How the State of Minnesota
How the State of Minnesota manipulates
business activity with tax credits, loans and grants
to favored businesses
Minnesota statute authorizes the State to grant special and selective tax relief to some businesses. In 2014 the State of Minnesota “spent,” that is, forfeited in tax revenues, $647 million in tax credits, rebates and other exemptions for favored businesses.
This preferential treatment for some means higher taxes for others, both individuals and businesses. In addition, tax credits, loans and grants to business compete for tax dollars that might be used for equally important and more enduring elements of a healthy economy such as education and infrastructure.
Serious questions abound about the effectiveness of business incentives. These include the “but for”–would the project have occurred anyway without state aid? Does state aid give a business an advantage over a competitor in the state? Do some of the benefits accrue to other states? How can we measure the results of these programs, given the many variables in a complex economy? And last, are these economic development efforts the best and proper way to meet the obligations of state government?
A Minnesota House Research report states that “some tax expenditures reflect historical quirks or following federal or other state structures, rather than carefully considered decisions that use of the tax system is the optimal way to achieve specific nontax policy objectives.” Once enacted, tax credits can continue in perpetuity unless the legislature acts to repeal them. And they grow as the population and economy grow.
The Iron Range Resources and Rehabilitation Board (IRRRB) was created to divert taxes on taconite to a fund to diversify an economy dependent on mining and to encourage community and workforce development. It was called by one critic, “The Iron Range Re-elect and Reward Board.” Area senators, all Democrats, constitute the Board. IRRRB’s budget last year was $85 million, spent primarily on grants and loans to area businesses, cities and towns.
A recent auditor’s report criticized the Board for sloppy oversight. It found that IRRRB did not measure the impact of loans and that many loan recipients did not meet the stated objectives. Among notable failures is Giants Ridge, a resort owned by the Board, which has lost millions of dollars over the past decade.