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Cost of doing business: How much does Minnesota spend on subsidizing private companies?

REUTERS/Amr Abdallah Dalsh
From 2005–2013, Minnesota governments (state and local) paid out at least $1.2 billion to private organizations via various subsidy programs.

What do Brau Brothers Brewing Co., Minnesota Rubber and Plastics and Walmart have in common?

They all received subsidies from state or local governments in Minnesota in recent years, along with hundreds of other businesses, according to Good Jobs First, a Washington, D.C. nonprofit that tracks subsidies in an effort to promote government and corporate accountability.

With $250,000 in grants and loans, Marshall helped bring Brau Brothers Brewing into its city limits in 2013 from a nearby town. Minnesota Rubber and Plastics, a manufacturing company, was approved for $200,000 in loans and grants to expand in a facility in Meeker County in 2011. And Mankato agreed to provide Walmart with $5.3 million worth of grants, tax abatements, and contributions to infrastructure in 2005 to support construction of a distribution center for the benefit of the tax base and "creating high-quality job growth,” according to DEED.

These are just three examples of payments made by Minnesota governments to try to entice businesses to start, move or expand. All told, from 2005–2013, Minnesota governments (state and local) paid out at least $1.2 billion to private organizations via various subsidy programs, according to Good Jobs First.

So who got the money? And is it worth it?

What is a subsidy

By textbook definition, government subsidies are direct or indirect payments by governments to organizations or individuals, designed to incentivize some behavior, whether that’s installing solar panels, revitalizing an underdeveloped part of town, training workers or creating jobs. In theory, they provide benefits to both the organization that receives them and the public.

MinnPost looked at subsidies recorded in Good Jobs First’s Subsidy Tracker between 2005 and 2013, the most comprehensive data available.

Good Jobs First obtains subsidy data from government websites as well as public records requests. More recent data isn’t available for Minnesota for a couple reasons: because comprehensive public reporting  lags somewhat behind, and because Minnesota’s Subsidy Tracker data were last updated in 2015.

The Tracker also excludes subsidies whose values were not publicly available, including 213 subsidies that were part of Minnesota’s Job Opportunity Building Zones (JOBZ) program. It also may not include all subsidies authorized by local governments.

Even given those limitations, state and local Minnesota subsidies totaled at least $1.2 billion.

Those subsidies come from a lot of different forms — from tax breaks, to business loans, grants and other forms of assistance and out of a lot of different sources.

By sheer number, the biggest fount of subsidies in the Minnesota Subsidy Tracker data is local governments looking to lure in or bolster businesses. Local subsidies not related to JOBZ numbered 450, and were valued at more than $318 million between 2005 and 2013.

Sources of subsidies in Minnesota
In Subsidy Tracker entries between 2005 and 2013, the most money came from multi-source deals, followed by local subsidies. Note: Dollar amounts for 213 Job Opportunity Building Zone and 32 Special Incumbent Worker Training subsidies in the database were not available.
Source: Subsidy Tracker

Another big source of subsidies was the Minnesota Investment Fund, which funnels state funds into cities, counties, townships and tribes to expand businesses or retain workers in industrial, manufacturing and technology fields. This accounted for $8.1 million in subsidies between 2005 and 2013 in Subsidy Tracker. Companies that received subsidies under this program include Thin Film Technology, Magnum Machining and Ever Cat Fuels.

The St. Paul Strategic Investment Fund, aimed at attracting businesses to St. Paul, accounted for $2.8 million in subsidies in the data. Recipients include Memorial Blood Centers, Gander Mountain and BioMedix.

Minnesota’s Special Incumbent Worker Training Program helps businesses invest in training. It spent at least $847,000 on subsidies from 2005 to 2013, according to Subsidy Tracker. Companies that received training reimbursement include Reviva, Viracon and Deli Express.

The Metropolitan Council’s Fiscal Disparities Program gave tax breaks valued at $250 million to help expand the Mall of America (described below) in this time period, according to Subsidy Tracker. The Fiscal Disparities Pool, which pools a percentage of tax revenues from the seven-county Twin Cities metro area, was created in 1971 in with the goal of to promote smart and equitable growth.

