editorials

The tax breaks for manufacturers known as JOBZ became Minnesota's most prominent rural economic rescue program when they took effect in 2003. They are an imperfect creature of a particular moment in the state's political history.

That time has passed, and the imperfections in the Jobs Opportunity Building Zones program are catching up with it. Legislators are asking in hearings this week: Can JOBZ be salvaged, or has its time come and gone?

This newspaper supported JOBZ in 2003, while acknowledging the inherent unfairness in offering freedom from state and local taxes to some employers and not others. The idea won us over because, in that year of huge budget deficits and Republican ascendency, the tax breaks proposed by new Gov. Tim Pawlenty were the only politically feasible lifeline for a region that appeared at risk of irretrievable decline.

For a time, JOBZ appeared to work. At the end of the first year, the program reported job gains in the tax-free zones running 30 percent ahead of forecast.

But as the pace of job gains has slowed in recent years, questions have mounted about what Minnesota was getting in return for the the substantial tax revenue it was forsaking -- an estimated $46 million over three years, or, on average, about $75,000 per business, per year.

This month, the Office of the Legislative Auditor weighed in with a stinging critique and 33 recommendations for improvement. JOBZ has suffered from inadequate state oversight, weak compliance requirements, sloppy reporting, and insufficient targeting of parts of the state that are truly in distress, the audit report says. Only a quarter of JOBZ employers said they would have expanded outside the state without the program's tax break.

Leaders of the two state agencies that administer JOBZ told a state Senate committee Monday that they want to comply with the bulk of the auditor's recommendations. Their cooperative attitude is commendable.

But one flaw is integral to the JOBZ concept, and cannot be tweaked away. The program will always offer a benefit to some Minnesota employers while competitors operate on a different playing field. We no longer consider that situation acceptable.

Employment and economic development commissioner Dan McElroy said yesterday that the tax benefit most valued by some of the most successful JOBZ employers was a sales tax exemption on construction materials and other business inputs. Perhaps unwittingly, he was pointing toward a fairer and more sustainable tax-based economic development strategy. Tax reform is in the air this year, and swapping JOBZ for a sales tax cut on business inputs throughout the state should be on reformers' list of ideas.