David Fettig - Managing Editor
Published December 1, 1989 | December 1989 issue
In a span of 18 months, from 1983 to early 1984, 50 businesses left Moorhead, Minn., and crossed the Red River to Fargo, N.D., to take advantage of that state's lower tax rates.
Since the creation of the Minnesota Enterprise Zone Program in 1984, just eight businesses have made the Moorhead-to-Fargo switch.
And that, according to Tom Helgesen of the Minnesota Department of Trade and Economic Development, is proof of the program's success.
The Zone Program works by allowing local communities to offer tax credits or refunds to new or expanding businesses. It was created "to address the fiscal disparity in Minnesota's border cities and economic distress in the state's urban, agricultural and iron mining areas," according to the program's status report.
Minnesota's other government economic development programs include industrial revenue bond sales, small business development loans, foreign trade service, private challenge grants, grants to cities, and special research and rural programs such as the Greater Minnesota Corporation, but the Zone Program is the only one that considers the location of a business as its main criterion for approval.
There are 24 Enterprise Zone communities in the state, most of them are in the state's northern Iron Range and in communities along the borders of North and South Dakota. Little Falls, Mankato, and Minneapolis and St. Paul also have Enterprise Zones.
For those cities along the borders of adjacent states, the Zone Program offers tax credits to businesses in order to balance any disparities that may exist with cross-border communities. Known as the Border City Program, its main goal is to grant tax credits to all businesses, and secondarily to create new development. In other words, the entire city is considered an Enterprise Zone.
As for cities not situated near the border, a special 400-acre zone is established in a distressed area where developing businesses may receive tax credits.
There are four state-paid tax credits allowed for business expansion or new business investment under the Enterprise Zone Program:
Existing businesses also benefit. In the border city of Moorhead, for example, each of the approximately 450 businesses receives, on average, about a $500 tax credit for each employee, Helgesen said. (The upper limit for existing businesses is $1,500.) And even though that may not seem like much, he said it "has made a tremendous difference."
Helgesen said that some of the impact may just be psychologicalthat at least the program has shown the businesses that the state cares about whether they stay in Minnesota, and sometimes that message can have a positive impact.
Critics of the program, like critics of other state development programs, claim that most businesses along Minnesota's border would not leave the state without the Zone Program, and the state is losing revenues it needs for other programs. In 1987, 877 businesses were awarded about $7.5 million in state-paid tax credits.
But the state estimates that over 1,400 new jobs were also created in 1987, and thousands of others were retained by companies that would otherwise leave the state. Also, 863 of those new jobs were filled by economically disadvantaged people, meaning those people were removed from the state's welfare roles, Helgesen said. He also quoted a 1987 study which showed that for every $1 in tax credits granted by the state, a new employee generated $1.17 in new tax revenue.
The Zone Program is set to end in October 1990, but Helgesen expects the next legislature to consider an extension to the program.