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JOBZ: Designation of Zones and Program Administration

How are zones designated under JOBZ?

The law authorizes the Commissioner of the Department of Employment and Economic Development (DEED) to designate ten zones. After consulting with the Commissioner of Revenue, the commissioner is to designate zones based on a set of need indicators and success indicators. The need indicators are essentially ten criteria that measure various forms of economic distress of the area, while the success indicators are a set of eight criteria intended to gauge whether a proposed zone will succeed in stimulating economic activity. Then Commissioner Matt Kramer designated ten zones on December 18, 2003. In addition, he also designated one agricultural processing zone at that time under the separate authority for that program. The law authorizes designation of up to five agricultural processing zones. A description of the agricultural processing zone program is available.

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Who can apply for zone designations?

The law authorized local government units (cities, counties, towns, regional development commissions, the Iron Range Resources and Rehabilitation Agency, and federally designated economic development districts) to apply for zone designations. They could do this individually or jointly and could form joint power entities to apply for and operate zones. All of the applications were filed jointly on behalf of multiple local government units to facilitate locating parts of each zone ("subzones") in multiple cities and counties, given the statutory limit of ten zones.

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What size and other geographic limits apply to zones?

The law limits the maximum size of a zone to 5,000 acres. (This is about the size of 1,000 typical city blocks.) A zone can be divided up into an unlimited number of noncontiguous subzones. These subzones are not subject to a minimum size requirement; they can be as small as a city lot or a parcel. Moreover, the subzones can be located in different cities or counties. All zones must be located outside of the seven-county Twin Cities metropolitan area.

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How long does a zone designation apply?

The maximum duration of a zone is 12 years. For the zones designated in December 2003, this means the designation and zone benefits end December 31, 2015.

An applicant may request a shorter duration limit for a zone. However, all of the applications requested and the designations provided for 12-year durations. The law does not explicitly authorize this, but it is possible that the business subsidy agreement could provide that the business will receive zone benefits for a shorter period than the full duration of the zone.

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Has the legislature provided for extensions of the JOBZ duration limits?

Yes, the legislature has passed three laws provided for extended durations the tax incentives under the JOBZ for certain types of projects.

  • Ethanol projects. In 2006, the legislature provided that three years of additional tax benefits could be provided to qualified businesses that operate ethanol plants. This allows these businesses to receive benefits through December 31, 2018. To qualify, the business subsidy agreement must be executed after April 30, 2006.
  • High technology glass manufacturing plant. The 2009 Legislature enacted a five-year extension (allowing tax benefits through December 31, 2020) for a glass manufacturing plant that produces glass using an electrochromatic process to change tinting of the glass to provide variable shading and save energy. To qualify, the facility was required to be in a county with an unemployment rate of 10 percent or more or greater than 10 percent above the state average and include the company headquarters. The business is located in the city of Faribault and business subsidy agreement was entered into in April 2010.
  • Automotive recovery zone ("CARZ"). The 2010 Legislature authorized a special form of JOBZ incentives to encourage the Ford Motor Company to continue to operate its plant in St. Paul. This authority allowed a five-year extension of the availability of a modified menu of tax benefits. To qualify, the business subsidy agreement was required be entered by November 2011. This is unlikely to occur, since the company has announced its intent to close the plant at the end of 2011 and no negotiations had occurred or agreement entered been entered into by October 2011.

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What zones have been designated by DEED?

Commissioner Matt Kramer designated ten JOBZ zones on December 18, 2003. These zones contain about 29,000 acres in 325 subzones. (The acreage now designated likely varies because of modifications made to the zones.) Nearly all of the counties outside of the seven-county metropolitan area contain designated acreage.

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Can zones be modified after they are designated?

Yes, the law authorizes the commissioner to modify zones as a remedy for failure to meet the zone's performance goals. Minn. Stat. sec. 469.320, subd. 3. In addition, the commissioner has taken the position that DEED has authority to modify zones on application by the zone administrator. These modifications can take the form of "swapping" acres in and out of zones and subzones or, if that is not feasible, adding new area. Here is a link to DEED's description of the modification process: www.deed.state.mn.us/bizdev/PDFs/jobzZoneModifProc.pdf  (Note: this is a PDF document).

As a policy matter, DEED is willing to approve adding new area to a zone only if "there is a qualified business ready to locate on the requested parcels." DEED has approved several modifications to zones since 2003.

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Do prevailing wage requirements apply to business receiving JOBZ incentives?

Yes, the Attorney General has issued an opinion that qualified businesses are subject to the prevailing wage law, because they qualify for exemption from sales tax. This restriction cannot be avoided by the business electing to pay sales tax.

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Who is responsible for administering JOBZ?

JOBZ is essentially a local program; most administration falls to the zone and subzone administrators, as well as other local officials (e.g., county officials who administer the property tax elements of the program). This includes marketing the program to businesses, entering business subsidy agreements for businesses locating in the zone, and annually reporting on performance to the state. At the state level, DEED is responsible for oversight and most administration of the program. It sets the parameters for the program (within the authority under the law), designates the zones and approves modifications, receives the annual reports and evaluates the zone performance, and so forth. The Department of Revenue (DOR) administers the state tax aspects of the program. The DOR commissioner collects repayments, pays refunds, can waive a repayment obligation, and so forth. In addition, DOR provides administrative guidance on the tax features of the program, including administration of the property tax elements.

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What reporting requirements apply under JOBZ?

Successful applicants for zone designation are required to annually report to DEED on their progress in meeting the zone performance goals under the development plan and in complying with the business subsidy law. Minn. Stat. sec. 469.320, subd. 1. DEED is not explicitly required to report to the legislature on the overall JOBZ program, but has indicated it will make results publicly available. It has posted periodic updates on completed deals in JOBZ zones on its web site. Here is a link to the September 2011 update reporting 290 completed business subsidy deals: www.positivelyminnesota.com/Business/Financing_a_Business/JOBZ_-_Tax_Free_Development/Recent_Projects.pdf  (Note: this is a PDF document).

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What special audit requirements apply to JOBZ?

The law directs the Tax Increment Financing, Investment and Finance Division of the Office of State Auditor to annually audit the creation and operation of all zones and business subsidy agreements. This requirement was enacted by the 2005 Legislature and no funding was provided for the function. As of 2011, audits have not been yet been done under this authority.

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What enforcement authority does DEED have over JOBZ?

The law authorizes the commissioner of DEED to take any appropriate actions in response to evidence that a zone or subzone is not meeting its performance goals. Minn. Stat. sec. 469.320, subd. 3. These include modifying zone boundaries or terminating the zone. Before doing so, the commissioner must consult with the affected local government units and notify them of the proposed actions. They may appeal the commissioner's order under the administrative procedures act's contested case procedure. The law establishes special rules that determine how qualified businesses in an area removed from a zone are to be treated---in general, they are allowed to continue qualifying for tax incentives based on activities that pre-dated removal of the property from the zone. Minn. Stat. sec. 469.320, subd. 3.

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July 2014

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