State Rep. Melissa Hortman,
Brooklyn Park Mayor Jeff Lunde,
and Brooklyn Park City Manager Jamie Verbrugge
Using subsidies to attract businesses can benefit community A
Civic CaucusFocus on CompetitivenessInterview November
(vice chair), Janis Clay, Pat Davies, Paul Gilje (coordinator), Rep.
Loritz (chair), Paul Ostrow, Dana Schroeder, Clarence Shallbetter. By
phone: Jamie Verbrugge and Jeffrey Lunde.
businesses subsidies to locate or expand in a community has become an
integral part of economic development strategy, say state Rep. Melissa Hortman,
Brooklyn Park Mayor Jeff Lunde and Brooklyn Park City Manager Jamie
Verbrugge. But the local, national and global competition for high-end
business development potentially allows companies to pit communities
against each other in offering the best incentives, which can drive up
offers, Verbrugge says.
The three officials
reflect on their experience with Brooklyn Park's
just-completed successful effort to attract Baxter International,
Inc., a biopharmaceutical company, to an empty biologics facility in
the city. The
city competed internationally in trying to attract the company, Lunde
says, and put together a successful deal with Baxter that combines
both state and local subsidies. The total publicly-funded incentive
package for the $200 million project could cost $10 million to $12
million and includes money from the Minnesota Investment Fund, a state
sales tax exemption, locally raised tax-increment financing funds and
a 10- to 20-year property tax abatement from the city. In exchange for
the subsidies, the officials point out, Baxter will have to meet
certain performance requirements, including creating a certain number
of highly skilled, high-wage jobs.
A recent survey shows
that more than three-quarters of Brooklyn Park
residents approve of the use of incentives to attract economic
development. Hortman believes the Baxter deal is good for the city's
residents because it increases the tax base, brings in new jobs and
raises the values of existing homes.
Background: Melissa Hortman
Park) is Minnesota state representative in District 36B, which
includes the City of Brooklyn Park and part of the City of Coon
Rapids. First elected in 2004, Hortman is chair of the Energy Policy
Committee and a member of the following committees: Civil Law,
Commerce and Consumer Protection Finance and Policy, Health and Human
Services Finance, Judiciary Finance and Policy, and Rules and
Legislative Administration and of the Data Practices Subcommittee. She
is an attorney in the Hennepin County Attorney's office. She has a
B.A. degree in political science and philosophy from Boston University
and a J.D. from the University of Minnesota.
Jeffrey Lunde is mayor of the City
of Brooklyn Park, a position he has held since a special election in
2011. Previously, he was a city council member for the city's East
District. Lunde has lived in Brooklyn Park for the past 15 years. He
works as a Senior Technical Account Manager for VMware Inc., a leading
virtualization and cloud technology company. He is responsible for
managing technical services for VMware at Medtronic and Best Buy. Lunde
has served on Brooklyn Park's Planning Commission and Human Relations
Commission and on the Northwest Hennepin Human Services Commission. He
was a member of the Hennepin County Library Board, the SourceOne
Federal Credit Union Board of Directors and the Anoka-Hennepin School
District Parent Legislative Team. He holds a Master's Degree from
Minnesota State University - Mankato and a Bachelor's Degree in
Political Science from North DakotaStateUniversity.
has been city
manager of the City of Brooklyn Park since 2008. Prior to holding that
position, he was city administrator of the City of Rosemount for five
years. Since 1993, he has served local governments in the cities of
Richfield and Eagan, in Minnesota's Stearns County and in Washington's
Franklin County Emergency Management. He has a B.A. degree in
history/political science from St. Cloud State University and an M.A.
degree in public administration from HamlineUniversity
in St. Paul.
