Growth & Justice Blog

Business leaders focus on success in schools, community priorities

Times are tough in the world of commerce these days but the Minnesota Business Partnership put on an uplifting and clever show Tuesday night, highlighted by a very funny Twitterfest orchestrated by partnership director Charlie Weaver. The fictitious tweets that flashed up on the big screen were inspired, including the one ascribed to Gov. Tim Pawlenty, under the name "veer2right'', in a reference to his presidential prospecting.  

Our favorite part, though, was the recognition afforded to two outstanding public schools, King Elementary in Deer River, and Dayton's Bluff Achievement Plus Elementary in St. Paul, for their progress on student achievement. The videos celebrating and explaining their success should be up soon on the partnership website. (The Partnership is comprised of the CEOs of Minnesota's 100 largest companies and obviously is a major player in policy matters.)

Qwest CEO John Stanoch, a valued member of the Growth & Justice Board of Advisers, and a leader of the partnership's education policy team, pointed out in his presentations of $10,000 awards that both schools have high percentages of poor and minority students and that those conditions "do not have to be synonymous" with low test scores. The principals at each school talked about setting goals and focusing constructive and energetic attention on the students and parents who need help.   

The evening's speakers were focused on community building, with relatively little of the dissing of the public sector or tax rates that sometimes occurs in business gatherings. Even Gov. Tim Pawlenty's keynote address was notable for its rather harsh denunciation of private-sector irresponsibility and arrogance, epitomized by General Motors.  

Doug Baker, CEO of Ecolab, Inc., current chairman of the partnership, took aim at Minnesota's corporate income taxes as a problem, and we agree that those rates could come down as part of an overall revenue-positive tax system reform. But Baker's speech also accurately summarized Minnesota's great tradition of community-minded rather than self-interested business leadership, going back to the Dayton's department store decision a half-century ago to donate 5 percent of its profits to the community. Corporate foundations currently invest about a billion dollars a year in Minnesota, Baker said, "and there's a culture here of stewardship.''  

— Dane Smith

The subsidy game: Slouching toward Wisconsin

The Star Tribune's Thomas Lee reports that "Another Minnesota company leaves for Wisconsin."

Dr. Joseph Ward, vice president of Marketing, said: “RJA Dispersions chose John Wold’s River Bluffs Business Center not only for its attractive location and economics, but also for the availability of industrial level power. Bill Rubin, director of the St Croix Economic Development Corporation coordinated key resources including availability of financial support from Char Gurney and the West Central Wisconsin Regional Planning Commission which is making our expansion plans possible in this difficult financing climate.”

Emphasis mine.

Hey, I get why a manufacturer might covet "availability of industrial level power," even though it's a mystery to me why the company could find better power in Hudson, Wisconsin, than is available in 3M's backyard. Just a hunch, but I think the "availability of financial support" probably played a bigger role.

Hudson is also home of the long-vacant St. Croix Meadows dog track, which promised big crowds, fancy restaurants and an influx of high-rolling tourism when it opened in 1991. You'd think communities would learn, but maybe the weeds growing up in the cracks in the parking lot aren't enough of a reminder.

This move is hardly on the same scale, but it brought to mind that only last week, Dell Inc. announced that it will shut down its state-of-the-art desktop computer manufacturing plant in Winston-Salem, N.C. facility by January, with the loss of 905 jobs.

Dell was promised more than $300 million in state and local incentives to open the [$130 million] plant. But it was required to invest $100 million, create 1,700 jobs by September 2010 and maintain those jobs for 10 more years. If those terms weren't met, the company would forfeit the incentive package.

Dell owed the state another 800 jobs in less than a year. Folding the state-of-the-art tent seems almost honorable.

Dell says it "will absolutely continue to comply with and honor all agreements with various governmental entities," which means it will pay back at least some of the help it received to locate there. As required.

