By Lori Ehde
In a time of projected state economic shortfalls, rural Minnesota needs to be especially vigilant in protecting its development interests.
Another tool may be available to outstate cities to attract business growth and to protect economic development already underway.
House Majority Leader Erik Paulsen and Rep. Doug Magnus recently circulated southwest Minnesota communities to talk about "Tax Free Zone" legislation.
Gov. Tim Pawlenty and House legislators are proposing the initiative to stimulate development and create jobs in economically distressed areas of greater Minnesota.
"Tax-free zones are the tools our border communities in southwestern Minnesota need to attract and retain job providers," Paulsen said.
"Tax-free zones will give our southwestern Minnesota communities the competitive edge they need when competing for new business and jobs."
Modeled after similar programs adopted in Michigan and Pennsylvania, the legislation would allow up to 10 tax-free zones with a maximum size of 5,000 acres (roughly 7.8 square miles) each to be established in greater Minnesota.
Two years after Pennsylvania designated 12 tax-free zones in February of 1999, the move was attributed to creating 5,700 jobs and retaining another 3,100.
Businesses operating within the zones would not pay property taxes or state income taxes.
"The state’s conventional development strategy can use a jump-start in southwestern Minnesota," Magnus said.
"To revitalize our part of the state, we need to be bold and think outside of the box. Tax-free zones have helped create thousands of new jobs in Michigan and Pennsylvania, and they can do the same for southwestern Minnesota."
It’s too early to tell what the legislation could specifically mean for Luverne, but Economic Development Authority Director Dan Statema said the discussion itself is encouraging.
"I can see there being some pretty stiff competition among regions for this tax-free designation," Statema said.
"But the most exciting thing about this is the governor and Legislature are recognizing the need for economic development incentives in greater Minnesota."
The initiative shouldn’t be confused with existing border city legislation, which allows tax breaks for qualifying new business construction.
Tax-free zones can apply to any economically distressed rural area, regardless of proximity to a border. It’s just that border communities are particularly vulnerable to losing business and labor resources to neighboring states.
"Every day another one of our kids leave southwestern Minnesota for a job in Sioux Falls or the Twin Cities," Magnus said.
"For years we’ve been looking for a tool that will allow more of our kids to find a job where they grew up. That tool could be tax-free zones."
Paulsen said tax-free zones for greater Minnesota will be a major initiative of Gov. Pawlenty and the state House in the 2003 legislative session, which began last week.
Magnus represents the newly redistricted House District 22A, which includes Rock, Pipestone, Murray and three-quarters of Nobles County.
Rock County used to be represented in the House by Richard Mulder, Ivanhoe, when it was part of the former District 21B. Mulder did not seek re-election last fall, and voters chose Republican Magnus over DFL incumbent Ted Winter for the job.
Measures of need
Areas qualify for tax-free zone designation based on the following measures of need:
Percentage of population below the poverty rate
High unemployment
Deteriorated or underutilized property
Low median family income
Population decline
Sudden or severe job loss.
Presence of adequate infrastructure for development.
Measures of
likelihood for success
Areas qualify for tax-free zone designation based on the following measures of likelihood of success:
Quality of the development plan
Local public and private commitments to develop the zone
Other available resources
Relationship to other development plans
Plans to ease regulatory burden on business
Proposals to link job creation and training