International's possible interest in locating in Brooklyn Park
came through a relocation consultant as a blind request. State Rep. Melissa
Hortman (DFL-Brooklyn Park) explained that Brooklyn Park's proposal
for incentives to attract Baxter International,
Inc., a biopharmaceutical company, came to her attention when the
city asked if she
would chief author a bill supporting the incentives in the 2013
legislative session. She agreed. "My job is to support my cities when
they're working on economic development," she said. At that time,
neither Brooklyn Park nor Hortman knew the name of the company
Brooklyn Park City
Manager Jamie Verbrugge noted that the city's staff business developer
works closely with Minnesota's Department of Employment and Economic
Development (DEED) and with Greater MSP, a nonprofit
organization dedicated to growing the economy of the 16-county
Minneapolis-St. Paul region.
"She's networked in when they see proposals of companies looking at
coming into or expanding in Minnesota," he said.
"Baxter came through
DEED as a blind request," he continued. "Deloitte Consulting did the
site selection process for Baxter. We only knew we were working with
Deloitte and we didn't know what company. Deloitte outlined the scale
of the project and what kind of industry it was and then asked
communities what kind of incentives they could provide." Verbrugge
said Deloitte was looking for incentives, the overall business climate
in the city, and the process and timing for the city's development
"We put a package
together in the blind, which is not unusual for us," he said. Brooklyn
Park Mayor Jeff Lunde met with Deloitte in November 2012. "The project
was code-named 'Project Fern,'" Verbrugge said. "It was top secret.
The company wanted to get a feel for personalities, as well. They
wanted strong staff support, political support and strong community
support. We knew this was a competitive process where they were
looking at other sites around the country and around the world."
Brooklyn Park had
10-year-old empty biologics manufacturing and office facility built by
PDL BioPharma, Inc., the only facility of its kind in Minnesota.
"It was a
state-of-the-art facility for biotech design and manufacturing,"
Verbrugge said. When PDL's product did not
get FDA approval, the company sold the facility to Genmab, a
biotechnology company. Genmab closed the Brooklyn Park facility after
two years, due to the recession. "So we had a state-of-the-art
facility sitting there dark," he said.
"Baxter was looking at
retrofitting this existing facility," Verbrugge continued, "comparing
that to the cost of building in Asia,
where land costs and labor costs are less and the permitting process
is less cumbersome. We have to be competitive on a global scale." He
said the company, still not identified to the city, said in November
2012 that they were walking away from the project. But in January
2013, they said they were back on again.
"At that time,"
Verbrugge said, "the development manager for DEED was working closely
with Deloitte and told us we had to indicate our commitment at a
meeting to be held somewhere in the world and it would be on a week's
notice. It turned out to be a flight to Chicago
and then we learned it was Baxter."
Major decisions are
frequently made not knowing who the potential user is.
"We want to be competitive globally, knowing that sometimes we take a
risk by not knowing who we're dealing with," Verbrugge said. "I
appreciate that Rep. Hortman stuck her neck out on this, too, because
she didn't know who it was. When the Legislature is talking about
incentives, that can be a difficult thing, given Minnesota's reputation
for transparency and open government." He said it was "a little bit
tough when operating in the blind. They didn't tell us a dollar amount
we had to hit."
Lunde said Brooklyn Park
was not competing with anybody locally on the Baxter deal, because the
former PDF facility is unique in the metro area. The competition was
global and the competitors were Singapore, a Chinese province and
somewhere in Europe.
The company was
interested in the training available for biopharmaceutical jobs.
An interviewer asked where in the process Deloitte described what kind
of workforce skills and what mix of workforce would be employed in the
facility. Mayor Jeff Lunde responded that during negotiations in the
fall of 2012, the city met with Deloitte, the Minnesota State Colleges
and Universities system (MnSCU) and North Hennepin Community College
and talked about training for biopharmaceutical jobs. Lunde said at
one point during the negotiations, the city's competition in China was
offering free training for everyone.
Baxter is part of a
new industry in the U.S. called biosimilar processing.
Lunde said the facility would be used primarily for very technical
manufacturing and for research and development. Verbrugge said Baxter
is in the business of biosimilar processing, which he likened to
manufacturing generic drugs. Instead, they're making biological
products that are biosimilar, or interchangeable, with already
approved, FDA-licensed biological products.
