The Minnesota State Senate passed
legislation two weeks ago to axe Governor Tim Pawlenty’s signature rural economic development program known as the Jobs Opportunity Building Zones (JOBZ) program. This is the latest development since GJF
blogged in February about the state Legislative Auditor’s
report concluding that the subsidy program is unaccountable and ineffective.

JOBZ subsidizes companies located outside the Minneapolis-St. Paul metro area and has granted $46 million in tax breaks to 350 businesses since 2004. However, two-thirds of businesses admitted to the Auditor that they would have expanded without the subsidies – including 11 percent which admitted they would have made the same investment in the exact same location.

Still awaiting action by the House, the Senate legislation is part of a larger omnibus tax bill. The bill would not allow new JOBZ agreements after May 1 but would preserve existing ones. The entire package would increase state revenues by $150 million in the 2008/09 fiscal year.

The Senate vote is linked to an ongoing fight between the Democratically-controlled Legislature and the Republican Governor on how to balance Minnesota’s growing deficit. Last week, Pawlenty vetoed funding for a Minneapolis-St. Paul light rail project that he has previously supported. Local observers
believe the governor may use the light rail funding as a bargaining chip in exchange for continued funding of the JOBZ program.

Competing
legislation that would reform, but not eliminate, the JOBZ program has been referred to the Senate Committee on Taxes.