Luring and growing businesses with local subsidies: What’s Northfield’s track record?

Northfield City Councilor Betsey Buckheit has a new blog post titled The cost of doing business:

Betsey BuckheitIn the “try to lure business at all costs” department: Part 1 of the New York Times’ United States of Subsidies series As Companies Seek Tax Deals, Government Pays High Price is another piece to add to my collection of anti-subsidy posts…

Politically, this should bother Democrats and Republicans.  For small government free market types, this is heavy government meddling in the private sector with your tax dollars.  For liberals suspicious of big business, the money flowing to enrich corporate America should be infuriating.  For anyone interested in transparency and accountability it’s trouble.

Her post makes me wonder what Northfield’s recent (past ten years or so) track record is with using tax dollars to lure companies to Northfield and grow ones already here.

Chris HeinemanIt might be helpful information for our new Director of Planning and Community Development,  Chris Heineman, who’s also serving as our Economic Development Director. (We recently had three city staffers doing his job.)

And it might be helpful to current members of the EDA as well as for those being considered for the two vacant positions.

So let’s crowdsource this: What’s Northfield’s track record at luring and growing businesses with local subsidies larger than, let’s say, $10,000?  Contact me if you’re reluctant to comment here.


  1. BruceWMorlan said:

    Well, free-market types think that indirect and direct subsidies like these (e.g., TIFs) are “picking the winner” in an unfair way. They use terms like “rent-seeking” to disparage the practice. THe Times article Betsey references states

    The Times analyzed more than 150,000 awards and created a searchable database of incentive spending. The survey was supplemented by interviews with more than 100 officials in government and business organizations as well as corporate executives and consultants.

    A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.
    [emphasis added]

    Local leaders are engaged in an effort to determine whether Northfield itself is in the set of communities that have had bad experience or whether it has managed to avoid the sorts of mistakes described in the article. An inventory of past attempts (as called for by Betsey) could be important as it could reveal whether we are just lucky or have we been systematic in avoiding these pitfalls. Absent that analysis we will be betting that the new staffs we have now can do as well as the staffs from the last couple of decades. Chris Heineman could very handily address this question as part of one of his first reports to the City Council on lessons learned from our own and other’s past experiences.

    December 3, 2012
  2. Griff Wigley said:

    Let’s start with the seeming successes.

    Perkins Specialized Transportation Contracting

    Master Development Loan: $75,650, May-06
    “Must create or relocate 25 jobs & $700,000 in remodeling w/i 1 yr to forgive
    loan, per CC Resolution 2006-034”

    28 jobs created by May-07

    Is there any doubt that this was a good investment?

    December 4, 2012
  3. Griff Wigley said:

    Upper Lakes Foods

    Master Development Loan: $100,000, Mar-08

    “Purpose of loan is to purchase real estate. Loan forgiven 50% at time of real estate closing. Remaining note forgiven after the creation or transfer of 40 FTE jobs to the City of Northfield w/i 2 years.”

    Forgiven, Oct 2010

    Neither EDA document says how many jobs were created here. They projected 62. Anyone know?

    December 4, 2012
  4. Griff Wigley said:

    Jekkl-Larson Building (Larson’s Printing)

    Master Development Loan: $75,000 Feb-04
    “Loan for costs associated with the expansion of the Larson Building, forgivable upon completion of the Project, including housing units on 2nd level of new addition, site improvements such as infrastructure and utilities, demolition, landscaping and relocation costs. Certificate of completion issued 2/08. Loan forgiven.”

    Downtown Revolving Loan: $75,000 Feb-04
    “Loan repayable at 5.5% interest, monthly payments of 612.81 until 1/09, lump sum balance due 2/09. Loan used for costs associated with expansion of Larson Bldg. Total amount repaid will equal $93,235.53”

    At the bottom of the Sept. EDA document it says “Larson Bldg-JEKKL (75,000.00) Forgiven Feb 2009” but it’s not clear to me which one it’s referring to. That document also has a listing above for JEKKEL LTD with an outstanding balance of $39,683.49. Anyone have more details?