Verbrugge said the
biosimilar industry is new in the U.S.
The Affordable Care Act created an abbreviated licensure pathway for
biosimilar biological products, while in Europe, biosimilars have been
approved for a number of years. "For us," he said, "it's an
opportunity to get a foot in the door with an industry that's untapped
here in the U.S. and that we think will be a pretty expansive growth
The final financial
package for Baxter is a state and local partnership. An interviewer asked
what the final financial package was and why state legislation was
needed. Verbrugge replied that the city alone wouldn't have been able
to provide an incentive package that "met Baxter's total needs." He
said the state contribution came through the Minnesota Investment Fund
and a sales tax exemption on construction materials. The city share
involved tax-increment financing (TIF)
and property tax abatements. Several years ago, he said, the
Legislature gave cities the flexibility to pool excess increments that
are collected from a number of TIF districts in a city.
(TIF) is an economic development tool available to Minnesota
cities under state law.Cities may create TIF districts for economic
development, housing, redevelopment or pollution cleanup. The TIF
districts, which take in the area slated for development,
redevelopment or cleanup, generate revenues to help pay the costs of
those activities. The revenues, known as the increment, are the
property taxes generated each year on the increase in taxable value
within the district. So TIF revenues depend on the taxable value
increasing over the life of the TIF district to generate the
increment. The TIF increment revenues are captured to help pay
for various improvements in the TIF district and are not available
during the life of the district as general revenue for the city, the
county, the school district or any special taxing districts in which
the TIF district is located.)
According to Verbrugge,
the state and city financial package for Baxter includes:
$1.5 million of pooled TIF funds
from the city;
$3 million to $5 million in state
money from the Minnesota Investment Fund, with the amount dependent
on whether Baxter expands the facility and creates additional jobs
in a second phase of the development;
Up to $1.86 million in city property
tax abatements over 10 years for Phase I and up to another $1.86
million over 10 years for Phase II; and
An exemption from state sales taxes
on construction materials.
In exchange, Baxter
plans to reactivate the biologics facility and bring 190 skilled jobs
to Brooklyn Park, with the potential for more jobs in future phases.
The 190 Phase I jobs need to have an average salary of $75,000. Phase
II, a possible expansion of the facility, could include employing an
additional 190 or more similar workers.
"We tied our incentives
to the jobs Baxter was committing to create here in city," Verbrugge
said. "They have to deliver on the jobs to qualify for the
pointed out that Brooklyn Park has a subsidy policy that requires jobs
in business projects getting a city subsidy to average compensation
three times greater than the minimum wage. "We're very focused on
living-wage jobs and higher," he said.
Verbrugge said both PDL
and Genmab, the two previous owners of the facility where Baxter will
locate, received TIF help from the city. Neither met the city's
required performance standards, so there are still TIF funds available
that those companies never received. "We were able to extend and
revive some of the assistance that had been pledged earlier, because
it was tied to the property," he said.
The total state and
local investment in the Baxter project could be in the area of $10
million to $12 million, out of a total project cost of $200 million.
For a recent $250 million Baxter project in Georgia, Verbrugge noted,
the state, county and city jointly funded over 20 percent of the
project costs. "We are far below that number," he said. "That shows
you where we are in terms of being competitive on a national scale,
not even looking at the global scale."
Brooklyn Park had
already used subsidies to attract businesses. Hortman referred to two
projects Target has done in Brooklyn Park and said the total tax
abatement for the two projects is $30 million. "When the Baxter deal
came along," she said, "this wasn't like a foreign language to us in
Brooklyn Park to deal with the moral issue or philosophical issue of
whether we should be doing subsidies to get people to come to our
community. It was a bridge we had already crossed before and we had
really seen it benefit the community with the Target campus. Baxter is
doing the work here only because of the package."
Subsidies are part of
the economic development game. "As a state legislator,
the city asked me to carry this legislation to get money from the
Minnesota Investment Fund and to get a state sales tax exemption for
construction materials," Hortman said. "I'm not a big fan of
subsidies. I wish this was not a game that gets played in economic
development, but it is how the game is played. You might not like it,
but if you want to participate in the process, that's the game you
play. It's not a perfect system."
