By Dan Linehan
MANKATO — Employers in Blue Earth and Nicollet counties have created 44 more jobs than required under the JOBZ program, according to interviews and formal reports filed this month.
The nine companies in both counties receiving JOBZ tax breaks appear to have met or exceeded their job creation requirements months or years ahead of their deadlines.
About 91 jobs in Blue Earth County and 51 in Nicollet County have been created by companies that began or expanded using JOBZ benefits.
Companies using JOBZ to expand don’t have to pay income taxes, sales taxes or property taxes on new growth, and startups don’t pay those taxes on their entire operation. The program was created in 2004 by Gov. Tim Pawlenty’s administration as a way to create jobs in rural Minnesota.
But while the benefits of the program are clear, the costs aren’t.
The state government loses corporate and sales taxes. Counties, cities, school district and regional government don’t get property taxes on all those factories, processing plants and warehouses until 2016.
The Center for Rural Policy and Development in St. Peter analyzed the benefits of JOBZ in a December report, and President Jack Geller said the state is often more forthright about the program’s benefits than its costs.
The problem is that it takes time, sometimes years, for the state to compile tax reports. And it can be difficult to navigate county tax systems to determine how much property taxes were forgone.
Ed Tschida, a consultant who works on JOBZ projects in Blue Earth County, adds that the program also exempts income tax on all investments in JOBZ projects. That makes it even tougher to evaluate the program’s costs.
But that doesn’t mean the costs of JOBZ can’t be somewhat examined as companies and elected officials continue to report their happiness with the program.
Subsidies vary
There is one way to get a very rough estimate of how much subsidy a company will receive over the life of its JOBZ involvement. When they applied, companies estimated how much money they would save using JOBZ.
It’s necessarily imperfect because any estimate of subsidies relies on estimating the unknowable: How will any given company perform over the next 10 years? If anyone could reliably guess that, they’d likely be making money on Wall Street, not in south-central Minnesota.
But it’s also clear some companies will benefit more from JOBZ because there’s no limit on how much a company can benefit compared to how many jobs it creates. Everyone gets the same tax benefits but can create more or fewer jobs.
According to a study by the Center for Rural Policy and Development, about half of JOBZ projects result in five or fewer new jobs.
Industrial Fabrication Services, for example, is a Lake Crystal company that creates metal components for processing plants that was accepted last year into the JOBZ program. It has two years to create two jobs, but owner Ken Wilmes says he’s hired five extra employees and hopes to add five more in coming months.
Under one scenario, IFS would save $431,100 over 11 years. If Wilmes sticks with his five extra workers, that’s a tax savings (to the company) of $86,220 per job. If he adds 10 workers as he hopes, it’s $43,100 per job.
As Geller explains, businesses like these depend on worker productivity; IFS can only earn so much money because its workers can only produce so many goods.
But then take the case of MJ Biologics, which created a vaccine for the swine disease PRRS. The National Pork Board estimates that this disease costs U.S. pork producers at least $600 million per year.
So the outlook for a company like this could be much brighter.
According to estimates provided by MJ Biologics when it applied for JOBZ, it could save $3.9 million in total taxes over the life of the program. If it hires five people as promised, that amounts to an $800,000 subsidy per job.
Bill Marx, a managing partner with the Mankato company, said that estimate is unrealistic.
He has no idea what MJ Biologics will save using JOBZ. So far, it hasn’t been much at all because the company hasn’t made a profit and leases city-owned office space.
Praise all around
Recent reports on JOBZ have St. Peter Community Development Director Russ Wille praising the program for the more than 50 full-time jobs it’s created in his city.
He says the perception of “lost” tax money is incorrect.
The city doesn’t automatically collect “extra” taxes on new growth. The City Council decides how much money to levy, and that amount is spread around on all properties.
“Those are tax dollars that wouldn’t have existed anyway,” he said. “We’re very, very pleased with how JOBZ has worked in St. Peter.”
IFS owner Wilmes said it’s too early to tell for sure whether or not JOBZ will work well or not. But, he added, “I’m thinking it’s going to pan out and be worthwhile.”
MJ Biologics managing partner Marx said JOBZ has been “a very positive experience” and praised the city of Mankato for its help in implementing it.
Another look at JOBZ?
Now that JOBZ is about 2 years old — the length of time given to companies to produce jobs — it may be time to take another look at the program.
Geller said the program has never been universally praised in the Legislature.
The Senate’s omnibus tax bill includes a provision that would prohibit any new JOBZ projects. But the House version doesn’t have such a provision, and it’s unclear if such a bill could make it past Pawlenty’s desk.
“I think it’s worthwhile to know what this is costing the state,” said Tschida, who added that he neither supports nor opposes the program.
