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Tax bill cuts business aid

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ST. PAUL - A bill written by the House tax leader eliminating all state aid to business includes killing rural Minnesota's Job Opportunity Building Zones program.

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Although Rep. Ann Lenczewski, DFL-Bloomington, said Republican Gov. Tim Pawlenty's pet JOBZ project is a small part of a bill that would raise $280 million, the proposal drew the strongest response to her surprise Wednesday proposal.

"The bottom line is that the program has helped rural Minnesota," Rep. Paul Marquart, DFL-Dilworth said. "The best approach would be to fix it, not to scrap it."

The Lenczewski-Marquart split shows the difficulty the Bloomington lawmaker faces in getting her proposal passed. Marquart is chairman of the property taxes committee, which reports to Lenczewski's panel, and the two work closely together.

The Senate tax chairman also doubted Lenczewski's plan would succeed.

"It's not the road I'm going to go down in the Senate bill," Sen. Tom Bakk, DFL-Cook, said.

But Lenczewski said she thinks support will build by the time her committee begins to take public testimony on the issue, probably on April 1.

Her plan, which she said was not shown to colleagues or legislative leaders before a Wednesday committee meeting, removes existing state tax breaks from corporations with foreign operations, research and development and biotechnology and health science zones. In total, she said, $280 million more in taxes would be collected under her proposal during the current two-year budget.

Lenczewski said there would be "a lot more winners than losers" in the business community, especially because it includes a 1 percentage point corporate tax cut. She said the bill would save enough money that further tax cuts would be possible in future years.

The eliminating of tax cuts some companies working in foreign countries receive has been controversial in the past, but Pawlenty has given a version of the change his support and Republicans now say it is a done deal.

Lenczewski's committee must come up with new money to help plug a nearly $1 billion budget deficit. She said her bill is preferable to the alternative - cutting programs more deeply than otherwise would be needed, including education and health care.

The tax chairwoman said that many of the tax breaks now benefit multi-national companies, which are based in the Twin Cities, so that area would be more affected. Rep. Doug Magnus, however, said many of those companies are agri-businesses and losing tax breaks could hurt farmers who deal with them.

Lenczewski's bill would dump tax breaks given to farmers whose cow herds are suffering from bovine tuberculosis. That would raise $700,000, but it drew a lot of criticism.

Magnus, R-Slayton, said the TB issue costs the state millions of dollars and if Lenczewski succeeds with her bill, the state would have to help in some other way.

The harshest criticism was reserved for JOBZ, which Magnus helped pass.

Magnus said killing JOBZ would amount to piling on because rural Minnesota is losing state aid under several proposals.

However, Lenczewski's bill includes state grants for businesses already in the JOBZ program to ease their transition. JOBZ eliminates most taxes for new and expanding businesses in zones located throughout rural Minnesota.

Rep. Morrie Lanning, R-Moorhead, said it is one thing to stop accepting new businesses into the program, but it is not fair to drop businesses already receiving tax breaks.

"We have to cut something," Lenczewski responded.

Rep. Kurt Zellers, R-Maple Grove, said Pawlenty won't like eliminating so many business tax breaks, especially his pet JOBZ program.

"I think you've kicked his dog right out of the gate," Zellers told Lenczewski.

Rep. Dean Simpson, R-Perham, said he fears the bill would make Minnesota less competitive to other states.

Simpson and other Republicans complained that eliminating business tax breaks could encourage businesses to move to other states.

"Reducing the tax rate (by 1 point) may be the best thing I've seen in the whole bill," said Simpson, the Taxes Committee's top Republican.

Lanning liked the tax cut in the bill, but had concerns. "It's a lot like a two-edged sword."

Bakk's tax bill should be ready soon. While it could eliminate JOBZ, as he proposed last year, those decisions have not been made, he said.

Some aspects of Lenczewski's bill are good, Bakk added, but they belong in another year when an overall tax reform package is examined.

Bakk's bill probably will add $150 million to the treasury, mostly via clamping down on tax breaks foreign companies receive.

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Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.
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