SF 607

2nd Engrossment - 81st Legislature (1999 - 2000) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to tax expenditures; requiring preparation of 
  1.3             certain information for proposed tax expenditures; 
  1.4             regulating business subsidies; requesting a study by 
  1.5             the legislative auditor; appropriating money; amending 
  1.6             Minnesota Statutes 1998, section 270.067, subdivision 
  1.7             4; proposing coding for new law in Minnesota Statutes, 
  1.8             chapters 3; and 116J; repealing Minnesota Statutes 
  1.9             1998, section 116J.991. 
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  [3.9831] [TAX EXPENDITURE STATEMENTS.] 
  1.12     Subdivision 1.  [PREPARATION REQUIRED.] (a) Before a 
  1.13  committee hearing on a bill that proposes to create a new or 
  1.14  expand an existing tax expenditure, the author must provide the 
  1.15  committee with the following information in writing: 
  1.16     (1) a clear and concise statement of the public purpose for 
  1.17  each proposed tax expenditure and expansion of an existing tax 
  1.18  expenditure; and 
  1.19     (2) the author's expectations concerning:  (i) any other 
  1.20  economic or social costs of the proposal; (ii) economic or 
  1.21  social benefits of the proposal; and (iii) the individuals or 
  1.22  groups of individuals who will benefit and who will pay as a 
  1.23  result of the proposal by income class or other appropriate 
  1.24  demographic characteristics.  If the full cost of the proposed 
  1.25  tax expenditure is not offset by explicitly increasing taxes on 
  1.26  other taxpayers, the expectation of who will pay must name 
  1.27  particular budget expenditures that will be reduced by that 
  2.1   amount. 
  2.2      (b) The commissioner of revenue must provide the committee 
  2.3   with an estimate of the effect on state and local government 
  2.4   revenues.  An estimate of the cost of administration by state 
  2.5   government must be prepared by the appropriate head of the 
  2.6   affected state agency or agencies, as coordinated by the 
  2.7   commissioner of finance. 
  2.8      Subd. 2.  [DEFINITIONS.] (a) For purposes of this section, 
  2.9   the terms in this subdivision have the meanings given. 
  2.10     (b) "Tax expenditure" means a provision of tax or other law 
  2.11  that: 
  2.12     (1) consists of a special exemption, deduction, exclusion, 
  2.13  credit, rate, or similar provision that reduces the tax 
  2.14  obligation of an individual, business organization, property, or 
  2.15  transaction; 
  2.16     (2) serves or is intended to serve an economic or social 
  2.17  goal other than raising revenue; and 
  2.18     (3) is not a fundamental element of the tax that is 
  2.19  primarily designed to achieve one or more of the following tax 
  2.20  policy goals: 
  2.21     (i) horizontal or vertical equity; 
  2.22     (ii) efficiency or minimizing the impact of the tax on 
  2.23  private decisions; 
  2.24     (iii) ease of administration of the tax; 
  2.25     (iv) ease of compliance by taxpayers; and 
  2.26     (v) simplicity or understandability of the tax. 
  2.27     (c) "Tax" means any tax of statewide application or any tax 
  2.28  authorized to be imposed by local governments generally.  It 
  2.29  does not include a local tax imposed under a special law or a 
  2.30  local tax imposed under a general law that no longer applies to 
  2.31  local governments generally. 
  2.32     Sec. 2.  [116J.993] [DEFINITIONS.] 
  2.33     Subdivision 1.  [SCOPE.] For the purposes of sections 
  2.34  116J.993 to 116J.996, the terms defined in this section have the 
  2.35  meanings given them. 
  2.36     Subd. 2.  [BENEFIT DATE.] "Benefit date" means the date 
  3.1   that the recipient receives the business subsidy.  If the 
  3.2   business subsidy involves the purchase, lease, or donation of 
  3.3   physical equipment, then the benefit date begins when the 
  3.4   recipient puts the equipment into service.  If the business 
  3.5   subsidy is for improvements to property, then the benefit date 
  3.6   refers to the earliest date of either: 
  3.7      (1) when the improvements are finished for the entire 
  3.8   project; or 
  3.9      (2) when a business occupies the property.  If a business 
  3.10  occupies the property and the subsidy grantor expects that other 
  3.11  businesses will also occupy the same property, the grantor may 
  3.12  assign a separate benefit date for each business when it first 
  3.13  occupies the property. 