    At any rate, this seems a win to me, given that Larson’s Printing is still in business, that they’ve got two new business tenants in the ground level space and occupied residential rental above, and that the building is an attractive addition to the West Side/River Walk.

    December 4, 2012
  5. BruceWMorlan said:

    Griff, you really need to ask three questions of each case study:

    1. How does the promised performance help the city pay itself back a forgiven loan? Jobs true, but income tax does not come directly to city, sales tax does not come back to city, pretty much everything comes from property taxes and fees, and the “excess profit” in such taxes (which is available to cover these debts) comes mostly from businesses (commercial).

    2. If the loan is not forgiven (failure to perform), and the loan is repaid, then did the city lose money and why should the city do the loaning instead of a bank? With all due respect to banks, I’d rather they make a mistake and lose money and possibly fail than have the city make a mistake, lose money and have to try to raise taxes to cover their bad bet.

    3. Does past performance predict future returns in the era of the post-industrial economy? (See The post-industrial society), where the dramatic drop off seen there in the primary industry employees (the so-called makers) is an outgrowth of cheap energy, which is probably not a good foundation for predicting future returns.

    A fourth question to ask is whether the city made good bets in the past for the same reason that housing speculators made good bets in the early 1990s. In a boom (bull) market you could buy, paint and sell a house in a matter of weeks and take the money and run. This is strongly related to the past performance predicting future returns question, and has the same answer. Anyone can make money in a bull market, some just make more than others. Some can make money in a bear market, but cities, I suspect, are not in that special group.

    December 4, 2012
  6. Kurt Larson said:

    I can answer those questions.
    The MDL loan was satisfied via TIFF funding upon completion of the project. The DRL has been paid monthly at $612.81 and carries an outstanding balance. At the time of that document it was $39.683349.Less now.
    JEKKL Ltd. has been current in all payments.
    To update you, Larson’s Printing has payed off $20,000 of the “flood funding” the EDA provided after the September flooding of 2 years ago.
    May I suggest in the future you contact the parties involved directly for clarification on financial matters prior to putting asking a general question of “anyone have more details”. You likely will get the most accurate reply.


    December 4, 2012
  7. BruceWMorlan said:

    What I am trying to say is “The future ain’t what it used to be.” (Yogi Berra) and we should not proceed as if it were.

    December 4, 2012
  8. Griff Wigley said:

    Kurt, thanks much for chiming in with the details.

    As for your suggestion to contact you first before my asking “anyone have more details?”, help me understand. I know you said “You likely will get the most accurate reply.” But why would it be bad if a few other people chimed in with their perceptions first? This is what happens informally all the time in face-to-face conversations in any community.

    In the online world, conversations can generate the same interest and involvement as face-to-face conversations but with the advantage that misinformation and rumors can be corrected over time with a written track record for all to see.

    December 5, 2012
  9. Griff Wigley said:

    Bruce, those are great questions. How about we apply them to a loan that the EDA just approved a week or so ago for NAPA Auto Parts? (See page 4 of the 11.29.12 EDA packet.)

    A motion was made by Pownell and seconded by Rogers that the EDA approve Resolution #2012-013 approving a Large Downtown Revolving Loan request for NAPA Auto Parts in the amount of $75,000 for the expansion of their building at 108 7th Street East at an interest rate equal to WSJ prime (3.25%) with monthly payments occurring over ten years which includes all principle and interest payable on the loan, payments of which will begin January 2013 with a review of the interest rate in five years. All in favor. Motion carried.

    December 5, 2012
  10. Kurt Larson said:

    Griff, you answered your own question. It all ties in to the the misinformation and rumors. They may be correctable over time but damage may be done that can not be undone. Why would you not go directly to the source for the most accurate account. Then there is less risk of misinformation,rumor or speculation. I had an issue with a report done in the Northfield News where the reporter refused to correct a wrongly reported story when the facts were proven to her. I am not interested in reviewing that episode but I hope you get my thoughts..

