Public partnership, or corporate blackmail?

"MN Legislature"

03/15/2007

Thomson West wants taxpayer help to fund its Eagan expansion, but some say it's foolish of the state to subsidize such a profitable company.

BY BRIAN BONNER
Pioneer Press


To some, Thomson West's request for $15 million in public subsidies is just more of the same: another profitable private corporation trying to dip into the taxpayer well for a handout that serves no broad public interest.

To others, the tax breaks are a small price to pay for a smart public-private partnership that brings the promise of 2,000 new, high-paying jobs by 2012, anchoring a major employer even more firmly to Eagan.

The giant legal publisher, whose parent Thomson Corp. had $6.6 billion in revenue and $1.3 billion in operating profit last year, wants to expand its massive campus in the St. Paul suburb. The construction will add 505,000 square feet at an estimated cost of $120 million.

But why should elected officials spend public money for a construction project that the company can easily afford on its own in the city where it prefers to expand, anyway?

Richard H. King, chief operations officer of Thomson West's legal and regulatory division in Eagan, might have the most honest answer: This is how the game is played. Economic incentives are a fact of life.

"Rules are rules, and you look at what you can do," King said.

Critics want the rules of the game changed.

Their argument: Picking economic winners and losers is not government's job — it's the role of free and competitive markets. Public money should be spent on services, such as preschool education and health care, that bring universal benefits to society.

"Having a good, educated, highly trained work force is best achieved by directing taxpayer resources to education," said Arthur J. Rolnick, senior vice president and director of research at the Federal Reserve Bank of Minneapolis. "That beats a parking lot and that beats a Twins stadium and that even beats a corporate headquarters."

Education creates sustainable economic growth, Rolnick said, while tax breaks are "just an economic sinkhole."

State Rep. Ann Lenczewski, DFL-Bloomington, is another leading voice calling for a halt to corporate subsidies. Lenczewski said businesses have become sophisticated at pitting governments at all levels against each other in bidding wars to keep or entice them.

"Congress should try to stop states from doing it," Lenczewski said. "And state legislatures should rein in cities from doing it."

Rolnick has long championed a federal solution — and a 100 percent tax on public subsidies — as the surest way to eliminate them.

"My criticism is not of Thomson West. It is not of local people. It's of Congress. They have the responsibility to regulate interstate commerce and they're not doing it," Rolnick said.

"The public will be better off if we end this bidding war, but companies won't be," Rolnick said. "It's difficult to unilaterally withdraw if some state comes after 3M or General Mills. If you're the mayor or governor, you're not going to be able to say, 'We're above all this.' "

EASY PREY

Far from creating new economic development, tax breaks often merely relocate activity in ways that serve no national or state interest, Rolnick said. The effect, he said, is to drive up everyone else's taxes.

Rolnick cited as an example the $59 million subsidy that lured Best Buy Co. to consolidate its headquarters in Richfield in 2003.

Northwest Airlines, Target, Lawson Software, Medtronic and countless other businesses, big and small, have all gotten bailouts, incentives or tax breaks. Government subsidies to private industry are, in fact, so prevalent at so many levels that they are impossible to quantify.

Without the tax breaks, Thomson officials have said, they might look elsewhere to expand, and they note that the company has 400 locations in the United States alone to choose from.

But how credible is that threat?

At first, Thomson West said it was considering two other locations, in Ohio and Texas. Then it acknowledged that Ohio was off the table and that Texas officials had not been approached.

Since the jobs would be added to the company's legal and regulatory division, which has its headquarters in Eagan, under what circumstances would it make sense to expand anywhere else?

Only Thomson West knows the answer.

And that insider knowledge, Lenczewski said, is what makes state lawmakers easy prey to economic blackmail.

"That's the trick for lawmakers: to know what the private company knows," Lenczewski said. "Government isn't competent to analyze these big business deals. The developers of these projects know what number they need to make a project work. Government is at an inherent disadvantage."

Rather than call a company's bluff and risk losing the jobs, lawmakers often give in, Lenczewski said, although Minnesota rejects many handouts.

"We do that all the time, every year," she said. "Tons come before us and don't pass."

And that suits Lenczewski fine. "My opinion is government should do things to help the whole climate, not try to figure out how to get 'X' company to do what you want them to do," she said.

FACTS OF LIFE

Terminology is an easy way to find out how people stand on the issue.