  3.14     Subd. 3.  [BUSINESS SUBSIDY.] "Business subsidy" or 
  3.15  "subsidy" means a state or local government agency grant, 
  3.16  contribution of personal property, real property, 
  3.17  infrastructure, the principal amount of a loan at rates below 
  3.18  those commercially available to the recipient, any reduction or 
  3.19  deferral of any tax or any fee, any guarantee of any payment 
  3.20  under any loan, lease, or other obligation, or any preferential 
  3.21  use of government facilities given to a business. 
  3.22     The following forms of financial assistance are not a 
  3.23  business subsidy: 
  3.24     (1) assistance that is generally available to all 
  3.25  businesses or to a general class of similar businesses, such as 
  3.26  a line of business, size, location, or similar general criteria; 
  3.27     (2) public improvements to buildings or lands owned by the 
  3.28  state or local government that serve a public purpose and do not 
  3.29  principally benefit a single business or defined group of 
  3.30  businesses at the time the improvements are made; 
  3.31     (3) redevelopment of blighted buildings or property 
  3.32  polluted by contaminants as defined in section 116J.552, 
  3.33  subdivision 3, when the property is sold at 80 percent or more 
  3.34  of appraised market value based on comparable property; 
  3.35     (4) assistance provided for the sole purpose of renovating 
  3.36  or bringing up to code old or decaying building stock and when 
  4.1   the assistance is matched by the business using private sources; 
  4.2      (5) assistance provided to organizations whose primary 
  4.3   mission is to provide job readiness and training services if the 
  4.4   sole purpose of the assistance is to provide those services; 
  4.5      (6) assistance for housing; 
  4.6      (7) assistance for pollution control or abatement; 
  4.7      (8) assistance for energy conservation; 
  4.8      (9) assistance awarded through direct and specific 
  4.9   legislation; 
  4.10     (10) tax reductions resulting from conformity with federal 
  4.11  tax law; 
  4.12     (11) workers' compensation and unemployment compensation; 
  4.13     (12) benefits derived from regulation; 
  4.14     (13) indirect benefits derived from assistance to 
  4.15  educational institutions; 
  4.16     (14) assistance for a collaboration between a Minnesota 
  4.17  higher education institution and a business; and 
  4.18     (15) a business subsidy of less than $25,000. 
  4.19     Subd. 4.  [GRANTOR.] "Grantor" means any state or local 
  4.20  government agency with the authority to grant a business subsidy.
  4.21     Subd. 5.  [LOCAL GOVERNMENT AGENCY.] "Local government 
  4.22  agency" includes, without limitation, a statutory or home rule 
  4.23  charter city, housing and redevelopment authority, nonprofit 
  4.24  agency established by a local government agency, town, county, 
  4.25  port authority, and economic development authority. 
  4.26     Subd. 6.  [RECIPIENT.] "Recipient" means any for-profit or 
  4.27  nonprofit business entity that receives a business subsidy.  
  4.28  Only nonprofit entities with a ratio of highest to lowest paid 
  4.29  employee exceeding ten to one are included in this definition. 
  4.30     Subd. 7.  [STATE GOVERNMENT AGENCY.] "State government 
  4.31  agency" means any state agency that has the authority to award 
  4.32  business subsidies.  
  4.33     Sec. 3.  [116J.994] [REGULATING LOCAL AND STATE BUSINESS 
  4.34  SUBSIDIES.] 
  4.35     Subdivision 1.  [PUBLIC PURPOSE.] A business subsidy must 
  4.36  meet a public purpose other than increasing the tax base.  Job 
  5.1   retention may only be used as a public purpose in cases where 
  5.2   job loss is imminent and demonstrable. 
  5.3      Subd. 2.  [DEVELOPING A SET OF CRITERIA.] A business 
  5.4   subsidy may not be granted until the grantor has adopted 
  5.5   criteria for awarding business subsidies that comply with this 
  5.6   section.  The criteria must include a policy of wage goals that 
  5.7   references living wage jobs. The commissioner of trade and 
  5.8   economic development may assist local government agencies in 
  5.9   developing criteria. 