    December 5, 2012
  11. Megan Tsui said:

    I just stumbled onto this report from the U of M Extension office entitled “Taking Care of (Existing) Businesses- A Community Approach”

    “You could travel around the world to attract new jobs to your town, but you’re probably better off staying at home. In the first quarter of 2012, business establishments started up or recruited to the state created 29,009 jobs in Minnesota. That’s good. But the expansion of existing businesses created more than four times that many jobs — 123,195 — in the same quarter. That’s much better. ”

    Yeah- it said FOUR times the number of jobs from expansion of existing businesses than businesses started-up or recruited. That’s a sizable and measurable difference. What kind of programs could Northfield invest in that would assist existing businesses that are already deeply rooted in our community? What has worked in other communities? I have some ideas, but I’d love to hear what others think!


    December 6, 2012
  12. When I was at Northfield Equipment, we received a loan about 1990 to move across town from 1325 Armstrong Road to 1700 Cannon Road. The amount was $150,000 and was from the Master Development Fund. It took one meeting with the EDA to get this support, and the loan was paid back in full in 1996.

    Just in last week, ArtOrg received a $150,000 loan from the Cannon Falls Master Loan Fund to buy a building there. Here is some information on that project.

    I think it works!

    December 6, 2012
  13. Griff Wigley said:

    Kurt, I understand your point of view now, given that history.

    But I think there’s a big difference between a newspaper article and a comment. Or in the case of LoGro, between a substantive blog post and a comment attached to it.

    December 10, 2012
  14. Griff Wigley said:

    Urban studies theorist Richard Florida published a reaction to the NY Times series on the Atlantic Cities site last week titled The Uselessness of Economic Development Incentives

    With the help of the MPI’s Charlotta Mellander, I examined to what degree these economic development incentives are related to state economic performance…

    Our biggest takeaway: there is virtually no association between economic development incentives and any measure of economic performance. We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate.

    Do his contentions apply to counties and small cities like Northfield?

    December 10, 2012
  15. David Ludescher said:

    It’s difficult to draw any meaningful conclusions from Mr. Florida’s research. His figures deal with correlation between government benefits and different presumed measures of economic performance. There are far too many variables in too few equations. For example, you can’t compare government incentives with average wages or incomes or average home prices. Average wages don’t measure economic benefit or activity.

    As a future council person, I would be concerned about local subsidies to businesses if those subsidies were a significant piece of the budget of the EDA or the City. You cite a number of loans to businesses at below market rates. That doesn’t amount to much of an overall subsidy.

    More concerning to me is the non-economic subsidies being passed out – $60,000 to the skateboarders, $250,000 for a bike trail, $500,000 for a parking lot etc. I would be interested to hear what Mr. Florida has to say about how to measure the value of these projects.

    December 10, 2012
  16. Megan Tsui said:

    The Knight Foundation’s Soul of the Community Report indicates that there is a strong link between levels of community attachment and engagement and local GDP.

    The study defined community attachment as “an emotional connection to a place that transcends satisfaction, loyalty, and even passion.” What matters most, the study says, are three things: Social Offerings- places for people to meet each other and the feeling that people in the community care about one another; Openness- how welcoming the community is to all types of people; and Aesthetics– the physical beauty of the community including the availability of parks and green spaces.

    So I’ll say it again: This study says that there is a positive correlation between community attachment and local GDP growth. “This is a key metric in assessing community success because local GDP growth not only measures a community’s economic success, but also its ability to grow and meet residents’ needs.

    You might be surprised by the ranking of other factors of attachment. Here they are in order:
    Social Offerings
    Basic Services
    Social Capital
    Civic Involvement

    What does this list and it’s correlation to our local GDP tell us about Northfield? If aesthetics is a key component to feeling attached to a community- isn’t an investment in parks economic development at it’s very core?

    December 11, 2012
  17. Griff Wigley said:

    I think it is, Megan. But I also think it’s understandable that many people think that “community attachment and engagement” are not enough to attract or always keep companies here.

    Malt-O-Meal moved its office workers to Lakeville or year or more ago in a significant expansion. I still don’t quite understand how that happened so quickly or if anything could have been done to keep them here but it’s pretty clear that “community attachment and engagement” weren’t enough.