"If relocation experts
like Deloitte weren't out there doing this and the other jurisdictions
in the country weren't playing this game," she continued, "we would
not also need to play the game. But looking at the deal for the
citizens of Brooklyn Park, I think it is a good deal, because we
really need the jobs and we really need the real estate values to go
Verbrugge added, "If
there's a criticism of how economic development incentives are used,
it's that it potentially allows companies to pit communities against
each other. It tends to drive up offers.
subsidies must meet performance standards. Lunde explained that the
city "backs in the money." The companies have to perform and the city
calculates the number of jobs they actually create. "We are very
purposeful in not just handing stuff over," he said. "If they don't
perform, they don't get the money. We're willing to participate, but
not just to give. There must be a mutual benefit. If the company wins,
we win. If a company is not performing, we're pretty ruthless."
Brooklyn Park is in a
competitive environment in the metro area.
"Look at Brooklyn Park and then look at Maple Grove,
Plymouth, Eden Prairie, and Minnetonka," Verbrugge said. "These cities
don't have to do much to attract high-value commercial development.
Our city is left behind in that equation, unless we can change the
conditions to try to attract businesses here. The consequence if we're
not participating is that our tax base suffers. It's difficult for us
to deliver city services if we don't have a balanced tax base. Having
a healthy tax base is a primary reason we're out there trying to woo
high-value commercial development."
Verbrugge reported that
the city is about to finalize a deal with Olympus Corporation, a
maker, to relocate more than 315 employees from Maple Grove to a brand
new office and R&D center along Highway 610 in Brooklyn Park. He said
the city was
competing nationally and locally, because the company was looking to
consolidate its operations and expand, instead of being located in
five different buildings, as they are in Maple Grove. Several cities
in the metro area were being considered, as were Boston,
Memphis and Cleveland. "There's a perception that Brooklyn Park is
stealing jobs from another community because of a subsidy," he said.
"But if they hadn't chosen Brooklyn Park, there's a good chance they
would have chosen another state."
Brooklyn Park needs
high-end commercial development on its northern side to help meet the
challenges of poverty in the city. An interviewer asked if
Brooklyn Park has a continuing incentive to get things developed
because it has set aside so much land in its northern half for
commercial development. Lunde responded that the city is half diverse,
with a lot of poverty and an achievement gap between different racial
and ethnic groups. "We need tax base on the north side of the city as
a counterweight. We're not Eden Prairie
or Maple Grove. They don't have the same challenges of poverty that we
do. We're more like Minneapolis and St. Paul. We need that tax base."
Verbrugge said Brooklyn
Park is 20 percent foreign born and 50 percent nonwhite. "We're trying
to negotiate with Target and others on how they can make their
presence here a benefit to the entire community, besides just the tax
The Legislature must
approve payments from the Minnesota
Investment Fund (MIF).
Hortman said MIF is smaller and more difficult to access, compared to
similar funds in some other states. She said the Legislature
appropriates $10 million to $30 million to it in a biennium and then
appropriates payments out of the fund.
Verbrugge added that
DEED has the authority to make payments of $1 million or less out of
MIF. Since the Baxter project, the Shutterfly project in Shakopee and
the 3M project in Maplewood all needed more than that, special
legislation was required to authorize funding for each of them.
deals are part of the political process. An interviewer commented
that it seems business subsidies are determined outside of the
priorities that the Legislature and city councils set for spending.
Hortman replied that both the Legislature and the executive branch
have roles in determining the subsidies. "To some degree we're
supporting the functions in DEED that we've already given them
authority to do," she said. "We give deference to the agency's work
when they come to us for special legislation, because we've given them
the budget to do this work."
"It doesn't happen
outside the political process," she said. "There's a sense there's a
secret back room where these deals get cooked up. No, but the original
proposal doesn't get created at a legislative hearing. We did, though,
have a very full, very challenging hearing on the Baxter deal."
