February 5, 2003 -- NEWS COLUMN -- State Representative Al Juhnke
281 State Office Building, St. Paul, MN 55155
651/296-6206
3951 Horizon Hills Circle, Willmar, MN 56201
320/235-4442
WHO PAYS FOR "TAX FREE" ZONES? IT COULD BE YOU
Gov. Tim Pawlenty has made a proposal for so-called "tax free" zones the centerpiece of his economic development agenda, and the Minnesota House of Representatives is expected to begin hearings on the plan in the next few weeks.
At first glance, these "tax free" zones sound like a heckuva deal. Who likes paying taxes? But as with any deal that sounds too good to be true, we ought to ask some questions before signing up.
The general principle is to create 10 zones of up to 5,000 acres each. Businesses that start or expand in the zones would be exempt from state income taxes, local property taxes and state and local sales taxes for 12 years. Residents who live in the zones wouldn't have to pay
income and property taxes. Local officials would draw the boundaries of the zones, then apply to the state Department of Trade & Economic Development (DTED) for approval of their development plans.
The Governor touts the zones as a means of promoting economic growth in parts of Rural Minnesota that have been hit by losses of jobs and population. That's a laudable goal - and the state has invested millions of dollars in business incentives over the past 20 years trying
to do exactly that.
The idea that Minnesota as a whole suffers from a lack of economic development is a myth. DTED's 2002 annual report showed 148 major business expansions, representing $784 million in new investment. In 2001, there were 297 projects worth $1.4 billion. And this came in
time of recession. In 2000, there were 600 expansions worth $5 billion, with almost as much in both 1999 and 1998.
The first step in attracting new businesses is having the business decide it wants to be in Rural Minnesota in the first place. To a large extent, businesses make that decision based on factors other than taxes: Access to highways and railroads, internet connections, suitability of local water and sewer lines, availability of workers, local wage levels. Improving Hwy. 12 would probably do more than anything else to make Willmar more attractive to new businesses - and a tax-free zone won't change that.
On a more basic level, the tax-free zone idea raises a lot of "fairness" questions:
* Why should two people, or two businesses, be treated differently simply because one is in the zone and the other is across the street? Sure, it would be great to live in the zone and not pay
income taxes. Just please don't flaunt it over your neighbors across the street or across town (especially if you happen to make a lot more money than they do).
* If businesses and residents inside the zone are exempt from property taxes, won't that make those outside the zone pay more? Cities, counties and schools have to get their money from somewhere, and if property A is exempt, properties B through Z have to pick up A's share.
* Who pays the cost if the new tax-free business creates problems for the rest of the community? The new business might create traffic that requires street improvements, or handle hazardous materials that require the fire department to buy costly new emergency equipment.
Taxpayers outside the tax-free zone would be left to pay these bills.
* If a new business - such as a McDonald's restaurant, just to pick an example - comes in to a tax-free zone, why should it enjoy a tax advantage over the existing Burger King across town?
* If the new business in the zone is simply an arm of a distant corporation - such as a Wal-Mart, to pick another example - why should it get tax advantages over locally owned retailers? In fact, the
existing retailer ends up shouldering part of the property tax burden of its new corporate competitor!
* When local officials map out the tax-free zone, how will they decide that property A should be in, but property B should not? This could be very troublesome. It could be hard to reassure citizens that the process was not tainted by personal friendships, petty favoritism and perhaps even corruption.
Minnesota's economic strength has long been based on a few simple elements: A well-educated workforce, good roads, abundant crops and natural resources and most important, creative and energetic home-grown entrepreneurs. We need to make sure every community can support and sustain home-grown economic development. We have 80 counties and about 700 cities in Greater Minnesota. Picking 10 winners while creating 770 losers is no bargain.
Attn. Radio News Directors: To obtain recorded actualities, contact Catherine Thompson at
(651) 296-5499 in the House DFL Media radio office.