    And in today’s Strib: Emerson looks at Shakopee for 500-job expansion

    Initial reports of economic assistance included a package of $6 million in subsidies from the city, Scott County and the state of Minnesota. That included an unspecified amount of tax abatement and funds from a city revolving loan fund that currently has a balance of $247,000. McNeill said it would be the first time the city has tapped the fund, which has existed for several years.

    December 12, 2012
  18. Megan Tsui said:

    You are totally right. The challenge with economic development is that it isn’t an “OR” conversation. It’s an “AND”. We have to implement multiple strategies at the same time.

    My comments on the study from the Knight Foundation was made in response to Mr. Ludescher’s comments about parks and bike trails. I should have made the comment under his reply.

    Let me say this: I am saddened to learn of several businesses/organizations/departments leaving town. Anyone that suggests otherwise doesn’t know me and my commitment to Northfield and its business community. I moved here when I was three years old. I spent my youth making serious cash selling pine cones in front of my house (lemonade was sticky and the bees were terrible competition). I worked at several businesses all through High School and College at St. Olaf. After graduation, I had my own small business where my customers were small businesses.

    My current role at the NEC prevents me from revealing any details about businesses that have come to us for assistance so I am not at liberty to discuss anything that I “know” about the decisions that have been made by an organization. It is sometimes hard to sit back and watch insults fly when there are often strategic decisions that are made in organizations regardless of options presented or information given. But, that is the role of the NEC and I want any and all businesses to know that their secrets are safe with us.

    Also know that we are deeply committed to assisting business in our community. When I’ve asked for new ideas about how to do that, crickets chirp. So, while it is very easy to criticize current strategies, the real work comes in sticking your neck out and suggesting and creating new ones. I’m ready…who’s with me?


    December 12, 2012
  19. kiffi summa said:

    interesting conversation on MNPR this morning on the subject of attracting business, residents, and growing the economy in small rural towns … Minnesota and Nebraska most thoroughly discussed.

    The people giving opinions were small town mayors, development professionals, academics, and all agreed that the dreaded “brain drain” is reversing in people of 30-45, as those adults have families and wish to offer their children the advantages of small town living that they enjoyed… therefor returning to their roots, and creating a “brain GAIN”.

    But it was also agreed that this did not happen in small towns which had allowed their downtowns to fall apart; an attractive functioning core downtown was necessary to success.

    December 12, 2012
  20. Megan Tsui said:

    I should clarify- Griff…you know me just fine. After re-reading my comment here I see that I may have let a little of my feelings about some anonymous comments on a certain news site slip and get tangled in my response here. But, I’ve created a new personal policy not to comment on any anonymous comments.

    I appreciate that people on this blog have to show their face and reap the rewards or suffer the consequences of their comments.


    December 12, 2012
  21. Ross Currier said:

    This discussion is all over the place. Perhaps because it’s such a complex subject. It kind of reminds me of the “Be Local/Small Business” post discussion. There’s the “economic impact” side and the “quality of life” side; support local/small businesses because they’re important to the economy or support local/small businesses because they’re part of our quality of life. Personally, I think that they are two sides of the same coin; local businesses contribute to the quality of life and quality of life attracts businesses.

    Bruce, on some post, mentioned the “false dichotomy”. I think it was the “be local” post. However, I think the real false dichotomy is defining the choice as being between “low cost” and “over-priced”. That would be the choice for someone who is only capable of discerning the difference in prices. Some people might see the choice between “low cost” and “high quality”…or “hand-made”. I hear Wayne Eddy saying “Keep Your Money in Northfield” and I think there’s another choice: send your money to Vietnam or Bangladesh or keep your money in Northfield.

    Betsey’s post talked about “luring” businesses to Northfield. So the conversation began with “luring” businesses. Griff and Bruce attempted to come up with a rubric (sorry, I just love that word…thanks David, it’s the gift that keeps on giving, at least for me) for judging the success, or effectiveness, of financial incentives in luring businesses. I can’t remember what they said and am too lazy to re-read it but I’ll try to remember what their ideas as I suggest what comes off the top of my head.

