MAGIC Fund (Minot)

The MAGIC Fund is a special tax fund called the created in 1992 by the city of Minot, North Dakota to provide public subsidies to businesses to start operations in Minot for the purpose of economic development. The fund is supported by 40% of a 1% sales tax collected by the city, and is disbursed by the Minot Area Development Corporation.

Controversy

The initial creation of the fund established it through 2006, but the MAGIC Fund started to draw criticism for many reasons. Many became dissatisfied with the type of employers coming into the city using MAGIC Fund money, primarily telephone call centers, and their low wages.

This was inflamed by high-profile closures of call centers run by Z-Tel and later, WebSmart Interactive, both of which closed with little warning.

The Z-Tel bankruptcy highlighted issues with the Bank of North Dakota's loan guarantee programs; when Z-Tel collapsed, its loans with First Western Bank and Trust were largely repaid at the expense of the state.

In the case of WebSmart Interactive, employees were locked out after their primary client (later shown to be a fraudulent enterprise) did not forward payment; its employees did not receive their final paychecks even after company assets were liquidated.

Another problem was the repeated failure of recipient businesses to meet job creation targets; with no clear penalties for such actions, the conditions that MAGIC Fund grants were disbursed under were often ignored.

Another source of criticism dealt with the fiscal management of the MAGIC Fund. By 2001 the MAGIC Fund had exhausted all the funds expected to be collected by the fund's expiration in 2006; this drew allegations that the city diverted tax revenues from other funds to make up the difference.

State courts later found that the City of Minot had indeed illegally diverted Northwest Area Water Supply funds to cover the cost overruns in the MAGIC Fund, and was ordered to reimburse over $1 million.

2002 elections

Early in 2002, a special city election was called, a Yes/No vote on a question of whether or not the city should divert a portion of the NAWS tax revenues to the MAGIC Fund, and if the MAGIC Fund itself should be extended through 2013. The proposition was defeated.

The following mayoral election was hotly contested. The major issue of the campaign was economic development. Curt Zimbelman, a banker, supported the MAGIC Fund program as-is, while Steve Huenneke, an economics professor at MSU, advocated reforms, such as wage standards and penalties for companies that did not meet job creation goals under the program. On election day, Zimbelman narrowly won by 143 votes out of over 8,000.

Recent events

After the mayoral election, a 3-man committee was appointed by the new mayor to study problems with the MAGIC Fund and to create a new set of guidelines. The new guidelines were officially approved by the city council, but many saw it as a face-saving manoeuvre rather than actual reform.

In late 2003 and early 2004, there was talk of a new plan for economic development being put forward by the city leadership and Minot State University business professor Rod Hewlitt, but no such plan was publicly released.

City voters approved an extension of the 1% city sales tax in June 2004, with no substantive changes in its policies having been made.

External links

: [http://www.minotusa.com/ Minot Area Development Corporation] : [http://web.ci.minot.nd.us/boards/magic_fund.htm MAGIC Fund Screening Committee]