How much do Minnesotans pay

Minnesota and local units of government within its borders spend an average of at least $239 million — or $45 per capita — on subsidies each year, according to a 50-state investigation by the New York Times. That puts Minnesota far behind Alaska ($704 million per year or $991 per capita), but  ahead of Nevada ($33.4 million per year or $12 per capita). Minnesota’s most subsidized industries are agriculture, finance and telecommunications.

Per capita spending on subsidies
A New York Times investigation found Minnesota spent about $45 per capita annually on subsidies.
Source: New York Times

With the exception of South Dakota, all of Minnesota's neighbors spend more per capita on government subsidies than Minnesota does. Wisconsin spends at least $1.53 billion per year, or $268 per capita; Iowa: $233 million or $73 per capita, and North Dakota, $32.9 million or $49 per capita.

The lion’s share of Minnesota government subsidies — 80 percent of the dollars in Subsidy Tracker entries between 2005 and 2013 — went toward a few giant economic development deals, some of which have multiple sources. This type of subsidy is specifically tailored to help businesses expand or relocate in a given spot. The five biggest subsidies in Subsidy Tracker in the 2005 to 2013 timeframe were as follows:

  • Rochester's Destination Medical Center, for which the legislature approved economic development subsidies worth $585 million, contingent on private investment. The Mayo Clinic’s CEO had said the clinic could expand in another state without subsidies to develop Rochester.
  • In 2013, the Legislature approved $250 million in tax breaks for Triple Five Group, the Mall of America’s owner, to assist with a $1.5 billion expansion for the mall.
  • In 2010, Essar Steel Minnesota was approved for $72 million in state grants and loans to build a taconite and steel mine — about $66 million in grants and $6 million in loans. In 2015, a competitor asked the state to force Essar to pay back the money “because it says the project has failed to meet construction and project timelines and other promises,” the Star Tribune reported. Essar Steel Minnesota has since filed for bankruptcy.
  • Otter Tail Ag Enterprises received more than $26 million worth of subsidies from Otter Tail County in 2007, according to Subsidy Tracker. The Fergus Falls ethanol company filed for bankruptcy in 2009 and was acquired by Green Plains Inc. in 2011, according to Bloomberg.
  • Medtronic Inc. sealed a $22.9 million tax increment financing deal with Mounds View in 2005 to help it build a new facility. In 2014, the company announced it would move its headquarters to Ireland because of lower taxes (it still has some of its operations and jobs in Minnesota).

Why isn't the $498 million in state and local subsidies for the Vikings stadium factored in? The bonds for that deal weren’t sold until 2014.

Is it worth it?

Economic development subsidies tend to be popular with public officials, who can trumpet returns on the initial investment in the form of an expanded tax base and the creation of jobs for their districts. And their popularity makes sense from a local perspective — why would a city want to lose out on a major business to a neighboring city — or state?

But experts say if you zoom out, they often create more neutrals and negatives than positives.

Arthur Rolnick, former senior vice president at the Federal Reserve Bank of Minneapolis and a senior fellow at the Humphrey School of Public Affairs criticized subsidies’ tendency to create bidding wars between localities and states.

Complaints of such a competition emerged recently when Greater MSP, an economic development partnership aimed at fostering the Twin Cities' business community, was accused of pitting metro cities against one another for Prime Therapeutics, a pharmacy benefits manager. Greater MSP disputed that was the case.

It’s not just luring new businesses that can present problems: it’s also not uncommon for established businesses to threaten to move to another city or state because of a sweet subsidy deal. When they use this tactic — and they often do — it’s tough to know whether they’re bluffing or not. And sometimes, they do leave for greener pastures.

The Pioneer Press reported this month that Newport-based Diversified Manufacturing Corp. will move 13 miles southeast of its present location to Prescott, Wisc. in June, where the company has been offered free land, a tax increment financing deal and other assistance.

Despite a competing offer from Cottage Grove, where some of its jobs are located, the company opted to cross the border.