    First, did the business only come to Northfield because we “lured” them by “dangling” financial incentives in front of them? If we dangled and they were lured, I guess you could say the financial incentives were a success, at least using that limited rubric.

    Second, did they create (or relocate) jobs? So many of our leaders talk about jobs, or job creation; some of them talk about good jobs, paying good salaries, or green jobs, doing little harm to the economy, or ghost jobs, jobs that are promised but seem to disappear…or never appear as promised…but we’ll keep it simple: did the incentives “lure” new jobs to Northfield?

    Third, did they grow the tax base? Most of our leaders talk, over and over and over again, about growing the tax base. However, depending on the type of financial incentives, it’s not quite that simple. If we use TIF as an incentive then the tax base may grow but the taxes generated by the new development will be used to repay the cost of the infrastructure, at least for the ten to twenty-five year term of the TIF district..

    We’re back to Betsey’s questions about the “return on “luring” investments”. Perhaps we should also consider the “return on “supporting” investments”.

    As Megan noted, and I have said, at least once or twice, most new jobs are created by existing, local, small businesses. Using my previous three-pronged rubric, investments in such businesses seem to be successful: the existing business are already in Northfield, they provide some jobs, and, if they own commercial property, they sure as heck are paying taxes. Perhaps some believe that existing businesses need a different rubric, such as: 1) Are they still in business, contributing to the community?, 2) Did they lead with a private investment that was supported by the public investment?, 3) Are they still banging out singles and getting on base?

    Okeh, this last one reveals my fondness for baseball and occasional use of baseball analogies. To me, supporting existing businesses is like going with a line-up of singles hitters. They are reliable…and are generally less costly. Luring businesses (the unicorn-like business with 100 relocatable jobs) seems to me to be kind of like paying a third baseman who can’t catch $275 million over ten years in hopes that he’ll hit enough home runs to win more games than he loses.

    Choosing products based solely on price and choosing locations based solely on price…or financial incentives, is certainly a valid philosophy. In fact, it was the dominant paradigm from about 1920 to, oh, let’s say, the 1980s. However, just as it is increasingly clear that some individuals choose products based on factors other than price, it is increasingly clear that some companies choose locations on factors other than price, cheap land and/or financial incentives.

    Griff cited Richard Florida. I won’t comment on his or David’s statements regarding the Florida quote. I will note that Florida’s “rubric” for this particular study seems to be wage levels, workforce education levels, and unemployment rate. One could have a rubric that considered increasing low-wage jobs and jobs for less-educated workers to be a success, as long as they grew the tax base. However, the lack of decrease in the unemployment rate is hard to completely ignore.

    I will also note that Florida, although credentialed with a PhD from Columbia University and experienced with stints at Carnegie Mellon, George Mason, and, currently, the Rotman School of Management at Toronto, is often dismissed as being inadequately rigorous in his analysis. I can only speak from personal experience; when I read his “The Rise of the Creative Class” I found it tediously filled with tables, graphs, and statistical analysis…the sometimes much-desired “quantification”.

    Megan cited a Knight Foundation study. The findings were strikingly similar to four years’ of interviews with local business people as to why they choose to locate their businesses in Northfield. Once again, I’m too lazy to look up the data, but I know that again and again and again, they cited, in roughly this order, the historic downtown, the scenic river, the rich culture (which most attributed to the presence of the two colleges), the recreational opportunities, the quality of the public schools, the welcoming atmosphere, and the proximity to the airport. No one ever mentioned price.

    Somebody, probably Griff, mentioned Emerson wanting $6 million in subsidies to move to Wherever. As the first consultant on the business park told us (I think only Jim Gleason was listening) the users would not only NOT pay for the infrastructure, they would want additional financial subsidies to move to Northfield. I believe that Whereverville already has the infrastructure in place. Northfield would have to pay $40 million for the infrastructure, and then, based on Emerson and Whereverville, an additional $1.2 million to realize the 100 job employer. Does Northfield really think it can afford to compete, in financial incentives, with the New York Yankees or the Los Angeles Dodgers?

