What Friends Are For

Andersen Windows had $2 billion in sales last year. And next year, a new Pawlenty administration program will give the company a big tax break.

 On October 20, Governor Tim Pawlenty and Jim Humphrey, president and CEO of the Minnesota-based Andersen Corporation, got together at the state Capitol for a big announcement. Thanks to what Humphrey referred to as a "good comprehensive package" of incentives, Andersen had decided to build a new factory in North Branch, a middle-class community of 8,000 people about 45 miles north of St. Paul.

Given the recently publicized and much-lamented erosion of manufacturing jobs in Minnesota, the timing of the announcement couldn't have been better. Andersen, which is the world's largest producer of windows and doors, will employ some 135 people at the new, $18 million plant. Not all of those jobs will be new, since 40 positions will come from a soon-to-be downsized White Bear Lake facility. Still, in these trying times, who couldn't celebrate the net addition of 95 good-paying factory jobs?

For the governor, though, this was more than a mere nugget of good economic news. It was a critical public relations boost for one of his highest profile initiatives, the Job Opportunity Building Zone program. Created by the legislature last spring, JOBZ represents the Minnesota debut of a popular economic development strategy that swept across the nation in the '80s and early '90s, the use of so-called empowerment zones. Although the details of such programs vary widely from state to state, all empowerment zones have one thing in common: They provide some form of "tax holiday" to companies that expand into designated areas.

Jonathan Stavole

For Andersen and any other company that qualifies, opening shop in a Minnesota JOB zone offers the sorts of enticements that leave shareholders drooling on their spreadsheets. Under the JOBZ program, Andersen won't have to pay a penny of property taxes on its proposed 150,000-square foot North Branch plant for the next 12 years. Nor will the company have to pay sales tax for the construction materials purchased to build the facility. (The city and state, on the other hand, have already committed to spending at least $770,000 on infrastructure improvements to accommodate the plant).

Andersen need not pony up taxes on any services that are related to the construction or operation of the plant. And if the company decides to buy some trucks or other motor vehicles, that's no problem. As long as the vehicles are garaged or used primarily within the zone, the company is relieved of the obligation of paying the usual taxes.

It doesn't end there. Under the JOBZ program, Andersen won't pay a dime in corporate income tax on the profits from its North Branch operation until the year 2016. Better yet--at least from the perspective of the company--any personal income that is attributable to the North Branch plant can be exempted from the state tax returns of the company's operators and shareholders.

Given such extravagant benefits, it is not hard to see why Pawlenty has more than once referred to JOBZ as "the mother of all economic development programs." But another, more elemental question raised by the deal is much more difficult to answer: What precisely is the total dollar value of the JOBZ program to Andersen?

"That's nothing that we would release. I think you would have to get that number from the state," says Andersen spokeswoman Maureen McDonough.

In fact, under Minnesota's much heralded Corporate Welfare Reform Act, the state is supposed to disclose the value of subsidies given to companies. The principle behind that landmark legislation is simple: The public has a right to know whether it is getting good value on its dollar when it shells out to help business.

But because the JOBZ program offers tax cuts in lieu of cash, it apparently does not fall under the purview of the act. Even if it did, under Minnesota law, Andersen's tax information is considered private data, which means that no one in government, outside the Department of Revenue, gets to review the company's returns.

Louis Jambois, the community development director for the Minnesota Department of Employment and Economic Development, says DEED has done "some rough estimates" on the value of a JOBZ designation for Andersen. But Jambois says he can't release those estimates. Besides, he adds, there is no way "to know on the front end" what the subsidy is worth.

According to the Minnesota Department of Revenue, the JOBZ program is expected to cost taxpayers about $9 million a year once it is fully established. But of course, that's just a rough estimate. The final number will depend on how many companies take advantage of the program. Under the law authorizing the JOB zones, as many as 50,000 acres of industrial and commercial property may be taken off local tax rolls statewide.

JOBZ boosters are betting this largesse will prove to be a good value for taxpayers once all the new jobs are taken into account. Critics point out that most academic research into the efficacy of empowerment zones provides little grounds for such optimism.

"There have been some studies that look into whether these zones create any jobs, and what they find is that they create very little," notes Art Rolnick, the director of research at the Federal Reserve Bank of Minneapolis. The academic consensus, Rolnick says, is that empowerment zones simply tend to shuffle jobs around. And as competition for business rises with the increased use of such development tools, local tax bases are slowly eroded.

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