Firm near win in quiet push for tax breaks

Published 10:00 am Monday, April 29, 2013

ST. PAUL — In early February, a development agency in Gov. Mark Dayton’s administration made a deal with a giant pharmaceutical company: The state would explore grants and tax breaks that could yield almost 200 high-wage jobs all while keeping Baxter Healthcare Group’s name out of the public conversation.

The cloak didn’t last, but the incentive package is on the verge of reality. How it happened is a window on the chase by governors and other public officials for big scores on the jobs front, this one with the added cachet of a Fortune 500 company that makes devices and drugs to treat hemophilia and other acute conditions.

The Senate votes today on a tax plan that includes a big piece of the subsidy, an exemption from the state sales tax on construction materials. The House tax bill approved last week has the tax exemption, which would apply retroactively to steps Baxter has already taken to establish a presence in Minnesota. Together with other loans, job training grants and infrastructure awards, the company could reap $15.4 million in state assistance. The city of Brooklyn Park is crafting its own incentive package, too.

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All that pales compared with last year’s substantial stadium subsidy for the Minnesota Vikings and this year’s assistance package being crafted for a Mayo Clinic development. But the Baxter plan stands out for its swift and largely secret consideration, with little legislative scrutiny. The potential recipient of public help wasn’t known until after some votes on the special legislation were taken.

It stems from a confidentiality agreement that officials from Baxter and the Department of Employment and Economic Development signed on Feb. 8. Even the existence of the agreement was covered by a clause saying the purpose of it was to remain secret, according to a copy released Friday.

Blake Chaffee, the department’s communications director, said the agency has engaged in about a dozen non-disclosure agreements in the past decade to assure companies they can discuss opportunities without revealing proprietary information. “It is a part of doing business,” he said.

For Baxter’s part, spokeswoman Deborah Spak said the need for confidentiality had to do with its possible — and now finalized — purchase of a building in Brooklyn Park.

“This is customary in business transactions until such time an agreement or contract has been reached and/or concluded and both parties agree to disclose,” she said.

Some lawmakers argue that because taxpayer money is at stake, the administration went too far to shield information from the public and legislators.

“The idea that there’s going to be a company looking for a subsidy is not a trade secret,” said Democratic Rep. Ryan Winkler, an attorney from Golden Valley.

Baxter first landed on the state’s radar in October, around the time city officials began buzzing about the prospect of filling prized industrial space. Talks intensified as 2013 rolled in and took off when company and state officials signed the confidentiality agreement.

Two weeks later, Dayton, House Speaker Paul Thissen and Senate Majority Leader Tom Bakk sent a letter to an intermediary company pledging their commitment to secure the list of incentives in what the Democratic trio described only as “Project Fern.”

Bakk and Thissen said they weren’t told the company’s name ahead of time. Dayton spokeswoman Katharine Tinucci said Friday that the governor learned it was Baxter in the weeks after his administration signed the nondisclosure agreement but before the pledge letter.

Democratic Rep. Melissa Hortman of Brooklyn Park said she had discussions with the city’s mayor after November’s election about a prospective tenant for a vacant 215,000-square foot factory with laboratory and warehouse space. She was informed legislative help might be needed, but said she wasn’t told for whom.

“We knew they would be using a facility that had been mothballed for some time,” Hortman said.

James Gromberg, a program specialist with the state agency, has since told lawmakers that Minnesota is in the heat of international competition for the Baxter jobs.

Brooklyn Park city manager Jamie Verbrugge said Baxter purchased the building at a fire sale price in February, paying $10 million for a building that cost $200 million to construct only nine years before. But he said the company still hasn’t fully committed to adding operations there. Spak, the company spokeswoman, said the firm is evaluating options and would make investment decisions over time.

According to city documents, if Baxter goes through with the plan it intends to expand and retrofit the plant, eventually housing 190 workers with an average salary of $75,000.

“This is an industry that does not have a footprint in the state of Minnesota and very little presence in our country frankly,” Verbrugge said. “This really is an opportunity for Minnesota to take an industry-leading position.”

Verbrugge first uttered Baxter’s name in public at a House hearing after getting a release from the company.

Even though she had already put the sales tax break in a must-pass tax bill, House Taxes Chairwoman Ann Lenczewski insisted a standalone bill be introduced. The day the separate bill was introduced there was a 40-minute hearing — the sole legislative airing of the project to date — where much of the time was spent by Republicans and Democrats sparring over the state’s general tax climate. No one from Baxter fielded questions publicly.

Lenczewski said she is satisfied that sufficient time was spent looking at what she considers to be a “garden variety exemption.”

“Even doing it doesn’t make them come,” she said. “There is no guarantee.”

The night before her hearing, the House approved an economic development proposal with a $5 million forgivable loan — 10 times the usual limit for the program involved — that was written in a way that would only apply to Baxter.

Chaffee stressed that the company must meet certain performance goals to unlock the awards.

“The legislation does not signify a done deal,” he said, “the legislation gives us the opportunity to make a greater offer.”

Rep. Greg Davids, the Legislature’s longest-tenured Republican, said he can’t argue with the package and he hopes Baxter decides to put its jobs in Minnesota. But he’s nervous about the how it all shook out with a limited public vetting.

“We may have set a dangerous precedent here,” Davids said. “I guess those Baxter guys were smart not having to go through all this. They came in and bang — here we go, you’re either yes or no. If I’m a business owner, the Baxter model is perfection.”