Expansion and relocation: On radar

On radar

Tax breaks add to signal of lesser-known locales

by Sarah Brouillard   Jason Hoerter needed more space. His waste-disposal company, though just over a year old, had outgrown its cramped rental office in Austin, Minnesota.

Hoerter approached the city with plans to buy a site for a new building, assuming officials would catch his enthusiasm. After all, Triple J Disposal Inc. was highly regarded within the community, having recently won the Austin Chamber of Commerce New Business of the Year award.

Instead, Hoerter says he was met with an entirely different reaction. The city rejected his proposal, telling him no locations were available, he says. His other desired locale, Lansing Township, also turned him away due to an interim ordinance that prohibited a number of developments there, he says.

Six months later, in spring 2004, Hoerter finally broke ground for a new facility, in a tiny town 10 miles from Austin. "They don't even have a traffic light," he says with a chuckle. "And the only cafeteria in town just closed."

As Hoerter learned firsthand, owners looking to relocate or expand their small businesses have their work cut out for them. Securing the perfect location can be elusive; companies may have to fall back on their second or even third choice, say business owners.

Weighing the pros and cons of a region or town based on a number of criteria — such as proximity to customers and vendors, access to highways and interstates, size and talent of employee base, and "livability" — is half the battle. The other half involves figuring out what towns are genuinely interested and equipped to help businesses achieve their development goals, though new tax-free incentives, launched by the state of Minnesota in 2003, could make it easier for towns to accommodate newcomers.

Close to home
Many companies, especially smaller ones, prefer to limit their search within a tight radius of their headquarters. They might already have relationships with nearby banks, and have an understanding of local politics. Also, short-distance moves and expansions, by and large, are less complicated and less expensive. In Hoerter's case, he needed to keep his garbage trucks within reasonable driving distance of his residential, commercial and farm clients, most of whom are based in Mower County.

Companies eyeing more far-flung sites have an ever greater task ahead of them. They're starting with a clean slate, so picking the right spot involves a more rigorous selection process. Along the way, they may discover not all towns are excited — or prepared — to roll out the welcome mat.

"Various cities take different postures toward economic development," says Dentley Haugesag, an economic development specialist with the state's Department of Employment and Economic Development (DEED).  Some towns look out for only certain types of companies, while keeping at bay others "that don't fit their vision." he says.

Others towns — often those in remote areas of the state — simply don't have the means or savvy to package homegrown incentives that create affordable entries. That can be especially troubling news to a small businesses, whose "biggest issue is probably finance," says Haugesag.

The state does offer a "gap financing" program to help break down financing barriers in these cases. "We'll follow a bank into a deal," says Haugesag: the state will pick up 30 percent if the bank covers 50 percent of a project's costs.  The local community is responsible for filling out and filing the application, but therein lies the rub: "That means it has to have the necessary expertise and willingness to do that," says Haugesag. Another program awards grants, up to $400,000, to train a workforce, but the recipient company hasn't any direct control over that process either.

Instead of spending their time and resources researching towns that won't — or can't — work out a deal, Haugesag advises companies to speak with town officials directly, and early in the search process. Or, he and his DEED colleagues can lend a helping hand, he says. "We can maybe provide them with a little preliminary information so they don't waste too much of their time talking to people who don't want to talk to them."

Search for hubs
On the flip side, there are areas that naturally draw companies, and are hubs for certain industries.

Southwest Minnesota, for example, is strong in farming and agricultural machinery, according to DEED. Up north, there's a concentration of forest-product and mining companies that tap into that region's natural resources. Southeast Minnesota is the biggest manufacturing hub, especially for metal fabricators, outside of the Twin Cities.

Brain trusts are also strong magnets. Schools with specialized degree programs are likely to lure companies hungry for freshly trained, readily available labor. An obvious case is the University of Minnesota and its historic ability to attract medical device companies, says Patricia Neuman, another DEED economic development specialist. But lesser renowned institutions, like technical colleges and trade schools, are also strong draws. Many a manufacturer has put up a shop near the Miller Brothers School of Engineering at Winona State University, which offers a composite materials program to students, says Haugesag.

Ultimately, labor is a deal-maker or deal-breaker, especially for small businesses, he says. "You can achieve a critical mass with a larger company and, provided the bases are pretty much covered, you'll be OK. But with a small company, every individual is very important."

Yet some areas attract businesses because they are hubs of play as well as work. Lakes for fishing and swimming, and woods for hunting and camping, are amenities some business owners consider after pondering more serious criteria. In their minds, livability was just as important — if not more so — than logistics.

Nick Debronsky, co-founder of information technology company CrossUSA, is based in Eagan, but many of his computer programmers are enjoying the simple life in Sebeka and Madison, Minnesota, and Watford City, North Dakota. It's in those towns that the two have set up rural development centers — offices where rat race-weary professionals can find solace away from the big city, while still making a white-collar living.

Recreational advantages aside, Debronsky and former co-CEO Bill Wolff chose those areas because of their high unemployment or underemployment, and so that homegrown talent could find lucrative work in their hometowns. Their selection was also a nose-thumbing at their competitors, many of whom have opted instead to outsource IT jobs instead of helping to stimulate American rural economies, says Debronsky.