[Winston-Salem Mayor Allen] Joines said he was assured by Kip Thompson, vice president for facilities, that Dell will honor its commitment to repay the $15.56 million the city has provided since Dell agreed to build the plant.

But millions of dollars won't be returned. Public agencies paid to prepare the Dell site for construction, widen roads leading to the plant, and equip community colleges to train company workers before the plant opened.

Our friends at Good Jobs First remind us that Dell was more aggressor than suitor. Greg Leroy's chapter on corporate tax dodges [PDF] details how Thompson ran the negotiations:

“Here’s what it’ll take,” Dell vice president Kip Thompson told Commerce Secretary Jim Fain in May 2004, according to Fain’s notes. “1) free land; 2) free bldg.; 3) no taxes; 4) training at $5m; 5) participation in creation of future value in the community.” The
following month, Thompson said to Fain: “[I am] not wowed here—not sure the state’s stepping up here ...If a state like N.C. can’t get after this, I’m worried for our country — there’s a certain amount of patriotism here.”

Meanwhile, Dell has announced that it would move its Irish operations to Poland in exchange for a 54 million Euro ($80 million) subsidy. The Poles are grateful, but say they are undeluded about the way the subsidy game works.

[W]ith wage costs rising, people here know they may have just a decade to make the most of the “Dell Effect” before the company vanishes again.

Although there's no specific talk of tax concessions in the brief story about the Minnesota company leaving for Wisconsin, the "another" in the headline implies it is part of a trend, and it may be tempting for readers to assume that our supposed unfriendly business tax climate is to blame.

But Wisconsin's total taxes as percent of income is now about 12.2 percent, ranking 13th, compared to 11.8 percent and a 19th ranking for Minnesota.

Let's hope Wisconsin doesn't decide to become Minnesota's Poland. Then, who will be Wisconsin's China?

— Charlie Quimby

Wisconsin, where the venture grass looks greener — so far

The Star Tribune today reports a start-up medical company, which grew out of University of Minnesota research, is considering moving to Wisconsin because of taxes.

No, the decision will not be based on the usual complaint about taxes on the business or its owners. The concern is taxes on high-tech investors in an economic environment where money for research is very difficult to obtain. The company believes investment dollars are greener on the other side of the border because of a Wisconsin law that gives investors in start ups

tax incentives that encourage them to fund risky, early stage companies based in the Badger State. Angel investors there can claim a 25 percent tax credit over two years up to $500,000 per investment; venture capital funds can earn a 25 percent credit over one year up to $2 million per investment.

Research-based medical start ups have ongoing needs for capital as they develop products and get them through the regulatory process. They also may be more mobile than other types of businesses that have already established facilities, suppliers and customers. 

The Governor's Tax Reform Commission proposed similar measures [Download summary PDF] to encourage early-stage investment in Minnesota entrepreneurial and high-tech ventures. There's broad, bipartisan support for change, but this reform is just one of many that must grind through a contentious budget-balancing process.

If the reforms fall through and the company departs to find success next door, Minnesota taxpayers can take cold comfort that they helped fund it. 

— Charlie Quimby

Will tax breaks for green investment bring green jobs?

Gov. Tim Pawlenty introduced yesterday his proposed package to encourage green job creation in Minnesota. His "Green Jobs Investment Initiative," extending a variety of tax credits to businesses and investors, has been called "Green JOBZ." 

That nickname is unfortunate.

It's true, part of what he's offering is just JOBZ warmed over — not a concept that will excite JOBZ's many critics. But he's also suggested some other positive steps to encourage private capital investment, expand infrastructure for alternative energy, raise awareness of energy conservation and discourage greenhouse gas emissions.

It's good he's getting out front on the issues of jobs and clean technology development, but he also got out ahead of a legislature-sponsored Green Jobs Task Force that has been laying out how to tackle the green jobs issue. The bipartisan group, which includes legislators, executive branch agencies, business and environmental representatives, had scheduled to bring out a legislative action plan in December and a report in January.

