Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
BUSINESS EXPANSION GUIDE
Outstate option
How to grow using state JOBZ program
by Carla Solberg
WHEN TRICO TCWIND, a small electric motor service company in Litchfield, added wind turbine generator repair to its list of services, its growth started reaching new heights.
Unable to expand its landlocked 25,000-square-foot headquarters, TRICO shopped around town and made two discoveries: a 75,000-square-foot facility was available, and if they purchased it they could qualify for extensive tax breaks through the Job Opportunity Business Zones (JOBZ) program.
Created in 2004, JOBZ is a state program designed to stimulate economic development in rural Minnesota. There are 10 JOBZ zones, one in every region of the state except the Twin Cities metro area.
Qualified companies that expand or start in a JOBZ zone are exempt from a variety of taxes including sales, income, capital gains and corporate franchise. The tax relief is effective from the date the company signs on until the program?s expiration on December 31, 2015.
Commercial or industrial companies can apply for the program. They must agree to the city?s subsidy criteria, posted on the Department of Employment and Economic Development (DEED) Web site at www.deed.state.mn.us/bizdev/jobz.ht
They must also agree to fulfill other requirements. For example, employee compensation, including benefits, must be at least 110 percent of the federal poverty level for a family of four. That works out to about $10.92 an hour, says Laurie Kramka, zone administrator for the Headwaters Regional Development Commission in Bemidji. That amount is increased annually and employers are required to adjust their wages accordingly.
The jobs created must be performed at the site. ?I?ve gotten a lot of calls from contractors who want to expand, but most of those jobs are not done on site,? Kramka says. So far, there have been just five JOBZ deals in the Headwaters zone, a sliver of land that runs south from Lake of the Woods and encompasses the poorest region of the state, she says.
Business relocations need to demonstrate that they can increase employment within the first year of operations, by 20 percent or five jobs, whichever is greater. And construction workers on JOBZ projects must be paid ?prevailing wage,? which is set by the state and often higher than the going rate in rural communities.
Contacting the city is usually the first step for companies that are interested in participating. In TRICO's case, the city contacted them.
?The city of Litchfield told us about the JOBZ program,? says Brice McDonald, the company?s CFO. ?It was a good fit for us.? Litchfield is about 60 miles west of the Twin Cities. Trico paid a $5,000 fee to a consultant who handled the whole application process.
Its purchase of an existing facility was designated a relocation under the program and TRICO has already met its target employment level. Although the facility needed some updating, the relocation was still far less expensive than new construction, McDonald says.
This is TRICO?s fifth major expansion since it was founded in 1996 as an electric motor shop. The company repairs engines for the food, paper, plastic and steel industries. But much of its growth in recent years has come from wind turbine generator repair. As the demand for wind energy has increased, so has the demand for repair of the turbines that produce it.
Vision Pharma?s story
Just about a mile south of TRICO is the Litchfield headquarters of Vision Pharma Technologies LLC, a contract manufacturer for the pharmaceutical, nutraceutical and food industries. The $2.5 million high-tech facility, constructed for the startup about two years ago, is certified Kosher and organic, and USDA and FDA approved.
?I?m not sure we would exist without JOBZ,? COO Todd Ringhouse says. ?It?s a good way to incubate a business until it achieves profitability,? a milestone which Vision Pharma should achieve during 2007.
The company, which specializes in spray drying, spray congealing and encapsulation technologies, has about 25 employees ?and significant growth plans,? Ringhouse says.
TRICO and Vision Pharma are two of five JOBZ companies in Meeker County, says Suzanne Hedke, executive director of the Meeker County Development Corp. Meeker County borders the western edge of Wright County.
Vision Pharma was part of the first wave of companies to sign up for the JOBZ program in 2004. So when the Minnesota Attorney General?s office issued its opinion about prevailing wage requirements late that year, construction of its headquarters was about two-thirds complete and therefore exempt.
The opinion requires all JOBZ companies to pay prevailing wage when building any facility within the zone. Its intent is to protect local job markets from cheap outside labor, but the rate, which is determined by the state, is often much higher than typical wages outside the Twin Cities metro area.
?They had jobs identified at wages that were three to four times what they go for here,? says Ringhouse.
Mike Humpal is the city of Fairmont?s assistant city administrator and zone administrator for the Positively Southern Minnesota JOBZ Growth Corridor. The zone, which includes almost every county on Minnesota?s southern border, has completed more than 40 JOBZ deals.
Like any economic development tool, JOBZ has to be the right fit for a company?s needs, says Humpal. ?I think the prevailing wage rate makes it a more cumbersome tool to use.? For example, on a $2 million project, prevailing wage could amount to a $250,000 to $300,000 difference in cost, he says. ?If you?re a small company, that?s a big chunk and you have to pay that up front.?
Lawsuits filed
Prevailing wage isn?t the only aspect of JOBZ that has made headlines.
Two lawsuits have been filed alleging that the program?s tax breaks give some companies an unfair advantage. The first suit was dismissed; the second is still pending.
And, although almost 300 companies have signed up for JOBZ, annual participation rates have declined each year. State officials attribute some of the decline to the hard ending date of December 31, 2015. For example, a company that signed up on January 1, 2004, would get 12 years of benefits; a company that signed up on January 1, 2007, would get benefits for nine years.
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