“There is nothing that our cities have to offer that is in any way lucrative or can be considered a good incentive program,” the company’s owner told the paper. “Wisconsin and the Dakotas are very aggressive in luring Minnesota companies, and I mean really aggressive. They give you the sun, the moon, Jupiter and parts of Mars.”

Jobs and a larger tax base can be easy to sell from the parochial, local perspective, Rolnick said, but researchers have often found the net effects to be negative.

In many cases, Rolnick said, they fund projects that businesses would have undertaken anyway: In the case of the Mall of America’s expansion, the owner of the mall acknowledged the project could have gone forward without the tax breaks, though — the company said — not at the same level of density.

Furthermore, a 2004 study by University of Iowa regional planning professors found that economic development subsidies didn't seem to create jobs or provide fiscal benefits to states.

“If the state funds locally targeted incentives, the state is merely spending money to move taxpaying firms from one place to another; once again the local fiscal effects cancel out, but now the entire incentive cost is a state loss. And these fiscal losses are not trivial; the cost per job could be massive,” the authors write.

While economists tend to say no — they’re not really worth the money, it’s difficult to get good numbers to do the analysis that would tell us for sure, adding another layer of uncertainty, Philip Mattera, research director of Good Jobs First, said. States vary greatly in how stringently they require companies and subsidy-givers to track the creation of jobs and economic impact, he said, though Minnesota is better than most.

Still, “Even in Minnesota, there’s no comprehensive, centralized reporting,” Mattera said. “There isn’t a single state where there’s comprehensive, central reporting.”

In 1995, the state passed a law requiring the reporting of many state and local subsidies, including job creation and wages. But there is no mechanism for enforcing that requirement, said Shane Delaney, a DEED spokesman.

The state also faced criticism over a lack of transparency in its JOBZ program, which made summary data public, but kept confidential information that would make it possible to determine which businesses got tax breaks and whether or not they were working, the Star Tribune reported.

The Minnesota Legislature replaced JOBZ with a new Job Creation Fund in 2013, under which businesses will receive subsidy money after they show they have met goals.

Even when numbers on the effects of subsidies are available, Mattera said, they’re somewhat squishy: calculations that claim to show the economic impact of a project may not account for other costs to taxpayers, such as increased demand on infrastructure.

“If a big new facility comes to town, you may need to make infrastructure improvements, you might need more fire and police and other kinds of services. If a lot of people move to the town as a result, you might need more schools and other facilities like that,” he said.

Correction: A previous version of this story mischaracterized the recipient of an economic development deal in Rochester. The deal will help develop the Destination Medical Center, which is a public-private partnership of the Mayo Clinic and other developers, as well as the City of Rochester, Olmsted County, and the State of Minnesota.

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Comments (30)

A note to Republicans

A good piece, and a useful reminder that rhetoric about “the free market” is mostly just that—rhetoric. There hasn’t been a “free market” since humans first began to trade goods with one another. The U.S. has had a “mixed” economy – meaning private and public entities and interests have combined to produce products, provide employment, etc. – from the beginning. Even when we were manufacturing-poor in the nation’s early days, trade policies (e.g., tariffs, or the lack thereof) provided a reliable way for government to aid business activity.

The corrosive effects are several, not least of which is the sometimes-bloodthirsty competition between and among communities to secure what’s perceived to be a big employer, retail outlet, or service provider. That’s especially true for communities that genuinely rely on sales and/or property taxes to fund regional or community services. It’s also worth noting that subsidies really cannot be provided without the government – especially local government – playing favorites, which is the antithesis of a “level playing field” in which businesses might compete.

Walmart is often the whipping boy for critics of this system, but it’s generally justifiable criticism. Walmart has used subsidies in a variety of forms to disembowel the economies of small towns and rural regions across the country, to the benefit of Walmart shareholders, and to the detriment of small business owners in those same communities. Sometimes, as a customer, you’re better off with the big player essentially taking over the town economy, but often that’s not the case, and once the big player is in place, it’s difficult or impossible to go back.

