*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:
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.
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.
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.
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.
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.
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.
Site never amended.
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.