Monday, January 07, 2008 By Aaron Brown
Subsidies spur business growth
Some call program overly secretive
By Mike Jennings, Editor
HIBBING — Mike Stiglich says the tax break his company got to build a manufacturing plant in Nashwauk made a clear-cut difference.
With it, he said, Nashwauk will get a new business with a $1 million building, at least $400,000 in equipment, 10-15 jobs and an anticipated $3 million in sales during its first year. Stiglich said the new company, Midwest Manufacturing and Mechanical, will manufacture sizing screens, chiefly for export to mining concerns in other countries.
Without the Job Opportunity Building Zones (JOBZ) subsidy that Nashwauk officials approved in December, the town would get nothing, Stiglich said.
“It was a huge factor in deciding to go to Nashwauk,” he said.
The venture in Nashwauk will build on the design work done at Engineered Equipment Services in Hibbing, he said. Stiglich said he and Mike Anderson co-own both companies.
Under JOBZ, businesses that create jobs in special zones outside the seven-county area around Minneapolis and St. Paul are exempt from most state and local taxes. Since the program began in 2003, more than 300 companies have received JOBZ status.
The state has released summary information showing that, in 2004 and 2005, businesses with JOBZ status received $18.7 million in state tax breaks. Those businesses reported creating 3,669 jobs over the two years.
But the JOBZ law prohibits disclosure of the subsidies received by specific companies. Because of that, JOBZ, an initiative of Gov. Tim Pawlenty, has drawn fire from competitors of businesses that get the tax breaks. Several business owners have challenged the program in a lawsuit.
Stiglich said figuring out the benefit to his company should be a simple matter: Just multiply the costs of his building, equipment and anticipated sales by the applicable tax rates. All the same, he said, keeping specific subsidies confidential is a good idea.
“I think generally it’s just good public policy that companies’ business is their own,” he said.
Duane Northagen, Hibbing’s community economic development coordinator, agrees that disclosing specific benefits would be bad policy. He said that was proven a decade ago, before JOBZ’s passage, when the legislature forced disclosure of information on other subsidies and applications for those programs dropped sharply.
Businesses “don’t want to be open to that type of discussion, ridicule and abuse,” he said.
Northagen, who helps broker and monitor JOBZ arrangements in the Hibbing area, said JOBZ has in some cases motivated businesses “to actually make that leap from concept to reality.” Still, he said, the program is “not perfect, by any means.”
He said JOBZ was supposed to create a lot of jobs at high wages.
“And I’m continually dealing with, and I suspect most communities are dealing with, wages that are at least within the program guidelines, but they’re not high wages by any means,” he said. “And we’re not normally dealing ... with large businesses.”
Among the five companies awarded JOBZ status so far, Iracore International has probably been the biggest success, Northagen said. He said Iracore accounts for about 40 jobs on its own payroll and in its sister company, Industrial Rubber Applications.
Northagen also voiced frustration with the “inflexibility” of some of JOBZ’s requirements, as applied by the state Department of Employment and Economic Development. He said that may cost Sunrise Gourmet Foods & Gifts, a spinoff of the Sunrise Bakery that specializes in mail and internet orders, its JOBZ status this year, he said.
House Majority Leader Anthony Sertich, DFL-Chisholm, said the legislators’ auditor is preparing a detailed report on JOBZ to address concerns about the program.
“I always had some strong concerns about it,” Sertich said. While it may work in some situations, “it doesn’t really go far enough to solve any of our rural economic development needs,” he said.