  5.10     Subd. 3.  [SUBSIDY AGREEMENT.] (a) A recipient must enter 
  5.11  into a subsidy agreement with the grantor of the subsidy that 
  5.12  includes: 
  5.13     (1) a description of the subsidy, including the amount and 
  5.14  type of subsidy; 
  5.15     (2) a statement of the public purposes for the subsidy; 
  5.16     (3) goals for the subsidy; 
  5.17     (4) a description of the financial obligation of the 
  5.18  recipient if the goals are not met; 
  5.19     (5) a statement of why the subsidy is needed; 
  5.20     (6) a commitment to continue operations at the site where 
  5.21  the subsidy is used for at least ten years after the benefit 
  5.22  date; 
  5.23     (7) the name and address of the parent corporation of the 
  5.24  recipient, if any; and 
  5.25     (8) a list of all financial assistance by all grantors for 
  5.26  the project. 
  5.27     (b) An agreement must structure grants as forgivable loans, 
  5.28  provided that if a business subsidy cannot be structured as a 
  5.29  forgivable loan, the agreement must state the fair market value 
  5.30  of the subsidy to the recipient, including the value of 
  5.31  conveying property at less than a fair market price, or other 
  5.32  in-kind benefits to the recipient. 
  5.33     (c) If a business subsidy benefits more than one recipient, 
  5.34  the grantor must assign a proportion of the business subsidy to 
  5.35  each recipient that signs a subsidy agreement.  The proportion 
  5.36  assessed to each recipient must reflect a reasonable estimate of 
  6.1   the recipient's share of the total benefits of the project. 
  6.2      (d) The state or local government agency and the recipient 
  6.3   must both sign the subsidy agreement and, if the grantor is a 
  6.4   local government agency, the agreement must be approved by the 
  6.5   local elected governing body. 
  6.6      Subd. 4.  [WAGE AND JOB GOALS.] The subsidy agreement, in 
  6.7   addition to any other goals, must include goals for the number 
  6.8   of jobs created, which may include separate goals for the number 
  6.9   of part-time or full-time jobs, or, in cases where job loss is 
  6.10  imminent and demonstrable, goals for the number of jobs retained.
  6.11     In addition to other specific goal time frames, the wage 
  6.12  and job goals must contain specific goals to be attained by two 
  6.13  years of the benefit date. 
  6.14     Subd. 5.  [PUBLIC NOTICE AND HEARING.] (a) Before granting 
  6.15  a business subsidy that exceeds $500,000 for a state government 
  6.16  grantor and $100,000 for a local government grantor, the grantor 
  6.17  must provide public notice and a hearing on the subsidy.  
  6.18  Hearings for local government business subsidies must be held by 
  6.19  the corresponding locally elected body.  A public hearing and 
  6.20  notice pursuant to this subdivision is not required if a hearing 
  6.21  and notice on the subsidy is otherwise required by law. 
  6.22     (b) Public notice of a proposed subsidy must be published 
  6.23  in a local newspaper of general circulation and must identify 
  6.24  the location at which information about the business subsidy, 
  6.25  including a copy of the subsidy agreement, is available.  
  6.26  Published notice should be sufficiently conspicuous in size and 
  6.27  placement to distinguish the notice from the surrounding text.  
  6.28  The grantor must make the information available in printed paper 
  6.29  copies and, if possible, on the Internet.  The government agency 
  6.30  must provide at least a ten-day notice for the public hearing. 
  6.31     (c) The public notice must include the date, time, and 
  6.32  place of the hearing. 
  6.33     Subd. 6.  [FAILURE TO MEET GOALS.] The subsidy agreement 
  6.34  must specify the recipient's obligation if the recipient does 
  6.35  not fulfill the agreement.  At a minimum, the agreement must 
  6.36  require a recipient failing to meet subsidy agreement goals to 
  7.1   pay back the assistance plus interest provided that repayment 
  7.2   may be prorated to reflect partial fulfillment of goals.  The 
  7.3   interest rate must be set at the implicit price deflator defined 
  7.4   under section 275.70, subdivision 2. 
  7.5      A recipient that fails to meet the terms of a subsidy 
  7.6   agreement may not receive a business subsidy from any grantor 
  7.7   for a period of five years from the date of failure or until a 
  7.8   recipient satisfies its repayment obligation under this 
  7.9   subdivision, whichever occurs first. 
