Targeting investment

With state unemployment levels hovering around 7 percent, an overriding theme this session is job creation. The DFL approach to solving the nearly $1 billion projected state deficit includes a job creation strategy, beginning with passage of the capital investment law. With that done, next up is a tax bill designed to prime the cash pump for small business investment.

Rep. Ann Lenczewski (DFL-Bloomington) chairs the House Taxes Committee. As sponsor of HF2695, she has had to swallow her objections to business tax credits, and the use of tax increment financing districts — an economic development tool commonly used by cities to spur development. Bowing, instead, to input from small-business owners who say their development plans are stymied because credit has all but dried up, and also city officials who say business expansion is at a dead stop.

“This is really a stretch for me,” she told the committee March 15. “This is something that I’m not happy about.”

The bill contains a variety of new tax incentives for investors who provide money for small businesses, historical building renovations, small high-tech companies, manufacturers and eco-friendly businesses. Language to help the Mall of America expand and an easing of TIF requirements so local governments can lure more development are also included.

“The goal here is to put as many people to work as quickly as possible as we can during a time of limited resources,” Lenczewski said. The bill specifically targets projects that would be ready to hit the dirt by July 1, 2011.

She and Sen. Tom Bakk (DFL-Cook), sponsor of the companion, SF2568, were united during a March 16 press conference regarding the bills’ intent. Although it is not yet clear how the credits will be paid for, Lenczewski is hopeful the final product will have had enough buy-in across party lines and between the legislative bodies that there will be no need for a conference committee.

Tax bills historically have not had much success getting off Gov. Tim Pawlenty’s desk — most recently two vetoed bills last session. Rep. Laura Brod (R-New Prague), the committee’s lead-Republican, wanted to know if there were “any clinkers in the bill coming from the governor’s office, or if it’s just more details and the funding sources that need to be worked out.”

Lenczewski said the governor’s office has been involved in the bill’s development. However, there remains the question of how the bill will be paid for. “The revenue piece is really what we are down to here,” she said. And that could be part of the discussion when the House Taxes Committee again hears HF2695 scheduled for March 23. Bakk’s bill is scheduled to be heard March 24 by the Senate Taxes Committee.

Since its inception more than 20 years ago, Mall of America Phase II has been in the mix, but developers have had to alter plans and timelines as the economy has dipped, especially retail. The bill would change language in current law to accommodate flexibility for this new timeline.

Although no project is named, the bill references a new hotel that could be built in the area of the former Met Center, north of the mall.

Lenczewski is reluctantly joining those giving bipartisan support to small-business investment incentives. Known as an “angel investment,” this form of venture capital provides a tax credit to qualified investors, or a network of investors who provide seed capital for small businesses. With venture capital funds all but dried up, some say that Minnesota hasn’t been doing enough to attract and retain small businesses, and states that are aggressively nurturing angel investors are reaping the benefits.

A bipartisan small-business caucus and a jobs task force meeting over the interim concluded that to address challenges businesses face in today’s economy, these credits are needed.

Several new fees would be attached to the credit, including a $100 filing fee to be submitted annually with a report from each qualified small business, investor and fund. The money would be used to administer the program.

Lenczewski previously said these credits could be viewed as a tax subsidy for wealthy Minnesotans, and that the cost has to come from somewhere. “And the money’s not there,” she said.

The bill carries several proposals supported by the governor, including his Create Automotive Recovery Zone proposal (CARZ) that focuses on a series of state and local tax exemptions to help make the St. Paul Ford plant site viable to the company or another vehicle manufacturer.

Minnesota could join several other states that offer an historic rehabilitation credit. According to the nonpartisan House Research Department, this credit would complement a similar federal credit for historic preservation. Rehabilitation credits would be available only to certified historic structures as defined by the reference to the federal tax credit. Applications would be accepted by the State Historic Preservation Office for grants in fiscal years 2011 to 2015 only.

Other bill provisions include:

• authority for local governments to finance energy conservation improvements and collect repayments as special assessments at the request of the property owner;

• creation of compact development tax increment finance districts; and

• expanded authority for local governments to use TIF for general economic development for one year, as well as availability of TIF revenues for construction of new private development.