I celebrated Labor Day going door to door visiting people in our district as part of my campaign for state legislator. Many told me that they are struggling to get by. Wages are stagnant and real income is declining. Minnesota's unemployment jumped in August and is now worse than the national average.
The need for job development in our region is clear. But what is the best approach? One way is providing tax incentives to businesses to start up, expand, or relocate in rural Minnesota, as exemplified by JOBZ, a program which exempts businesses from property, income, and sales taxes. JOBZ has been criticized and praised, but most realize that the program needs reform.
The Legislative Auditor identified significant problems with JOBZ. For example, JOBZ gives tax breaks to businesses already in the process of job creation before they enrolled. JOBZ provides unfair subsidies to businesses competing with existing local businesses. A lack of oversight allows businesses disqualified from JOBZ to continue receiving tax exemptions. Some suggest the program has simply shuffled jobs around our region while actually growing few new jobs. The absence of information on the number of jobs created and the cost to the taxpayer worries me. I suspect there will be sticker shock once we get the numbers.
Another approach to economic development is helping local entrepreneurs develop start-ups or grow small businesses. This approach has many advantages over JOBZ. Studies have shown that small companies with less than 50 employees account for 94 percent of Minnesota businesses and that these businesses generate most new jobs. This is particularly true in small towns. In economic hard times, large businesses layoff employees, something small businesses avoid. Large companies that chose a location for special tax breaks often desert the community once the breaks expire, while surveys have shown that small business owners are loyal to their communities.
I serve on Southwest Regional Development Commission's Revolving Loan Fund Board. We make loans to small business throughout southwest Minnesota. As businesses repay their loans, we use the funds to make new loans. Since the fund was started in 1995, a total of $4.5 million in business start-up capital has been injected into our region. But money is just one barrier to starting a small business. Small-town entrepreneurs say their greatest start-up problem is a lack of technical information on starting a business. A program to assist small-town entrepreneurs grow their ideas into thriving businesses would be effective and relatively inexpensive.
It is easier and less expensive to help small local businesses develop and grow than it is to bribe large companies with expensive tax breaks. Small businesses grow more jobs in rural communities, and the jobs stick around because the employer is rooted in the community. A job development program targeting them makes good sense.