Crossing over
Sometimes "geography is destiny" is more of a curse than a blessing. Towns close to the state line, such as Fergus Falls and Albert Lea, have had difficulty keeping businesses from crossing to the other side. Until recently, neighboring states offered a more advantageous tax climate: when adding up all the pluses and minuses, many companies calculated a relocation or expansion to North Dakota or Iowa ultimately would allow them to keep more of their income.

The playing field has been leveled somewhat. Since last year, the state has rolled out new financial incentives to help small towns, near the state line and elsewhere, attract and keep businesses. (In September, such incentives were called illegal by a federal court, a case in Ohio that Minnesota officials are studying.)

Under Gov. Pawlenty's new economic development stimulus initiative for greater Minnesota, called JOBZ (Job Opportunity Building Zone), companies that move or relocate to JOBZ-designated areas can get local and state tax breaks for 12 years. In exchange, companies must agree to create living-wage jobs and invest in the surrounding community. Both parties need to apply to be a part of the program, says Mark Lofthus, director of business development for DEED, which spearheads JOBZ.

Fergus Falls, for example, has three JOBZ deals that have closed, and two still on the table. All are locally originated, involving either expanding companies or startups. Most are manufacturers.

"Mostly, we saw this as another tool, from an economic standpoint, to put in our war chest," says Lee Danielson, executive director for the Fergus Falls Area Economic Improvement Commission.

The program has already helped the town deflect potential refugees away from nearby North Dakota. One small-business owner had made plans to go to Fargo, says Danielson. He was convinced to stay once Danielson discussed JOBZ benefits with him.

Luverne, another small Minnesota town on the state line, even attracted an expansion from Total Card, a Sioux Falls, South Dakota-based credit card company. South Dakota has heavily courted Minnesota businesses to move west for years, say economic development observers.

"We, in fact, have a tax advantage at this point," says Paul Sparks, executive director of the Albert Lea economic development agency, comparing his town to Iowa cities such as Clear Lake and Lake Mills. But beyond retaining companies, JOBZ has enabled Albert Lea to attract a different mix of companies, he says.

"Albert Lea always been successful at manufacturing employment," says Sparks, "but with the changes in the U.S. economy, where manufacturing is less important and manufacturing employment somewhat on the decline, I think it's hard for a community like ours to make the transition into the new economy … but it's happening now."

One of those "new economy" companies, ProfitPro, stands to inject a shot of vitality into Albert Lea's arm, says Sparks. The $6-million agricultural education and consulting company relocated from Hollandale to Albert Lea before JOBZ took effect, but then took advantage of the program once it underwent an expansion in April 2004. Its new two-story, 125,000-square-foot facility includes greenhouses, labs, and research farms.

"Albert Lea has traditionally been a town that's more blue collar; we are more white collar," says Jim Ladlie, ProfitPro president. "We have a lot of degreed people that work for us."

Besides high-tech jobs, ProfitPro brings an influx of visitors; its regular seminars draw traffic that benefits all local businesses, says Ladlie. Attendees "are going to stay at the hotel, they're going to buy gas, they're going to buy food," says Ladlie, "and it's going to be a positive image of the community because there's activity going on." His latest summer conference, held on a weekend, attracted 200 crop growers from across the country.

Brownsdale coup
To date, agreements have been signed for more than 60 JOBZ development projects; some of those are in areas that otherwise wouldn't be on most business owners' radar screens.

It was through JOBZ, for instance, that Hoerter acquired a 2-acre site in Brownsdale.

Still stinging from the rejection over his first two development bids, he first learned of the JOBZ program in August 2003 when he bumped into Mark Hanson — a friend of his who also happened to be the economic development coordinator for neighboring Dodge County.

Over drinks, Hanson discussed how JOBZ — which had yet to be heavily promoted by the state at that time — could help him land a site.

Hoerter's resultant JOBZ connection with Brownsdale proved to be mutually beneficial: Less than a year later, Hoerter finished construction of his new 50-by-120-square-foot building, and the town celebrated its first new development in more than a decade.

[contact] Lee Danielson, Fergus Falls Area Economic Improvement Commission: 218.739.0128; le***********@****************mn.us. Nick Debronsky, CrossUSA: 651.683.1099; ni***@*******sa.com; www.cross-usa.com. Dentley Haugesag, Department of Employment and Economic Development, State of Minnesota: 651.297.1174; de**************@******mn.us; www.deed.state.mn.us. Jason Hoerter, Triple J Disposal Inc.: 507.567.9953. Jim Ladlie, ProfitPro: 507.373.2550;*****@*********ag.com“> jl*****@*********ag.com; www.profitproag.com. Mark Lofthus, Department of Employment and Economic Development, State of Minnesota: 651.297.4567; ma**********@******mn.us; www.deed.state.mn.us. Patricia Neuman, Department of Employment and Economic Development, State of Minnesota: 651.297.1303; pa*************@******mn.us. Paul Sparks, Albert Lea Economic Development Agency: 507.373.3930; www.city.albertlea.org.