business

A state program that is supposed to promote hiring has faltered in the tough economy, showing a 9 percent drop in jobs created even as participating companies got record subsidies.

The JOBZ program, which once took credit for creating 6,992 jobs since it launched in 2004, reported Thursday that the number had slipped to 6,366 by the end of 2009. It's the first such decline in the program, which gives tax breaks to businesses that hire people in outstate Minnesota.

As job creation stalled, the program's subsidies rose to nearly $34 million, the highest ever. The subsidies include breaks on income, sales, property and other taxes. Tax breaks over six years totaled $144 million to 379 companies, including 77 that were eventually booted from the program for not meeting job goals.

"It is further evidence that economic development subsidies cannot defy gravity," said Greg LeRoy, executive director of Good Jobs First, a nonprofit group that tracks business subsidies in Minnesota and other states. "They are not countercyclical."

LeRoy said government aid to businesses won't make them immune to economic downturns. He said similar trends have been seen in other states that offer business-expansion grants, loans and tax breaks.

"Most of these businesses entered the program before the recession hit," said Bob Isaacson, director of JOBZ and business finance for the state Department of Employment and Economic Development, which issued the annual report on the program.

Isaacson said as a whole, Minnesota manufacturers suffered nearly an 11 percent loss of jobs in 2009, the depth of the recession. The jobs at the 302 surviving JOBZ companies might not exist if those companies hadn't expanded, he added. The lower job count doesn't include any jobs at companies that left the program.

In March, a Star Tribune investigation of Minnesota business subsidies, including JOBZ, revealed that 125 of the 650 job-creation deals by state or local governments from 2004 to 2009 didn't meet hiring commitments. Subsidies to 46 companies produced no jobs at all.

JOBZ, which stands for Job Opportunity Building Zones, offers companies tax breaks through 2015 if they continue to meet job-creation goals. It was a signature rural job-creation program under Gov. Tim Pawlenty, though a 2008 Legislative Audit faulted it for being poorly administered and targeted.

The latest two-page report offered no explanation for the higher subsidies during the recession, or for a 53-cent rise in the average wage to $17.71 per hour. In 2009, JOBZ businesses got nearly $5,400 in tax breaks per job, the second-highest in the program's history.

One of the early success stories of the JOBZ program was Suzlon Rotor Corp., which built a plant in Pipestone, Minn. The India-based wind energy company produced its first giant wind turbine blade in November 2006. Employment soon swelled to nearly 500.

Today, it is one of the program's biggest job losers -- with two large layoffs in the past two years. The plant now has about 30 workers, enough to meet its JOBZ goal of 23 new jobs and remain eligible for a $297,000 reduction in its property tax last year. Other tax breaks, if any, are not public information for individual companies under state law.

Such a low job goal likely would not be approved by state officials today under reforms to the program after the 2008 audit.

"Initially it was a great program to get corporations to come into communities," said Jason Bush of Holland, Minn., who was in the first group of workers hired at the Suzlon factory. "What I don't think was very good is the number of jobs they are required to maintain -- 23 jobs -- seriously, McDonald's employs more than that."

Bush and his wife, Sarah, who also worked at the plant, have been unemployed since the last big layoff in December. They support seven children on unemployment compensation, loans and other assistance.

Both are taking college classes under a dislocated worker program, aiming for degrees in business management for him and nursing for her.

"It's a struggle," said Jason Bush, who hopes eventually to find a job in another company. "I'm going into debt."

David Shaffer • 612-673-7090