Some call it “economic development,” while others view it as “corporate welfare.” Whichever term you prefer, the tax bill passed by the 2013 Minnesota Legislature was laced with special tax breaks for selected businesses.
The biggest tax breaks, and the ones that received the greatest public attention, were massive tax subsidies to aid in the expansion of Mayo Clinic in Rochester and the Mall of America in Bloomington. But they were not alone.
All of this led to some grumbling within the business community. Writing in the Star Tribune last week, Minnesota Chamber of Commerce President David Olson asked, “Why do we have to pick winners and losers in tax reform by raising taxes on all businesses to provide tax exemptions or tax benefits for a few select companies?”
The biggest winner, without question, was Mayo Clinic. The tax bill commits the state to providing up to $327 million from the state treasury for public infrastructure and amenities to help Mayo create its “Destination Medical Center.” As part of the deal, the state also will contribute to a $116 million fund for public transit, and the city and county will chip in $128 million to the project.
Mayo has pledged to spend $3.5 billion expanding and modernizing its Rochester campus, enhancing its ability to attract patients from around the world and employing 33,400 people. No state dollars will be provided until Mayo spends $200 million.
The other recipients of state government largesse include:
- The Mall of America, which will receive up to $250 million in aid over the next two decades from the metro fiscal disparities tax pool. It will help pay for roads, utilities and parking facilities as part of an expansion that could more than double the size of the existing 4.2 million-square-foot retail and entertainment venue. Details of the expansion have yet to be provided.
3M, which will receive aid through a special tax increment financing (TIF) district that will help build a $150 million research and development building at its Maplewood headquarters. The TIF district will divert property taxes that otherwise would go to the city, county and school district. In addition, 3M will receive a sales tax exemption on building materials that will cost the state $3.9 million.
Baxter International Inc., an Illinois biotechnology and pharmaceutical firm, which will receive a sales tax exemption for building materials needed to renovate a vacant manufacturing facility in Brooklyn Park. The tax exemption will save the company $940,000.
Emerson Electronics, a St. Louis-based manufacturing firm that will receive an $815,000 sales tax break to help renovate a vacant building in Shakopee.
In several cases, these state tax breaks are in addition to other state grants, loans and local tax breaks that also are being provided to these multi-billion-dollar private enterprises.
The Citizens League strongly opposed the raid on the metro fiscal disparities pool by the MOA and the city of Bloomington. Proponents of the measure said it is justified because Bloomington is the largest contributor to the regional tax-base sharing pool, which was created in 1971 to reduce the tax disparities between rich and poor communities in the metro area.
“That’s is a lot like [billionaire investor] Warren Buffett saying he deserves a rebate because he pays a lot of taxes, ignoring the fact that he makes a lot of money,” said Sean Kershaw, executive director of the Citizens League.
Apart of the league, there weren’t a lot of organizations opposing the corporate tax breaks this session. Indeed, the Minnesota Chamber of Commerce was among the groups supporting the Mayo deal, saying it has the potential to be an economic “game-changer.”
After the legislative session, Dane Smith, president of the left-leaning group Growth & Justice, said, “Economists left and right and in between are generally dismissive, if not scornful, of tax breaks and subsidies for specific projects. That said, the Mayo and MOA projects probably are a whole lot more beneficial for the state’s general economic health than all the professional sports stadia we’ve been building in recent years.”
But Smith said “this money probably would have been better invested” if it had gone for a broader capital investment package, for higher education investment, research and tuition reduction, or for workforce training.
Arthur Rolnick, an economist and retired senior vice president of the Federal Reserve Bank of Minneapolis, has long been a critic of government tax breaks for specific businesses – ranging with the $800-million Northwest Airlines aid package in the early 1990s to the more recent sports facilities for the Twins and Vikings.
Rolnick doesn’t see any greater justification for the state subsidizing the expansion of Mayo Clinic, much less the other projects that received help this year.
“Like the Vikings, they [Mayo executives] were threatening to go somewhere else,” Rolnick said. “That’s the bidding war game that the sports teams and lots of other companies play. My criticism is not of the CEOs – they are simply trying to get the best return for their investors’ money. My criticism is of Congress because it could end this bidding war.”
Rolnick believes such funding requests should encounter bipartisan opposition. “Democrats should be upset because this is welfare for the rich. Republicans should be upset because this is government picking winners and losers.”
Last December, The New York Times published an investigative series in which it estimated that corporations extract more than $80 billion in subsidies from U.S. states, cities and counties every year.
The Times estimated that Minnesota was spending $239 million a year on business incentives, or $45 per capita. However, that’s a pittance, according to The Times. Texas leads the nation, providing $19 billion a year in corporate tax breaks and incentives.
“The cost of the awards is certainly far higher,” the newspaper said. “A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards.”
The incentives don’t always guarantee that the businesses receiving them will stay put. The Minnesota landscape is littered with vacant or underutilized buildings where businesses once received state or local subsidies to create jobs that no longer exist.
Examples that quickly come to mind: the Northwest Airlines overhaul base in Duluth, “Block E” in downtown Minneapolis, the “World Trade Center” and the Macy’s store in downtown St. Paul, and the State Farm Insurance building in Woodbury.
Very often, Rolnick said, state and local governments are asked to provide money “for at-risk projects that the market wouldn’t do on its own. There are so many of these that don’t pan out.”
Sometimes states and cities are fortunate enough to lose the bidding war. In 1985, Minnesota was among 28 states that entered the competition for a new General Motors plant to build Saturns. Led by Gov. Rudy Perpich, Minnesota put together a package of 30-year tax breaks and other incentives totaling a whopping $1.2 billion.
Tennessee ultimately won the bidding for the plant, which operated for just 17 years before GM ended the production of Saturns in 2007. GM has since reopened the plant for the production of some Chevrolet vehicles and engines.