Designing a tax-free zone bill, a scheme proposed by incoming Republican Gov. Tim Pawlenty, and making it fit Albert Lea will be the main focus of the next state legislative session, Rep. Dan Dorman, R-Albert Lea said in a year-end interview.

The tax-free zones were touted by Pawlenty as a key economic development tool for greater Minnesota in his election campaign.

&uot;Freeborn County will be the ideal location for a tax-free zone,&uot; Dorman said.

Dorman said the bill would define criteria for being selected for a zone. The number of lost jobs and diminishing tax capacity in recent years are likely to be important conditions. And, he believes the Farmland closure will be a compelling reason for Albert Lea to be included.

The tax-free zone program aims to encourage businesses and consolidate the tax base of the local government eventually, while the state subsidizes part of the withheld tax revenue from the businesses, which the local government can spend on building infrastructure.

Dorman could be in the right position in the House to influence the formation of the program. He was appointed Monday to the Commerce Committee and was named vice-chairman of the Jobs and Economic Development Finance Committee; both are places where a tax-free-zone bill would be discussed. Dorman is also on the economic development and tourism subcommittee and the tax committee.

The program, if realized, could reimburse local governments for revenue lost by granting exemptions from local property taxes, according to Dorman. The local government will have to submit a complete development plan that defines the type of taxes the business is exempted and a schedule of the abatement. The local government would likely be able to choose which taxes &045; local or state &045; would be removed, subject to state approval of their plans.

The tax-free zones would be a part of a broader picture of changing local-government funding, currently heavily dependent on direct monetary aid from St. Paul. The tax-free zones provide tools to the local government to create its own revenue sources, while limiting the direct funding by the state, Dorman said.

Though Dorman admits the scheme could be contingent upon the reduction in local government aid (LGA), he pledged to defend the local share for the Albert Lea area.

The Republicans have started discussing changes in the LGA formula. Dorman thinks revising the allocation of LGA to the wealthy suburban cities while minimizing the impact on rural communities can achieve the targeted reduction. &uot;This could be a win-win for the local government and state,&uot; he said.

The legislators have to deal with a $4.5 billion budget deficit in the coming session. Besides LGA, the state will have to reconsider expenditures across departments.

Dorman pointed out that legislators would also need to look at the revenue side. Dorman said he would be open to some type of temporary tax increase as an emergency measure, but also said, &uot;I have zero interest in permanent tax increases.&uot;

In the long term, Dorman thinks it’s necessary to transform the revenue structure to mitigate the negative impact of the ill-performing economy on the state budget. Replacing the income tax, which fluctuates with the economic climate, with more stable sources would be a key, he said.