It’s only a suspicion on my part, but I suspect that a primary reason why there’s no centralized, reliable reporting of business subsidies in Minnesota, or anywhere, is that businesses, and especially local Chambers of Commerce operatives, would prefer that the public remain in the dark about how much they’re paying out of what is figuratively their back pocket to attract or keep a business for which they’re already paying from their checking accounts, or from more obvious sources of tax dollars. The mention of infrastructure (streets, water, sewer, power) that might need to be added (or more accurately, that a business might want to be added) in order to accommodate the business being subsidized is worthwhile, as that infrastructure constitutes yet another subsidy, and one that usually goes unmentioned in city council meetings.

It may all be necessary to keep the economy going, but it doesn’t fit the typical Republican rhetoric about the benefits of competition, the level playing field for that competition, and especially a “free market” that’s magically regulation-free. If you’re providing $1.2 billion in financial aid to businesses, and you are, it’s only prudent to find out where and how that money is being spent, and to hold both public and private agencies responsible for that spending.

Set up a policy that has lower taxes for

Businesses to come here for everyone and you won't have to set up special deals(doing the same thing) to attract start ups and businesses expanding.... Pretty simple...

Whishful Thinking

I'd like to hear just what level of taxation is low enough for business to say, "That's good, just keep it there and we'll be happy, and never ask to pay less." Of course, that rate is zero percent.

To suggest that if taxes are low enough business will stop playing on city or state against another is so naive as to be laughable. Ain't. Gonna. Happen.

Frank, if you give a business that hires

100 folks who all make over $65,000 a tax break (property or otherwise) do the math on property taxes the employees pay on the houses they buy, state income tax the employees pay, state sales tax the 100 employees pay on things bought tax policies that draw companies to start up here make sense. That same company can start up in South Dakota just as easily. So yes giving those "evil companies" a tax break to start up here in Minnesota makes sense. 0% of 0= 0... 4% to 9% of $6.5M is something.... Pretty simple...

Simplistic math

However, most of these companies are paying nowhere near $65,000 per employee, the costs to the community are higher than the property taxes according to economic analysis at Iowa State, the income taxes are merely a zero-sum game with where they otherwise would have located (also MN?) as are the sales taxes. And, generally just a bribe to the company owners in disguise.

Suppose

I suppose we in MN could stop "bribing" and see what happens? My guess is that it would not bode well for MN.

Free Marketeers

Is that because those red states next to us keep expanding big government by interfering in the market? Walker loves to hand over taxpayer dollars to private industry.

Maybe instead talking about cutting government regulations, Don Trump would do well to start be reducing government budgets by eliminating socialized business hand outs. After all, I've heard that when people get welfare they become dependent on it, and it destroys their desire to pull their own weight as well as their spirit. (Think of those poor Wilfs!)

Question

Now I was against the new stadium, however please remember that the tax payers paid half and the Wilf's /NFL paid half to build a public owned building. We got a great stadium for events, the Vikings (for better or worse) and a lot of national publicity.

So this is typical of most incentives, the tax payers get something and the business gets something. It is a simple negotiation.

What do the tax payers get when people are given welfare? Just curious...

John, the average salary of the employees

at Indiana's Carrier AC plant is $67,500. So again do the math as to what those 700 jobs will do for the state and community.

Hmmm!

How about a NFL or NBA or MLB?
Sorry, didn't get the gist of the comment, so please do the math especially since it is so simple, I'd really like to see it.
Especially the part that, no one else would buy that house and pay taxes on it, and no other company would come to town with out the bribery (tax break)?
Seems, that same company in South Dakota just as easily....could you also show in that math how all states, all different regions have equal labor pools and resources for all different types of companies? I got an "A" in calculus so please don't fear the derivatives!

Address My Point

At what level of taxation would business say, "We'll pay that, and not ask for further reductions"?

Again, the answer is zero. And then they'd ask for subsidies.

Frank, you have the businesses sign a contract..

They sign a contract that they will X for 10 years in property taxes... Amazingly in business you do binding contracts.... Again simple....