  7.10     Subd. 7.  [REPORTS BY RECIPIENTS TO GRANTORS.] (a) A 
  7.11  business subsidy grantor must monitor the progress by the 
  7.12  recipient in achieving agreement goals. 
  7.13     (b) A recipient must provide information regarding progress 
  7.14  toward meeting the job and wage goals for the two years after 
  7.15  the benefit date or until the goals are met, whichever is 
  7.16  later.  If the goals are not met, the recipient must continue to 
  7.17  provide information on the subsidy until the subsidy is repaid.  
  7.18  The information must be filed on forms developed by the 
  7.19  commissioner in cooperation with representatives of local 
  7.20  government.  Copies of the completed forms must be sent to the 
  7.21  commissioner and the local government agency that provided the 
  7.22  business subsidy.  The report must include: 
  7.23     (1) the type, public purpose, and amount of subsidies; 
  7.24     (2) the hourly wage of each job created with separate bands 
  7.25  of wages; 
  7.26     (3) the sum of the hourly wages and cost of health 
  7.27  insurance provided by the employer with separate bands of wages; 
  7.28     (4) the date the job and wage goals will be reached; 
  7.29     (5) the progress toward meeting the wage and job goals; 
  7.30     (6) the location of the recipient prior to receiving the 
  7.31  business subsidy; and 
  7.32     (7) other information the commissioner may request. 
  7.33  A report must be filed no later than March 1 of each year for 
  7.34  the previous year and within 30 days after the deadline for 
  7.35  meeting the job and wage goals.  A local government agency must, 
  7.36  by March 1 of each year, report in a form approved by the 
  8.1   commissioner a summary of the business subsidy reports submitted 
  8.2   that year.  The local government agency must include a list of 
  8.3   recipients that did not complete the report and of recipients 
  8.4   subject to the obligations for meeting the job and wage goals of 
  8.5   the agreement.  The commissioner, by July 1 of each year, must 
  8.6   provide to the legislature a summary of the reports submitted to 
  8.7   the department. 
  8.8      (c) Financial assistance that is excluded from the 
  8.9   definition of "business subsidy" by subdivision 3, clauses (3), 
  8.10  (4), (7), and (9), is subject to the reporting requirements of 
  8.11  this subdivision, except that the report of the recipient must 
  8.12  include: 
  8.13     (1) the type, public purpose, and amount of the financial 
  8.14  assistance; 
  8.15     (2) progress towards meeting the public purpose of the 
  8.16  assistance; 
  8.17     (3) the location of the recipient prior to receiving the 
  8.18  assistance; and 
  8.19     (4) other information the grantor requests. 
  8.20     (d) If the recipient does not submit its report, the local 
  8.21  government agency must mail the recipient a warning within one 
  8.22  week of the required filing date.  If, after 14 days of the 
  8.23  postmarked day of the warning, the recipient fails to provide a 
  8.24  report, then a penalty of $100 per day applies until the report 
  8.25  is filed. 
  8.26     Subd. 8.  [GOVERNMENT REPORTS.] (a) The commissioner of 
  8.27  trade and economic development must coordinate the production of 
  8.28  reports so that useful comparisons across time periods and 
  8.29  across grantors can be made.  The commissioner may add other 
  8.30  information to the report as the commissioner deems necessary to 
  8.31  evaluate business subsidies. 
  8.32     (b) State and local government agencies, regardless of 
  8.33  whether they awarded any business subsidies, must file the 
  8.34  report required by this subdivision by March 1 of each year with 
  8.35  the commissioner.  If the commissioner has not received the 
  8.36  report by that date, the commissioner shall issue a warning to 
  9.1   the government agency.  If the commissioner has not received a 
  9.2   report by June 1 of the same year, then the government agency 
  9.3   may not grant any business subsidy until it files the report. 
  9.4      (c) The commissioner of trade and economic development must 
  9.5   provide information and training on reporting requirements to 
  9.6   state and local government agencies. 
  9.7      Subd. 9.  [COMPILATION AND SUMMARY REPORT.] The department 
  9.8   of trade and economic development must publish a compilation and 
  9.9   summary of the results of the reports for the previous calendar 
  9.10  year by July 1 of each year.  The reports of the government 
  9.11  agencies to the department and the compilation and summary 
  9.12  report of the department must be made available to the public. 
