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Is Minnesota’s JOBZ program effective? We need to know more

The Star Tribune reports that the public has no way of knowing whether Minnesota’s JOBZ program is effective at creating jobs in the state’s economically distressed areas. (JOBZ stands for Job Opportunity Building Zones.)

“Unlike most government subsidies, the tax breaks given to companies through JOBZ are confidential,” states the article. “That’s because state law routinely makes tax returns private, and Gov. Tim Pawlenty and legislators chose not to require disclosure as a condition of JOBZ’s breaks when they enacted the program four years ago.”

JOBZ applicants do provide data to the Department of Employment and Economic Development. Although it’s not easy to locate online, DEED reports capital investment and job creation/retention information (PDF); you can also search by city. But JOBZ reports simply track whether projects meet the goals they set, not how much each project cost taxpayers.

Why not?

Lawmakers apparently didn’t think much disclosure was needed, since they didn’t require that the Legislature receive reports. Both parties supported the program, and reasoned highlighting tax breaks to businesses would just invite controversy.

The public hasn’t protested much. The $6 million to $10 million annual cost of JOBZ subsidies is relatively small, compared with the approximately $250 million annual statewide cost of the tax-increment-financing (TIF) economic development program. With costs spread across the state, that may not be enough to attract much attention beyond the affected communities, where public reaction is likely to be positive.

Recipients cite privacy and competitive concerns. And if there are questions about the program, the state legislative auditor does have access to tax data shielded from the public view.

Charlie Quimby
 Charlie Quimby

Still, there are good reasons to disclose the tax breaks.

Access to information about spending increases the public’s trust in government. For that reason alone, tax incentives should be transparent to the broad population of taxpayers. But even more important, government ought to be looking for evidence that enables it to make better decisions.

The JOBZ program illustrates some concrete reasons why the right data matter. Knowing the actual amount of tax benefits to the projects would help agencies, legislators and community development groups judge:

· Strategic impact. While there may be good reasons to target particular areas or populations with public investment, we should also keep the big picture in mind. Does economic development in one place create negative impacts in another? Could greater benefits have been realized if the tax dollars and resources had been directed to other purposes? Without better disclosure, we don’t know the answers.

· Cost-effectiveness. Determining the impact of economic development subsidies is tough enough with good data. Without knowing the tax break amounts, it’s impossible to weigh the cost of lost tax revenues or evaluate whether a project produced a net economic benefit.

Matt Kane
 Matt Kane

· Fairness. Firm-specific tax breaks may be unfair to other businesses that don’t receive the same treatment. Not only do subsidized competitors get an advantage, the taxpaying companies may be helping to pay for it. But is it a significant edge? Who can say?

· Accountability for results. Without information on the cost side, we can’t tell if recipient businesses met objectives that justified public investment. Were the job creation targets set appropriately? Would the same level of development and growth have occurred even without public-sector involvement? What should be the consequences if projects fall short?

· Broad public benefit. Public-sector investment is best directed toward services that yield benefits for people and spur economic growth and development but which the private sector will not adequately provide. Of these, investment in education and infrastructure can yield broad benefits for a region in the long term, even if specific businesses falter, relocate or close. Firm-specific breaks have far narrower impact.

Any state or region can try to attract development with tax concessions and subsidies. But over the long term, a region’s economic advantages will spur development and growth. The public sector can best help foster these advantages through its investment in education and such infrastructure items as roads and transit, airports, water and waste systems, public safety, energy generation and transmission, communications networks, and university-based research and development.

Charlie Quimby is a communication fellow, and Matt Kane is a policy fellow for infrastructure and economic development for Growth & Justice, a think tank that focuses on state economic issues.

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