Officials defend Thomson tax break

01/27/2007

It's a good deal, they say, even if Minnesota is the publisher's only option


BY BRIAN BONNER and BILL SALISBURY
Pioneer Press


Why does Thomson Corp., a publishing giant with $8.4 billion in gross revenue, need more than $10 million in tax breaks to expand in Eagan?

State officials have said the incentives are needed to beat out possible competitors near Mason, Ohio, and Carrollton, Texas.

But those competitive threats appear to be either weak or nonexistent. The company has ruled out Mason as a possible option and also doesn't appear to be seriously considering Carrollton.

"The company really wants to focus on this location (in Eagan)," Thomson spokesman John Shaughnessy said Friday. "It makes the most sense from an operations standpoint, and it can accommodate all the projected growth."

While Shaughnessy said Eagan is the preferred site, he didn't want to speculate on whether the Stamford, Conn.-based company would nix the planned expansion without the tax subsidies.

Mason is no longer an option, Shaughnessy said, because the company is selling its Thomson Learning division, which includes a facility near Mason.

And Shaughnessy said Thomson hasn't even had discussions with city officials in Carrollton, which had been touted as another possible location for the expansion.

So why does a highly profitable company need a handout from taxpayers?

"Cities and states recognize it's competitive, and the cost of attracting new businesses is far greater than the cost of keeping existing businesses in the same location," Shaughnessy said. "It's a good investment for the city, county and state."

The business and legal services information provider plans to add 2,000 jobs by 2012 in a $100 million expansion at its Eagan campus.

In return, Gov. Tim Pawlenty wants to waive $8.7 million in sales taxes, while the company also is pursuing another $1.5 million in tax-increment financing for the construction.

Pawlenty asked the Legislature to exempt Thomson from paying state sales taxes on the construction materials and equipment the company would buy to build and equip a new office building and data center.

State Revenue Commissioner Ward Einess told the Senate Tax Committee on Wednesday that the sales tax break was needed to "make us competitive relative to other sites being considered."

Senate Tax Committee Chairman Tom Bakk, DFL-Cook, said Friday that company officials told him during a private meeting in his Capitol office last week that the decision to expand in Eagan was tentative because they were considering other sites.

"If that is not the case, they make a pretty weak argument for having a sales tax exemption," Bakk said. "I'd like to ask them publicly now, if it appears there is not competition, what has changed since I met with them."

Einess said the competition was among Thomson campuses.

"Thomson never gave me the impression they had talked or were in serious negotiations with public officials in other states, but they certainly had done the number crunching internally on the three campuses they were considering," he said.

"Based on their internal analysis, Minnesota was a finalist. But to be cost-competitive, there was a little bit of a gap that needed to be bridged to make Minnesota the premier site for the expansion."

If given a chance, other cities and states would bid for the project, said Dan McElroy, state commissioner of employment and economic development. "Any time somebody's going to spend $100 million and add 2,000 to 5,000 jobs, it's going to be competitive," he said.

"It wouldn't take more than a phone call," McElroy said, to get Carrollton and Texas state officials involved, and they would be aggressive competitors.

Even without competition, he supports the tax exemption.

"I don't want to encourage Thomson to go out and talk to our competitors," he said.

Minnesota has waived sales taxes for construction of a $50 million alfalfa processing plant in Granite Falls, a $60 million soybean oil processing plant in Fairmont and a $75 million meat packinghouse in Albert Lea.

Northwest Airlines got the same tax break to build an aircraft maintenance facility in Duluth, and Hubbard Broadcasting used a tax waiver to build its satellite broadcasting facility in the Twin Cities.

Most recently, the 2006 Legislature granted a sales tax exemption for the construction of the new Minnesota Twins ballpark in Minneapolis.

Sales tax forgiveness on construction materials is most widely used in the state's JOBZ tax-break program for new and expanded businesses in Greater Minnesota, Einess said.

He contended the state wouldn't really lose $9 million in sales tax revenue if it grants the Thomson exemption.

"But for the expansion, we wouldn't get that sales tax anyway," he said.

He predicted income taxes paid by Thomson's 2,000 new employees would exceed the $9 million in exempted sales taxes within two years.

"I think it's the right thing to do," he said. "We're offering a temporary, limited sales tax exemption for long-term, permanent economic growth and a lot of great jobs that will be here for decades to come."

Many tax policy analysts oppose giving special tax breaks to select businesses.

"As a policy, it's better to have a competitive statewide environment and not carve out one industry (for tax breaks)," said Lynn Reed, executive director of the Minnesota Taxpayers Association.

But in Thomson's case, Reed said, "it's totally pragmatic" for the state to offer the tax exemption because it will generate a lot of new taxpaying jobs at almost no cost to the state. And it doesn't give Thomson an unfair advantage over competitors, he said, because there are no other legal publishers in Minnesota.

"On a good-to-bad scale, I'd say this is the least bad," he said.