Arctic Cat to Build Manufacturing Plant in Minnesota

Minnesota won another cross-border business battle with Wisconsin on Thursday, as Gov. Tim Pawlenty said that recreational vehicle maker Arctic Cat Inc. would build a manufacturing plant next year in St. Cloud under a state program that will give the company tax breaks through 2015.

A site in River Falls, Wis., was the primary competition for the St. Cloud plant, which will manufacture engines for all-terrain vehicles and initially employ 50 people. The company's start-up investment in the plant and its equipment will be about $8 million, Arctic Cat Chief Executive Chris Twomey said Thursday at a State Capitol press conference. Construction on the 56,000-square-foot facility will begin next year.

Wages for production workers will be in the range of $11.50 to $15 an hour, Twomey said, adding employment could grow to 150.

As Wisconsin officials talked of the "what-ifs" Thursday and how close they came to landing the plant, it also became clear that St. Cloud's success brings continued attention to Minnesota's controversial Job Opportunity Business Zone package of tax breaks for business.

"JOBZ did put Minnesota in a competitive position," said Bernie Van Osdale, the city administrator in River Falls. Wisconsin's proposal to Arctic Cat promised a guaranteed $3.75 million with a combination of city financing, land, property tax breaks and state assistance, he said.

Minnesota officials didn't release the total value of the JOBZ incentives offered to Arctic Cat, but expect to give details next month. Typically, companies receive tax breaks through 2015, including no taxes on improvements to the land, no sales taxes, no taxes on capital equipment purchases and no corporate income taxes.

Arctic Cat will receive a 10-year interest-free loan of $500,000 from the Minnesota Investment Fund, worker training through the state's Job Skills Partnership program, and the city of St. Cloud and its Housing and Redevelopment Authority are expected to provide money for Arctic Cat's location in the I-94 Business Park.

Thursday's announcement shows that companies are paying close attention to what Minnesota is putting on the table to draw business into the state's smaller communities. Last year, Wyoming, Minn., attracted a new research and development plant for ATV maker Polaris -- one of Arctic Cat's competitors -- that had been headed for Osceola, Wis.

Even so, the tax breaks don't sit well with everyone. Earlier this year, a former Minnesota lieutenant governor and another taxpayer filed suit against the state. They claim that JOBZ violates the state Constitution because it surrenders the legislative power of taxation to state and local economic development officials. That suit is waiting for a hearing before a Ramsey County District Court judge.

In the quest for the new Arctic Cat plant, both states went out of their way to convince the company that their deal was the cat's meow.

Mary Burke, Wisconsin's secretary of commerce, traveled to Thief River Falls, Minn., where Arctic Cat is based, to help make the state's pitch, Van Osdale said. Wisconsin Gov. Jim Doyle was also "deeply involved," he added.

In Minnesota, Gov. Pawlenty was involved and St. Cloud officials highlighted the worker training available to the company. The plant will be highly automated, Arctic Cat's Twomey said, and the training available at area technical schools will prove valuable. Van Osdale said that a key factor "may have been their perception of the availability of labor in the St. Cloud market. I think ours is good, but St. Cloud is a larger city."

Twomey also said Thursday that the company wouldn't have located in St. Cloud or in Minnesota at all without the JOBZ benefits.

John James, an attorney whose law firm is challenging JOBZ's legality, said those type of comments aren't surprising.

"In business location decisions, companies will say this made the difference. Whether it did or not is inherently unknowable," James said. "If you dangle something like that in front of somebody, how can they not take it?" The problem, he said, is that such deals leave taxpayers on the hook for increased public costs associated with the development.

Pawlenty's administration pushed the JOBZ program, and the Legislature approved it in 2003.

In the most recent session, lawmakers approved changes to JOBZ. Communities now have to fill out a JOBZ "deal evaluator" to score potential projects before signing a subsidy agreement. Retail businesses and utilities are no longer eligible to receive JOBZ benefits, and job-creation requirements were tightened a bit.

For Arctic Cat, the St. Cloud plant will help it step up manufacturing of its new 650 H1 engine, the first ATV engine that the company both designed and built. Currently, Arctic Cat gets most of its engines from Suzuki Motor Corp.