Government analysis

Has shown repeatedly that businesses do not move in significant numbers because of taxes, the quality of the labor pool is the major determination.

California has proven this for years, despite talk radio propoganda. They are the fifth largest world economy.

Factors

Well there are many factors involved in where companies settle.

California has a few things we don't... Good ports, good weather, etc. So we in frigid land locked MN may need to offer something to sweeten the pot.

Bribery

If corporations are people, why isn't this bribery? If bribery is bad for governments why can governments get away with this?

Bribery

Bribery: money or favor given or promised in order to influence the judgment or conduct of a person in a position of trust. (ie police, politician, etc)

Apparently it is okay for politicians to give incentives to businesses within the law. Just not the other way around.

What about groups such as

IRRB?
St. Paul Port Authority?
Similar city or county based entities?

We're pikers...

A friend is a regional economic development specialist for the state: the guy who gives the money away. He has indicated that beyond the regional differences noted above, they only get wider when we compete with entities like Southern states who spend less on schools, roads, parks and other civic amenities than we do. This, of course, leaves them with even greater sums available for simple bribery. We are a lot cleaner than most: move here because it is best for your business, not because we have the biggest bribe.

Good or Bad

Thoughts regarding this 60 Minutes Segment? Seems very relevant.

http://www.cbsnews.com/news/60-minutes-preview-mississippi-factory-jobs/

Successful?

Seems like wishful thinking, considering Good Ol' Mississippi is dead last in GDP per capita by state. And, not only dead last by per capita GDP, but per capita GDP also grew more slowly in Mississippi than the average from 2009-2015 (4.4% by year over 2009 vs. 5.3% per year avg), and from 2012-2015 (7.8% by year over 2012 vs. 9.0% per year avg) when most states saw a significant uptick in economic growth after the Great Recession (do the math, if you'd like--Excel makes it pretty easy). It seems likely that, when the 2016 data comes in, Ol' Missip will remain behind. https://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP_per_capita

And, with South Dakota leading the "open for business" charge, followed by Wisconsin, why aren't they doing better than "high tax" Minnesota? Maybe it's because catering to businesses to the detriment of the workers really isn't what builds a healthy economy. It's a good workforce, which ain't cheap, but you get what you pay for.

Mixed Results

As noted elsewhere, Medtronics, St Jude, the Other Medical device companies, Gen Mills, Cargill, 3M, Graco, etc are absolutely great for college educated people like myself... We are doing GREAT in MN as the averages show.

The big question is what has MN done to help all the folks who prefer or are qualified for different work?

I think they would be ecstatic if we could bring in 6,000 assembly jobs compared to another Amazon distribution center. Especially since distribution centers are ripe for continuing automation increases. Unfortunately those jobs seem to keep going elsewhere, which leaves our lower tier workers with low paying service jobs. It seems we could do better by them...

Careful!

Those assembly jobs are typically low paying, 6000 would have to be in a metro area, isn't that why they are in Mexico, low peso's and lots of folks? (Folks need to up their game if they want to up their salary) The suggestion is Pay me like Aaron Rogers but I can only perform like Geno Smith.
Largest private employers:

Mayo 41,892
Target 26,094
Allina 26,000
UofM 25,960
Health Partners 22,500
Fairview 22,000
Wells fargo 20,000
MN Colleges 16,494
United health 15,750
3M 15,000

Do we find it interesting that we need to go down to #10 in order to see manufacturing; suspect the majority of these are probably in Scientific research and development, head to head competition on a global scale.
The world has changed, and folks need to change with the world world, Coal is not our future anymore than rudimentary assembly work.
A thought (This is a generalization): US Steel production moved to Japan, from Japan it moved to Korea, from Korea to Taiwan, from Taiwan to China, from China who knows? Some folks call it the migration of toxic pollution!

Reference

I think you should watch that 60 Minutes report, the jobs/ companies they brought in are pretty impressive. And the jobs are great for many who will not fit into MN's high tech / banking / business economy.