  9.13     Among the information in the summary and compilation 
  9.14  report, the commissioner must include: 
  9.15     (1) total amount of subsidies awarded in each development 
  9.16  region of the state; 
  9.17     (2) distribution of business subsidy amounts by size of the 
  9.18  business subsidy; 
  9.19     (3) distribution of business subsidy amounts by time 
  9.20  category, such as monthly or quarterly; 
  9.21     (4) distribution of subsidies by type and by public 
  9.22  purpose; 
  9.23     (5) percent of all business subsidies that reached their 
  9.24  goals; 
  9.25     (6) percent of business subsidies that did not reach their 
  9.26  goals by two years from the benefit date; 
  9.27     (7) total dollar amount of business subsidies that did not 
  9.28  meet their goals after two years from the benefit date; 
  9.29     (8) percent of subsidies that did not meet their goals and 
  9.30  that did not receive repayment; 
  9.31     (9) number of part-time and full-time jobs within separate 
  9.32  bands of wages; and 
  9.33     (10) benefits paid within separate bands of wages. 
  9.34     Subd. 10.  [AUTHORITY TO AUDIT REPORTS.] The commissioner 
  9.35  may audit individual recipients and government agencies to 
  9.36  verify that the reports have been filled out properly. 
 10.1      Sec. 4.  [116J.995] [ECONOMIC GRANTS.] 
 10.2      An appropriation rider in an appropriation to the 
 10.3   department of trade and economic development that specifies that 
 10.4   the appropriation be granted to a particular business or class 
 10.5   of businesses must contain a statement of the expected benefits 
 10.6   associated with the grant.  At a minimum, the statement must 
 10.7   include goals for the number of jobs created, wages paid, and 
 10.8   the tax revenue increases due to the grant. 
 10.9      Sec. 5.  Minnesota Statutes 1998, section 270.067, 
 10.10  subdivision 4, is amended to read: 
 10.11     Subd. 4.  [CONTENTS.] The report shall detail for each tax 
 10.12  expenditure item the amount of tax revenue foregone, a citation 
 10.13  of the statutory or other legal authority for the expenditure, 
 10.14  and the year in which it was enacted or the tax year in which it 
 10.15  became effective.  The report may contain additional information 
 10.16  which the commissioner considers relevant to the legislature's 
 10.17  consideration and review of individual tax expenditure items.  
 10.18  This may must include, but is not limited to, statements of the 
 10.19  intended public purpose of the tax expenditure, analysis of 
 10.20  whether the expenditure is achieving that objective, and the 
 10.21  effect of the expenditure device on the distribution of the tax 
 10.22  burden and administration of the tax system.  
 10.23     Sec. 6.  [STUDY OF TAX EXPENDITURES.] 
 10.24     The legislative auditor is requested to conduct a study of 
 10.25  selected tax expenditures evaluating each program for its public 
 10.26  purpose and effectiveness. 
 10.27     Sec. 7.  [TAX EXPENDITURE ANALYTICAL MODEL.] 
 10.28     The department of revenue shall study the creation of a 
 10.29  model that could provide an analytical dynamic tax analysis of 
 10.30  tax expenditures.  The department shall report to the tax 
 10.31  committees of the legislature by January 15, 2000, on the 
 10.32  results of the study and the progress in creating a model. 
 10.33     Sec. 8.  [APPROPRIATION.] 
 10.34     $....... is appropriated from the general fund for the 
 10.35  biennium ending June 30, 2001, to the commissioner of trade and 
 10.36  economic development to carry out the commissioner's duties 
 11.1   under Minnesota Statutes, sections 116J.993 to 116J.995. 
 11.2      Sec. 9.  [APPROPRIATION.] 
 11.3      $....... is appropriated from the general fund for the 
 11.4   biennium ending June 30, 2001, to the commissioner of revenue 
 11.5   for the purposes of section 7. 
 11.6      Sec. 10.  [REPEALER.] 
 11.7      Minnesota Statutes 1998, section 116J.991, is repealed. 
 11.8      Sec. 11.  [EFFECTIVE DATE.] 
 11.9      Section 1 is effective for bills heard in the first 
 11.10  legislative session that begins after the day following final 
 11.11  enactment.