide specific information
in the application process about the specific areas of land to include in the
program. This meant providing
detailed maps of the land showing that utilities were at or near the site. The other criterion noted on the
attached information was not specifically asked to be proven for each sub-zone
area.
The lack of each city having
to prove it’s economic hardship made it easy for all cities to apply for the
JOBZ program even without solid proof for the need to be included in the
program. This led to squabbling
between the larger more prosperous greater Minnesota cities and the smaller less
viable ones. Certain cities were
actually asked to not participate in the program because they were seen as a
potential risk to the cities that felt they were more worthy of program
designation.
Eventually, cities initially
cast off as being much too prosperous joined together for their own application,
along with some other smaller cities that were initially seen as being worthy of
the JOBZ program. This obviously
caused controversy among cities and politicians. In the end, ten JOBZ areas were
established, meaning that some of the previously alienated cities had been
included in the program much to the dismay of some politicians and other
cities.
Two cities, one that was
always deemed worthy of applying for the program and one not initially deemed
worthy of the program are profiled below.
City
A:
2002 Population
(estimate):
Approximately 2,500
people
Perception to include in the
JOBZ Program:
No controversy, welcomed to
apply by the local group.
Undeveloped, not within city
limits, utilities supplied to adjacent industrial company, easy connection to
adjacent utilities. Access to railroad and state highway.
Amended
Undeveloped, not within city
limits, utilities not within 2 miles, connection to utilities requires new well
to be drilled. Access to railroad
and state highway.
Current
Status:
The initial land proposed to
be included in the JOBZ program as a subzone was approved as a part of a larger
multi-county application. Prior to the designation of the land for the JOBZ
program, negotiations had begun with a large corporation to relocate to the JOBZ
site chosen by the city and county.
Upon further investigation
by the company, the site chosen for the JOBZ program was not suitable for
various reasons and the company chose an alternate site further away from the
city that was not a part of the approved JOBZ program. Because JOBZ legislation permitted
“moving” acreage from one part of a JOBZ area to another, the city and county
petitioned DEED to modify the location of the program land to suit the needs of
the company.
Keeping in mind the original
stipulations that utilities needed to be in close proximity to or plans needed
to be in place for utilities to any JOBZ subzone, the new site did not exactly
fit the criteria because it was almost 1.5 miles further away from utilities
than the originally designated site.
The other item not taken into account as maybe it should have was the
fact that the costs to the city, state, and county all increased dramatically
with the new site further from the city.
Utility costs increased greatly, grant funds requested therefore
increased, and the county was asked to make various road upgrades currently in
place in the original site.
The modified subzone site
was approved and the approval process for the company to locate there are
currently under way (not complete) although reports from the Governors Office
have stated that it is a done deal (not exactly true). The $67 million dollar project will save
$1 million dollars in local taxes by locating within the JOBZ program
subzone. This is indeed a large
subsidy for such a small community to be giving, but the returns are expected to
be $300 million a year in local spending by the company.
City B:
2002 Population
(estimate):
Approximately 10,000
people
Perception to include in the
JOBZ Program:
Controversy, not welcomed by
local group applying for the JOBZ program, had to apply with the alternate group
of “cast-offs”.
Fully developed site, two
empty buildings formerly occupied by a large corporation. Ready for immediate move in. Close access to major state
highway.
Amended
Site never
amended.
Current Status:
As a part of the group of
“cast offs” from other JOBZ applications that deemed the cities too prosperous
to participate, the subzone for the city was approved. The site contained two empty buildings
of approximately 47,000 square feet each.
Some participants of “rival” applications were not pleased to see the
site approved for the program.
Despite the controversy, an
expansion of an existing company located one of the two buildings within the
JOBZ subzone. Prior to being
designated as a subzone, the city had been negotiating with the company to
locate in the building if the site became a part of the JOBZ program. Without the program the company would
not have been able to expand, especially within the city.
Based on the background
information given about the JOBZ program in this case study and the attachments
as well as the specific information contained in the details of City A and City
B, provide your thoughts on the following questions.