This political maneuvering aside, our question is whether longer-term tax credits will actually have much impact on creating jobs today.

JOBZ's tax breaks were aimed at increasing employment in communities where economic growth was stagnating. It's debatable how many new jobs overall were created. As much as two-thirds were part of planned expansions or simply moved from one place to another.

Green JOBZ faces another hurdle. It's trying stimulate job creation in a relatively young sector that has already received a lot of venture capital scrutiny. Although investment in green industry has been growing, there have also been signs that venture funds have not found enough compelling opportunities to invest in green industry.

A 2007 study by New Energy Finance found that venture capitalists had spent only 73 percent of the funds that had been raised for green technology, and several green tech funds closed their doors that year. More recently, the research group calculated that global investment in clean-energy projects fell by almost 25 percent in the third quarter 2008, and it will likely fall further by year end.

Persuading those investors to put more money into clean technology is a laudable policy goal, but it's a very different challenge from getting a machine shop to locate its new facility in Long Prairie instead of Bloomington.

Gov. Pawlenty's plan offers tax incentives for regional investment funds to invest in Minnesota (only 50 percent of the credits will be targeted for green industry, however). Using tax breaks to boost expected investor returns seems like a good move, but it's also a move any state can duplicate.

Of the more than $13 billion in public and private investment in U.S. clean energy in 2007, nearly $9 billion was made in wind energy, a sector where Minnesota has some advantages. Venture capital funds favored solar energy development, though, with $1 billion of the $2.7 billion they invested in renewable energy technologies. By virtue of geography and technology base, Minnesota will be less competitive for these funds.

Green industry by any name will be good for Minnesota, and it seems churlish to question any well-intentioned effort to grow jobs and lessen our dependence on fossil fuels. But we also should look for the most effective role government can play in encouraging future industry — while addressing jobs today.

For the thousands of Minnesotans who are out of work or underemployed, "offer tax incentives and the jobs will come" won't offer much encouragement. Let's hope the Green Jobs Task Force has more about ideas about creating jobs than Green JOBZ.

A crusader against tax incentives gives up the fight

This week, Mark Baker resigned as CEO of Gander Mountain Co., the St. Paul-based retailer of outdoor gear and apparel. Last quarter Gander Mountain reported a larger-than-expected 11.7 percent drop in same-store sales with net losses of nearly $5 million.

Times are tough for retailers all over, so that's not what pricked my ears about the news.

Baker was also outspoken about unfair competition in his industry — specifically, "corporate welfare" given by state and local governments offering tax incentives to Cabela's and Bass Pro Shops. These retailers promote their outsized stores as "destination retail" that will draw millions of tourists, their dollars and additional tax revenues to the communities.

Two years ago, the Heartland Institute did an interview with Baker that laid out how the game works. Various forms government assistance can amount to about one-third of the cost of building new stores, Baker said, citing a tax increment financing package worth $40 million to build a giant 180,000-square-foot Cabela's in Kansas City, Kansas.

Such subsidies give the big stores a substantial advantage over other retailers. What's more, the hoped for paybacks don't always materialize, said Baker.

Resources that could be used for education or true economic development are being wasted on private retail developments. Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela's subsidies worth $61 million, or about $271,000 for every full-time job, according to our estimates. Reno, Nevada spent $54 million, or $208,000 for every job.

Good Jobs First has written extensively about the issue, and David Cay Johnston reports in his book Free Lunch that Cabela’s made more money in its first three years by reeling in subsidies than it did from selling sporting goods.

Local officials in Wisconsin and Rogers, Minnesota, are among those who've had a change of heart about such subsidies.

Now Baker is off to run Scott's Miracle-Gro, which just announced it will close two of its three Twin Cities-area Smith & Hawken garden supply stores at the end of this year. It remains to be seen how he'll perform in a new retail environment, but I'd say he made a positive impact in helping to expose problems with public incentives to attract private businesses.

— Charlie Quimby

A Minnesota business expands out of state. Are taxes to blame?

