Minnesota Gov. Mark Dayton has been kicking up a lot of media dust lately, traveling to parts unknown apparently holding meetings to find potential employers for the state.
The dust up has generally been over the governor’s unwillingness to disclose where he is going and who he is talking to, fearing it would hamper negotiations.
News media are interested not only because of what firms might be lured but what deals or incentives are on the table. And there is every right to be curious after about $850 million in incentives were agreed to last session including $455 million for a Mayo Clinic project and $250 milllion for the Mall of America. The legislature also funded, among other things, $30 million into the Minnesota Investment Fund that offers forgivable loans to job creators.
So this looks like an administration that embraces the idea of providing public incentives to private companies pretty readily. And that can be a tad risky.
In a Politics in Minnesota report, a former Federal Reserve Bank executive warned that easy business incentives may be good politics but bad economics. Art Rolnick, former vice president of the Fed in Minneapolis told PIM, “It’s a red flag when a private company comes to you for this kind of money. Either it’s very risky or it’s going to pan out either way and the company wants to see what it can get from the state. This is power politics to the rich.”
Instead, Rolnick advises the state should beef up education funding and working to ensure we have a skilled workforce.
But incentives are the “drug of choice” now and was partly responsible for an Ardent Mills headquarters to locate to Denver and not Minneapolis. Cargill and CHS, both of Minnesota, are joining Nebraska’s ConAgra to combine forces on a mega flour-million business called Ardent Mills. Twin Cities Business reported that one reason for selecting Denver area was government aid: The companies said their plan to locate is “contingent upon final application and approval of state and local incentives.”
Peter Nelson, director of public policy for The American Experiment, opines that the new tax hike on high income earners may have pushed the Twin Cities out of consideration. He pointed to Colorado offering tax advantages to Ardent Mills even before the 2013 tax hike.
These are just one of many considerations for businesses and they all have a fiduciary responsibility to pursue the best deal for their owners or shareholders.
For any state, mitigating negative effects of a high tax rate — or unskilled labor force or any other reasons companies can check you off the consideration list — means offering some other advantages to remain in consideration. It would appear Dayton and the DFL have chosen to woo with money that seems to be taking from Peter to pay Paul.
DFL Rep. Ryan Winkler to PIM: “I don’t like the idea of taxing people in order to provide incentives to a corporation because people hear from lobbyists who say these companies are going to do good things.”
Winkler said he at least would like a stronger provision requiring companies that receive incentives meet a certain labor standard and specific wage.
But, rather than “buying jobs,” the best incentive for a business is to make working here the least restrictive, provide the best possible workforce, a strong infrastructure and supply network, and offering sustainable quality of life for themselves and their employees.
If you make doing business here too expensive, if hurdles for permitting are too long or too high, if taxes and regulations are too unpredictable, then those states that don’t have those restrictions will be looked on more favorably.
To counter that, our incentives become expensive and more risky. So yes, governor, we would like to know what’s on the table and to whom. After all, it's our money.