Supporters of tax breaks use the same words as Thomson West and its supporters: "incentives," "investments," "partnerships." The harshest critics, meanwhile, label the giveaways as "bribes" or "corporate welfare."

Whatever the public subsidies are called, Rolnick said, "the more expensive they are, the worse they are in my mind."

By that standard, legislators might view Thomson West's request favorably. The company is seeking a small sum in comparison to what state, county and local governments have given or are being asked to give to other companies.

The Mall of America in Bloomington, for instance, wants $234 million in state money to build a parking ramp so that it can expand the tourist attraction. The Minnesota Twins and Vikings want hundreds of millions more for new stadiums.

So far, the Thomson West proposal hasn't hit a roadblock in the Legislature. Company officials have appeared before two Minnesota Senate committees and are expected to appear before the House Tax Committee later this month.

Gov. Tim Pawlenty's administration, Eagan city officials and area lawmakers are leading the charge for the incentive package, which knocks about 10 percent off the expansion's sticker price.

"It's one of the largest economic-development projects in the country, let alone the state, this year," said Eugene E. Goddard, economic-development program specialist for the Minnesota Department of Employment and Economic Development. "This is a great project."

The $15 million proposed package of state and local tax breaks includes:

• $8.9 million in sales tax exemption on construction.

• $3 million in "forgivable loans," essentially grants, from the state.

• $1.5 million in state upgrades to Minnesota 149 (Dodd Road).

• $1.5 million in city tax-increment financing for the construction, to be repaid by future property taxes.

Even some supporters, however, feel conflicted about the company's request.

John Nasseff is the former vice president of West Publishing Co., which was bought by Thomson for $3.4 billion in 1996. Despite his mixed feelings, Nasseff said the state should do what it can, within reason, to keep the company expanding in Eagan.

"It bothers me, and it makes me feel good," said Nasseff, now retired and one of St. Paul's leading philanthropists. "I think (Thomson West) should pay it, but that's the world we live in. You have to keep what you've got. Not at any cost, obviously. They can move to any country and operate cheaper than they can here, if they wanted to."

But, like other taxpayers, Nasseff wonders when public giveaways to private corporations will end.

Ruthe Batulis, president of the Eagan-based Northern Dakota County Chamber of Commerce, admits the organization's support for the targeted tax break is inconsistent with the chamber's stance that favors improving the overall business climate for everyone.

"I think we are taking the position we need to in this particular case with our largest employer," Batulis said. "And we do need to take the position of holding the line on taxes, always."

And that's the state of public policy with respect to subsidies today: An inconsistent mix of deals, evaluated on a case-by-case basis, with lawmakers often making decisions based on what's best for their geographic turf as opposed to the broader public interest.

"It depends on where you sit," Lenczewski said.

No matter how the debate turns out in the Legislature, nobody disputes Thomson West's success as a national industry leader or its value to Eagan and the larger Minnesota economy.

"The real meat of the business is capturing laws passed by government bodies and decisions issued by courts," said Thomson West spokesman John T. Shaughnessy. "We review, analyze, classify and load them into databases. It's the heart of the system of justice: Giving everyone access to the same information."

The company has more than 20 million customers in law, tax, accounting, financial services, scientific research and health care fields. While the information is increasingly disseminated online, published books remain popular.

Both options come together in the 2.7 million-square-foot campus whose 6,800 employees include 1,400 technology professionals and 800 attorneys. The place is a small town unto itself with shops, cafeterias, a training center and other perquisites for the workers.

The parent company is Canadian-based Thomson Corp., which has operational headquarters in Stamford, Conn. The Eagan operations account for more than half of the company's revenue and 20 percent of its 33,000 employees worldwide.

If all goes as Thomson West expects, the Eagan campus will grow to more than 3 million square feet and house 8,800 workers on 271 acres. Besides spending at least $120 million to add 425,000 square feet of office space and 80,000 square feet to the data center, the company expects to invest $100 million to equip the additions.

The average salary of the new employees will be $70,000, the company says, and it calculates that their income taxes will return the state's investment in four years.

"This is a company that does everything right," said state Sen. Jim Carlson, DFL-Eagan, while arguing for the tax breaks.

Soon enough, Minnesotans will find out whether scoring tax breaks can be added to the list of what Thomson West does well.