A valued, long-time Minnesota business announces it's expanding across the border. Is this more fodder for those who claim corporate taxes are driving business to lower-tax neighbors? Or does it illustrate how business expansion plans respond to a complex mix of factors?

South Dakota is usually cited as the destination for migrating Minnesota businesses — typically without naming any specific companies. But in this case, it's North Dakota that will benefit from an expanding Minnesota company.

Marvin Windows, headquartered in Warroad, has announced plans to nearly double the size of its facility in Grafton, ND, adding up to 50 new jobs over the next five years. Marvin's Warroad location employs about 2,500.

But lo and behold, North Dakota isn't quite a low tax haven of the sort we're told is going to strip Minnesota of its economic growth. In fact, it ranks just above Minnesota in total state and local taxes as a percentage of income and two places higher in corporate income tax rankings percentage of income. The complete state rankings compiled from Census Bureau data by Growth & Justice and the Minnesota Budget Project are here [pdf].

It's true North Dakota is a comparatively low personal income tax state, but the company isn't moving to there to lower income taxes for the owners. The Marvin family is staying put in Minnesota, and most of the 475 jobs created at the Grafton plant, which opened in 1997, have been filled by local residents. 

(1)Total revenue includes federal government revenue and own-source general revenue — which together make up general revenue — combined with utility, liquor store, and insurance trust fund revenue.

Let's look at some of the likely factors figuring in Marvin's decision.

Labor. The labor supply has to be a concern for Marvin, with its major manufacturing facility located in remote Warroad. Polaris Industries has a large plant in Roseau, the next nearest town. With two large employers drawing workers from the thinly populated region, at some point as they grew, they'd likely look elsewhere for labor.

Grafton, with a population of 4,600, is roughly the size of those two cities combined and is located in farm country, where skills, work ethic and the lagging farm economy offer a ready source of workers. Labor costs were lower in 2003, with the average job in the county paying $22.2k vs. $27.9k in Roseau county.

Location and Infrastructure. Though like Warroad, Grafton is relatively isolated, it's near the major north-south freeway artery Interstate 29, which meets east-west I-94 at Fargo. Grafton also connected east-west to Warroad. Marvin undoubtedly saw that infrastructure as an advantage when it originally located there. And having a plant already in that location meant the company was more likely to expand there than in a new place. Also, as an energy producing state, North Dakota has lower industrial power costs than Minnesota or South Dakota.

Incentives. Rolling out the green carpet might have a modest attention-getting effect — if the financial incentives are coupled with other positives in a community. Grafton was not one of the locations originally considered back in 1996 when Marvin was looking to expand, but it did put together an incentives package that included a new industrial park and a spec building to help interest site selectors.

This time, Marvin already announced its plans to expand before the city votes on a possible 10-year tax exemption for the addition and sponsoring an interest buydown on a loan. As we've noted before on subsidies, they make the less sense when a company is already in the region. It's unlikely, given the current housing construction market, that Marvin would be very interested in breaking ground in an entirely new location.

Business Taxes. Lest anyone think I'm gaming the numbers, here's the low-tax-advocating Tax Foundation's ranking of the states. Although North Dakota generally scores better than Minnesota on the "business friendly" indexes, it's nowhere close to South Dakota.

 

Let's pause here to make our general disclaimers about all tax rankings. Numeric rankings can distort small differences; they're based on averages or rates that don't necessarily apply to actual taxes in individual cases; they may not measure what they claim or even measure the right things in the first place. And just about any state or advocacy group can find a ranking that either rankles or reinforces, as shown in Grading Places: What Do Business Rankings Really Tell Us? [pdf].

Thirty-four of the 50 states can claim that they are in the top 10 in terms of business climate or competitiveness; they just have to pick which of the five indexes they want to point to. Business interests in just about any state can find at least one ranking to support an argument for cutting business taxes to make the state more competitive. In all but eight states, one can find at least one index that puts the state in the bottom half of all states.