Verbrugge said that in
the aftermath of the Baxter deal, some city council members asked when
the city gets to say no. "The perception for many is that these big
corporations come with their hands open. We aren't in a good position
to say no. How do we remain competitive within that environment?"
Most Brooklyn Park
residents approve of using subsidies for economic development. Verbrugge said
does a community survey every two to three years. In the survey done
last June, one question asked people about their support for using
subsidies or incentives for economic development. "It came in at 77
percent support," he said. "It's off the charts. Our community
understands that we have challenges here that are relatively unique in
the metro area and our residents want us to be aggressive in resolving
work generally focuses on the state's foundational structure: getting
transportation infrastructure in place and having the higher education
infrastructure supported. "As a state legislator,
the investment attractiveness piece is one thing I think about and
spend time on," she said. "But I have spent the bulk of my legislative
energy on foundational competitiveness.
She said Brooklyn Park
"is a little bit of a laggard" in development because of the lack of
transportation investment there. "Brooklyn
Park will take
off a little bit more on its own without subsidies when we complete
Highway 610," she said. She is fighting for the future Bottineau
light-rail transit (LRT) line to terminate at the city's Target campus
instead of in
Maple Grove. "LRT
lines are more real estate development tools than pieces of
transportation infrastructure," she said. "They're equally as
important in redevelopment as they are in moving people from point A
to point B."
Hortman has a very
positive impression of DEED. When asked for her
impression of DEED, Hortman said she doesn't work a lot with the
agency, "but they seem to be very, very active. They're cooking with
gas under this administration. I see a very active agency using all
the tools in its toolbox. Since [Gov. Mark] Dayton's election, I hear
from DEED that we can do it, we're competing, this is a great place to
do business, we have a highly educated workforce. We're talking about
things that make Minnesota a place to be, rather than talking about
the things that make Minnesota not a place to be. I have a very
positive impression of DEED."
No one is responsible
for ongoing evaluation of whether subsidized business projects have
accomplished the city's objectives. An interviewer asked if
there is an entity or a person who will monitor the net results of the
Baxter transaction and report the results to the citizens. Verbrugge
said the state requires an annual report on the city's subsidies, but
doesn't ask whether they're actually achieving the city's objectives.
"Nobody does that evaluation unless a project fails," he said. Lunde
added, "We are constantly having to assess and reprove why we do this
every time the next potential agreement comes up." And Hortman said,
"The mayor's political opponents and my political opponents will
continue to let us know if it's not successful."
Large amounts of
subsidy money could raise ethics concerns. An interviewer asked
whether we should we be concerned about ethics, with all the money
involved in U.S.-wide and worldwide competition. Lunde replied,
"Minnesotans pride themselves on being open and honest. We must be
constantly talking openly about these deals."
"That's a question that
came up in the legislative process," Hortman said. "Is this a special
deal for special people? That's the beauty of being anonymous: it
doesn't matter who it is. We're looking for whoever would develop this
building. It's a transparent process that is open to all competitors
of a certain size."
The city offers
development opportunities to big and small companies. Verbrugge said it's a
legitimate question whether the city should be handing out money to
Fortune 100 companies. "Why do they need a few million dollars when
they're billion-dollar entities? Is this at the expense of the little
guy?" He said through the Brooklyn Park Development Corporation, an
independent nonprofit, the city is providing those opportunities for
small and large companies. Lunde pointed out that smaller companies
need a smaller amount of investment. "We try to service big and small,
because they're all important," he said.
Hortman said her
family's business, John's Auto parts in Blaine,
with 150 employees, has never gone to the city of Blaine for a subsidy.
"As a small businessperson, do I think it's fair that John's Auto
Parts never got a subsidy from Blaine
or from the state to keep our 150 employees employed?" she asked. "You
could say that's not fair to incumbent players in the market. But life
is not fair. You can't look for perfect justice in government and
concluded by saying, "The relationship between city staff and state
leaders is very tight in Brooklyn Park. That
allows us to move very quickly when opportunities come up."
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