Determined to keep employers expanding in Minnesota, not elsewhere, the state has promised more than $25 million to companies over the past two years.
Trying to make employers more accountable and simplify the economic development process, the state came up with the Minnesota Job Creation Fund (JCF) in 2014. It replaced the “JOBZ” program, which relied on tax exemptions and credits, with an offer of up to $2 million in grants that employers receive after they have fulfilled their promise of both capital spending and job creation. Once those jobs are retained for a year, the money is released.
In its first year, the JCF promised $9 million to 14 companies. In 2015, that more than doubled to $18.6 million to 42 companies. Last year, the companies in the program committed to spending $388.5 million on factory expansions and hiring 2,605 Minnesotans at wages above $12.50 an hour.
While it is too soon to see how many companies actually receive the money — only $2 million has so far been paid out — one state official already is calling it a success.
“It is a pay-for-performance program, and that is why it really works,” said Katie Clark Sieben, commissioner of the Minnesota Department of Employment and Economic Development (DEED). “What is exciting is that awarding $28 million has brought $596 million of private investments into the state of Minnesota, which is a pretty impressive return on investment.”
The largest subsidy promised last year was $1.477 million to Andersen Corp. for a $38 million expansion to its Renewal by Andersen plant in Cottage Grove that will result in 200 jobs. The second largest, at $1.1 million, went to Serta Simmons Bedding Manufacturing Co. for a $27.3 million expansion in Lakeville that also promises 200 new jobs.
Other companies receiving the incentives: Arctic Cat, Polaris Industries and Cardiovascular Systems. In January, Clark Sieben said the program was a deciding factor in Japanese company Takeda Pharmaceutical’s decision to build a factory in Brooklyn Park.
Andersen also was “very public” that the JCF program was a reason for the Cottage Grove expansion.
“They could have expanded anywhere,” Clark Sieben said.
Andersen spokeswoman Susan Roeder said that the company has 15 facilities around the country and that it had weighed the JCF incentives.
The expansion is almost completed, and 72 of the 200 workers have been hired.
The program still has its critics.
“The state has no business picking winners and losers to invest in. What the state is really doing is paying people to be here,” said Scott Honour, a 2014 Republican gubernatorial candidate and managing partner of Northern Pacific Group in Wayzata.
When DEED issues rebates, it has to ask, “So, who had to pay more in taxes or move out of state because they didn’t get that big windfall deal from the state?” Honour said. “The idea of creating jobs by giving money to companies, to me, is not a good idea at all.”
Bill Blazar, a senior vice president at the Minnesota Chamber of Commerce, said it is a matter of course for businesses to ask for aid.
“More often than not, they are well on their way to unveiling an expansion plan or a major new investment when they call us and ask, ‘What do I do to get money from the state?’ ” Blazar said. “I find very few who say, ‘Well, if I don’t get in the JCF program, then I can’t do the expansion.’ They are not saying that.”
The JCF is one of 23 business incentives programs deployed by DEED to entice businesses to stay and grow right here. There are also smaller incentive programs run by other departments.
The DEED programs represent the strongest tools in the state’s arsenal for competing against aggressive states. According to the Center for Regional Economic Competitiveness, every state has a basket of carrots.
As of last count, the 50 states offered a total of 1,915 business incentive programs, ranging from loans to grants to tax abatements and even equity investments.
“Compared to other states, Minnesota’s program portfolio places a strong emphasis on workforce preparation and development and facility/site location improvements,” said Kenneth Poole, the center’s CEO.
Minnesota ranks among the top three states for all grant and loan programs offered by states in the central core of the country.
When Arctic Cat decided to build a vehicle-painting plant, it set up a bidding war between Iowa, North Dakota, South Dakota and Minnesota.
In the end, the ATV and snowmobile maker decided to build a $26 million addition onto its Thief River Falls plant and received a $950,000 JCF rebate. It also received local tax abatements.
The state aid “was huge” in convincing Arctic Cat to stay in Minnesota, said Thief River Falls Mayor Brian Holmer. “They had a number of other options.”
The expansion was huge to Thief River Falls, because if the paint line had gone to another state, the city probably would have lost 150 existing jobs, said Pennington County Economic Development Director Christine Anderson.
“In all honesty, the job retention issue was probably even more important to us than [winning] the 39 new jobs,” she said.