Bottom line? While tax considerations may be part of a business expansion equation, it's never as simple as the low-tax advocates would like you to believe.

— Charlie Quimby

Mall of America deal highlights subsidy issues

A last-minute change  in the tax bill agreed to over the weekend raises anew the issue of public subsidies for private business development. The change was made to a subsidy proposal for the Mall of America's $2 billion expansion — from a provision apparently crafted specifically to include Chanhassen Dinner Theatre in the project, to language that excludes a dinner theater.

Chanhassen Dinner Theatres have operated for 40 years in downtown Chanhassen on the western fringe of the Twin Cities metro. A move to the Mall of America would provide a more centralized location and better access to tourist audiences. The Mall says the dinner theater provided a key part of the project's viability.

The private benefits are clear; the public payoff is less so.

The Mall subsidy was being sold on the basis that it would create thousands of jobs throughout the region and would eventually produce state tax revenues that would be shared with other cities. That much may be true, but it would also be true with a privately financed project.

The Mall's owners have already identified this region as the place where they want to do business.  If lenders don't want to finance the project, it's not as if Mall of America can expand in Sioux Falls. A Mall expansion, by definition, can occur only at its present location and it must make economic sense in that location.

Under the approved tax bill provision, Bloomington could levy local sales taxes on its hotels and business. Some local officials complain that the financing the public costs fall unfairly only on Bloomington. That's not technically correct, since half the Mall's sales are to out of state visitors and a large portion of the remainder are to consumers from outside the city. By taxing only Mall businesses, hotels and car rentals, the city would effectively export much of the tax burden. It's debatable whether an additional sales tax would cause many consumers and visitors to take their business outside the city.

In short, it's a bad idea to subsidize a project that has no chance of happening in any other location and needs 17 percent of the total project cost underwritten by public money to attract private capital.

The dinner theater deal raises the advisability of providing public incentives to relocate businesses within a region — the same issue that has dogged the JOBZ program. Chanhassen loses; Bloomington wins and says its victory will benefit its neighbors, too. But by what measure will we know?

Matt Kane, policy fellow for Infrastructure & Economic Development at Growth & Justice, has written extensively on the effects of tax breaks and subsidies on business location. He urges taking a broader view when considering such proposals.

From an economic standpoint, growth at one location within a regional economy drives growth for the regional economy as a whole, so tax incentives designed to draw businesses to one location in a region instead of another have little or limited impacts on overall regional growth. That being the case, tax incentives for economic development work best where they are least justified by swinging decisions from one site to another within the same region — the region the firm already has identified as the one they want for their new location.

The public sector should pursue economic development policies that result in broad benefits for residents and businesses in the region, especially benefits that will continue to have a positive impact even if specific businesses close or move. 

Reps. Joe Hoppe, R-Chaska, and Paul Kohls, R-Victoria, represent the Chanhassen area and played some role in changing the language that blocked a move by the theater. They say they acted on principle, not parochialism.

And though we might not often find ourselves siding with Hoppe and Kohls on tax matters, this is one where we agree.

— Charlie Quimby

Business tax reform commission needs a balanced perspective

Last week, Growth & Justice sent a brief letter to the members of Gov. Pawlenty's new 21st Century Tax Reform Commission offering support and suggesting questions we hoped the business leaders on commission would consider:

• How will changes affect your current and future employees, customers and communities where you do business?
• How might reforms impact the adequacy and stability of state and local revenue? 
• Can changes that help business also make the system fairer and less regressive?
• What is the value to business of public investment in education, transportation and health care, and what should be its ongoing contribution to this investment?
• How should government and taxpayers measure the effectiveness of tax cuts, business incentives or other reforms? 

We also weighed in with a post about the relationship between business taxes and business loophole seeking.

This week, Katherine Blauvelt at Minnesota Budget Bites surfaced a 2006 Star Tribune Business Forum commentary in which Michael Vekich, the newly appointed chair of the commission, set forth five tax policy principles that track pretty well with our questions. That's encouraging.