    Perhaps some communities can afford to continue to pursue the old paradigm of trying to lure new businesses by dangling financial incentives in front of them. I don’t think Northfield can compete and win chasing this paradigm, particularly considering Northfield’s hard and soft infrastructure. Fortunately, there’s a new paradigm that plays to Northfield’s strengths.

    Just as investing in existing businesses is a bit more reliable in terms of keeping your money in Northfield, investing in pursuit of the new paradigm of recruitment also keeps your money in Northfield. If, as Florida and Knight suggest, the business owners of the new economy are more attracted to community amenities than financial incentives, the existing citizens benefit as much as the hoped-for citizens. Existing residents can enjoy the swimming pools, bike trails, skateparks, public schools…and welcoming athmosphere, as well as the coffeeshops, pubs, restaurants, retailers and service providers, that may attract these business owners.

    December 16, 2012
  22. Griff Wigley said:

    Allow me to highlight some of the EDA loans that so far, appear to not have worked out.


    Master Development Loan: $50,000 Sep-09
    “$50,000.00, at 3.25%, over a period of five years for use as working capital?

    The EDA Loan Portfolio from last year doesn’t specify what the expectation was, eg, jobs created by a date.

    The EDA Loan Portfolio from September shows that there’s $20,978.47 outstanding, so apparently it’s being paid back.

    December 17, 2012
  23. Griff Wigley said:

    Ross, I agree that the new paradigm plays to Northfield’s strengths. But it doesn’t seem clear cut. For example:

    Upper Lakes Foods located here. Was it primarily because of those strengths or was it the right building in the right location? I thought it was the latter.

    ID Insight (software) relocated here but left for Arden Hills in the metro area. And Malt O Meal’s white collar workers were here but left for Lakeville. Why weren’t Northfield’s strengths enough to hold them here?

    December 18, 2012
  24. kiffi summa said:

    for some reason, it is impossible to get an even somewhat realistic discussion in Northfield about how economic development is achieved, except, IMO, by those who say we can do best by creating the environment which would support attracting businesses. (that would be Ross and Betsey).
    At least they have specifics which they suggest, rather than vague criticisms.

    The NFNews current opinion piece says this: “Most importantly, we’d like to see a much stronger EDA, with a clearly defined mission of continuing city staff’s work this year of making Northfield a city that says “yes” more often than it says “no.”

    Now what the heck does that mean?

    I am not a fan of our EDA as it has been configured in recent years, nor of the personal oppositions that have kept it at less than full strength. The opposition to the Mayor’s appointments has always just been “no” rather than “no, because …”.

    I understand that it is difficult to oppose an appointment that involves the discussion of a specific citizen, or councilor to a body, but there has to be a way found to have that discussion, or else it appears to be simple ‘opposition’.

    But getting back to the News’s opinion piece, can they not even be more specific in an editorial? Why do these oft-repeated phrases continue to dominate the conversation, in lieu of a more succinct evaluation?
    Even their opinion poll this week perpetuates the cliche refrains.

    What has the EDA said “no” to, that disturbs the editorial writer? What actual proposal should they have said “yes” to?

    Let’s hope the new council can set some real guidelines and tasks for the EDA, or else, admit that most of the initiative comes from the company seeking a location, and what NF can realistically do is react in the most positive way to that search for a location.

    Way too many unrealistic cliches floating around on this subject,and perpetuating myth, IMO…

    January 1, 2013
  25. Ray Cox said:

    One thing that is a big factor in any business decision on relocation or expansion is real estate taxes. I was saddened to see the chart in the Strib South edition a couple of weeks ago showing Northfield city taxes increasing at almost double any other of the cities listed. It is very difficult to ‘sell your city’ to a prospective client when they see the rate that RE taxes are increasing.

    The state has to pay attention also. Over the holidays I have been reading a new book on railroads in Minnesota. It outlined how Minnesota lost the headquarters (and just about all other operations) for Burlington Northern due to the tax climate. The President of the company had been talking to Governors and legislators for years about the problem, and they finally acted on their own to resolve the issue….by moving their headquarters to Texas and parceling out other functions to other states. A sad day to see Minnesota lose all those jobs.

    January 2, 2013

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