Thoughts

These figures also seem relevant:

Adult literacy in Mississippi: 85%
Adult literacy in Minnesota: 96%

Life expectancy in Mississippi: 75 years
Life expectancy in Minnesota: 81 years

Per capita income in Mississippi: $20,670
Per capita income in Minnesota: $23,198

Percentage of adults with a high school education in Mississippi: 82%
Percentage of adults with a high school education in Minnesota: 92%

Incidence of violent crime per 100,000 people in Mississippi: 279
Incidence of violent crime per 100,000 people in Minnesota: 229

Still short

The vikings stadium is the largest public subsidy for a private company in MN history. And you have to remember that the bonds that are sold for such projects are paid back with interest so the $500 million for that stadium will actually cost closer to a billion. The total subsidy for the Twin and Vikings stadiums is close to $1.5 billion.

There are also direct legislative subsidies tucked into amendments, kind of like earmarks, those are probably not being captured by this methodology.

Then there are indirect subsidies like foods stamps and housing subsidies for working poor who aren't paid living wages. The cost of that is more difficult to calculate but I think it's safe to say that the real subsidy levels in MN are around $3 billion.

Now which if any of these subsidies are appropriate and good policy is a much larger and more complex question, but we should get as close to the real number as we can.

Thoughts

Now I am puzzled, usually when the concept of bonding comes up... Folks like yourself recommend the bigger the better, since the money is so cheap, it invests in MN and it creates jobs. My guess is those bonds have a pretty low interest rate.

Secondly, the other way to think about it is that the State got an incredible Public building for half price.

As for low wages, if the stadium wasn't there those people may have no or worse jobs... Not mention all those good paying jobs during the construction.

And I already mentioned the incredible name recognition MN and the Twin Cities get of it. At $5 million per half minute Super Bowl ad, we may pay for the stadium next year in the free publicity we will get... :-)

Puzzled?

Public bonding at any rate doesn't have to be directed at subsidies for private sports franchises and people like me rarely if ever recommend such bonding. If you want take advantage of low interest rates great, but do it for education or infrastructure, not for out of state billionaires.

Few if any more people work at the new stadium than worked at the old one so we spent a billion dollars to create few if any new jobs. The old dome employed a total of 8 people full time year round. As for construction, those workers could have been building and rebuilding infrastructure all over the state rather than pleasure dome for a privately owned sports franchise.

Free advertising? Dude what part of the stadium costing a billion dollars are you missing? We're not getting anything for free. And that doesn't even include the tens of millions of dollars worth of free stuff the super bowl committee had to promise the NFL in order to win the bid.

The Peoples House

To me it is just another public building... Same as our parks, museums, libraries, prisons, etc... Except that we got a private investor to pay for half of it... Just think of all the concerts, monster truck shows, State tournaments, Final Fours, etc...

We spent ~$600 million, got a new public building, and are receiving hours and hours of glowing national publicity. Besides the construction jobs, on going employment for some folks...

By the way, I was against it and have not been in there yet, and Dayton signed for it. Isn't that humorous... My point is that if we want MN to play with the big boys on the coasts and attract national attention... There is a price to be paid.

People's house?

Funny.

I'm not interested in re-fighting the stadium debate but..

Back in the dome era of the 80's you could make a weak argument, but an argument nevertheless that these stadiums were public infrastructure. The dome was a multi-sport multi purpose (although better for the Vikings than the Twins) year round stadium. It was open during the day for people to run and roller blade around etc, and it was cheap.

By the time you get to these new billion dollar and half billion dollar specialized stadiums and arena's we've replaced the dome with you just can't make any viable public infrastructure claims. They're not even named after public figures like Humphrey anymore, or even the cities. The public "owners" of the Vikings stadium can't even schedule event without permission from the Ziggy Wilf and the Twins Stadium sits there empty (with the light on for some reason) all winter long. The actual "park" that was supposed to be part of the Vikings stadium is still in the drawing board because they haven't raised the money yet and the MPLS Park Board want's nothing to do with it.

Interesting

It looks like they are keeping it busy.
https://www.usbankstadium.com/events