But we still have concerns about what outcomes we can expect from a business-centric commission with a charter that starts from the assumption that tax reform is the key to increasing Minnesota's economic competitiveness.

While the individual appointees are all worthy, as a well-rounded team, the commission has some holes. For example, there's no representation from green industries or agriculture (unless you somehow count General Mills). Both are important to Minnesota's future and are subject to a variety of specific tax policies and investment considerations. Also missing are any advocates for consumers, education and labor. Employers aren't the only ones concerned about the economy, job climate and impact of business taxes on costs.

We hope the commission will find ways to fill in these missing perspectives.

— Charlie Quimby

JOBZ report: Some value, but is it enough?

Score one for accountability. Effectiveness of public investment? Well...

Even though a new report on JOBZ likely provoked some heartburn for supporters and raised serious questions about its cost-effectiveness, the report provides a useful look into the pitfalls that can afflict well-meaning economic development programs.

Last month, we outlined some concerns about the state's JOBZ program designed to aid distressed areas of Minnesota by providing state and local tax breaks to selected businesses. Today, the Office of the Legislative Auditor released its report. An online summary is available here, and a PDF of the full 129-page report is here.

The report says the JOBZ program has some value as an economic development tool and has attracted or kept some businesses in the state, but it has not been adequately focused or administered.

The amount of value is difficult to isolate precisely, the report says.

Weighing the effectiveness

JOBZ businesses received an estimated $46 million in tax reductions over the first three years of the program, averaging about $75,000 annually per business during the 2004-06 period. The actual size of tax reductions varies widely. About 4 percent of the JOBZ businesses accounted for 49 percent of the total reported tax reductions, while about 44 percent accounted for less than 2 percent of the total.

Although state reports have put the cost per job created at $5,000, or about $2,400 in recurring annual costs, the Legislative Auditor calculated the average annual cost per new job created by JOBZ at about $26,900 to $30,800. Under more generous assumptions, the average annual cost per job would be about $11,300 to $12,900. The average annual wage paid to JOBZ employees is $30,700. 

Among the shortcomings highlighted:

• Subsidies have not been targeted at areas most in need of assistance; counties with greater economic needs have actually experienced lower job growth since JOBZ was introduced
• The value and number of jobs created have been overstated by as much as 20 percent
• Follow up on whether companies have met their obligations has been slow, and some have continued to receive benefits they did not qualify for
• There's no statewide review or budgetary constraints exercised over the local deals
• Businesses that have received tax breaks might otherwise have expanded without incentives
• The program has helped some businesses that compete with existing Minnesota businesses for the same Minnesota customers.

Accepting responsibility

Dan McElroy, commissioner of the Department of Employment and Economic Development (DEED) that administers JOBZ, acknowledged shortcomings and agreed with "the findings that significant changes need to be made to increase state oversight and accountability for program performance." For its part, the Department of Revenue expects to address many of the report's recommendations in its forthcoming tax bill.

While better oversight is a state agency responsibility, the report also makes clear that local government administration plays a major role in the program's lack of focus. Basically any community in Greater Minnesota can apply, and "local governments, not state agencies, determine what job growth and capital investment obligations companies must meet to participate in the program."

Local officials evaluate potential JOBZ companies primarily on their likely effect on the local economy and not on the broader impact on Greater Minnesota. Furthermore, local officials do not consider the full cost of providing JOBZ subsidies, since most of the tax breaks are funded by state government. Some cities find it hard to turn down requests from local businesses for JOBZ assistance and sometimes feel obligated to offer it in order to compete with other Minnesota communities.

[...]

JOBZ is not focused on those businesses likely to contribute to substantial economic growth in Greater Minnesota. In addition, nearly half of the businesses participating in JOBZ are obligated to hire 5 or fewer new full-time equivalent employees.

The audit found some agreements between the localities and participating companies obscure job creation obligations. "A few agreements set no deadlines for companies to meet their hiring commitments. Over 60 agreements do not require businesses to maintain the jobs they promise to create for as long as they are receiving tax breaks."

Now what?

There's plenty of ammunition to be found for partisan sniping, but it's important to note the report does not call JOBZ a total failure. JOBZ started with a decent intent; now we have solid information with which to judge it — and to improve it.

But if tax reductions delivered such sketchy results in better times, how much will they accomplish when  Minnesota's economy is looking increasingly troubled? Lawmakers will have to weigh JOBZ's relative effectiveness in stimulating economic growth in the targeted regions — and decide whether tightening program criteria and holding businesses to their side of the bargain can reduce the cost per job to something less than an outright subsidy.

Finally, thanks to the Legislative Auditor's office for a tough and timely report, and to Gov. Pawlenty's administration for accepting criticism of a favorite program in the right spirit. The public benefits when government focuses on ensuring the accountability and effectiveness of public investment. And it makes us more willing to consider prosperity-creating ideas the next time we're asked.

— Charlie Quimby

Beware of numbers used to sell stadiums — and fight them

A recent Star Tribune op/ed by economist Kenneth Zapp critiques a Metropolitan Sports Facilities Commission-sponsored report that estimates tax revenue derived from local sports arenas. Zapp makes several points commonly raised by opponents of public financing of professional sports stadiums.

First, the report implies that tax revenue from sports facilities would not have been collected had they not been built. This is not true. Every economic study of stadiums has found that professional sports do not create economic value. If people do not have such games to attend, they spend their money on alternative forms of entertainment or events, which are also taxed.

He also notes the analysis does not take into account present value of the future cash flows from taxes and states that it's unfair for other entertainment-related businesses to pay taxes that help build a stadium for a competitor. But he overlooks income taxes in his summary of stadium revenue:

A stadium generates revenue from naming rights, concession rights, advertising, seat licenses, ticket taxes, parking taxes, souvenir and related NFL merchandise sales taxes, media access fees and facility use fees. The commission claims there are multiple uses for a covered venue besides sports; these activities should also pay their portion of the cost.

This is a significant omission, since according to the commission's report [Download Report.pdf], "Over one-half (57%), or $197,700,000, of the total estimated tax revenue is attributable to the personal income tax on professional sports organization payrolls" for the Twins, Vikings, Timberwolves and Wild between 1961 and 2006.

The study did not calculate taxes paid by visiting teams, who pay Minnesota income tax on a portion of the payroll representing the number of games played in Minnesota. I haven't found an estimate of that total, but considering that Minnesota teams have historically lower-than-average payrolls — it seems the out-of-state revenue could be considerable.

Let's assume there were no professional sports teams in Minnesota because we decided not to provide outsized public subsidies. While local entertainment dollars might indeed flow to other taxable entertainment activities and visiting performers, tax revenues would drop unless we changed tax laws.

Here's why.

Even without calculating the actual tax liabilities, visits by out-of-state professional athletes are likely more lucrative for the state, because they have income tax withheld from their game pay, while visiting entertainers pay a 2 percent tax on receipts. A major league baseball player earning an average $2.8 million a year makes $17,284 per game. The Twins play nine home games with in-division rivals, so on average, those teams would presumably pay about $155,000 per player, with the adjusted gross taxed at least at 7.05 percent.

Further, their income is not dependent on gate receipts. In part, it comes from media contracts and economic activity produced in other states. George Steinbrenner pays A-Rod the same to play here regardless of how many tickets we buy.

In our hypothetical world, we may divert our entertainment dollars to dining, concerts, movies and theater, but the overall tax revenue will undoubtedly be less because of the net loss of high-paid employment.

The total loss may not be large enough to matter, it still does not mean the public should subsidize professional sports teams. But it does show we should be cautious when viewing the economic arguments presented by either side.

— Charlie Quimby