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Mon December 17, 2012
Big Shift In Number Of Tax Incentives For Businesses
Almost exactly a year ago, a major retailer announced that it was rejecting Ohio’s offer to come to the Buckeye State. Now the governor suggests that Ohio is backing off on using tax credits to lure in companies.
But Ohio Public Radio’s Karen Kasler reports not everyone is sure of that.
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Last December, Ohio was in the midst of a competitive campaign to bring Sears Holdings to Ohio from Illinois. The state had offered an package to lure in Sears that was reported to be in the hundreds of millions of dollars. But while Gov. John Kasich said he would love to have the retailer in Ohio, there would be no bidding war to secure it.
“A bidding war implies there’s no ceiling. No, there are ceilings as to what we can do.”
A year later, it seems that ceiling is being lowered. In 2011, Kasich gave out more in tax credits to businesses than any other governor, making $132 million in job creation tax credits and nearly $242 million in job retention tax credits. These incentives were offered to companies such as Bob Evans, American Greetings and Diebold. In 2012, the state only offered $27 million in job retention tax credits, while approving $70.5 million in job creation credits. Kasich says the state is paying a lot of attention to the return on its investment.
“Almost all of these packages are ROI positive in year one, and secondly, if you take a look at the incentives, our incentives for jobs created has shrunk, because I treat that dollar just like I treat the money in my back right hand pocket.”
And Kasich offers this caution to corporate leaders considering Ohio….
“Giving away the store and getting into bidding wars – I tell all CEOs now, if that’s what you think we’re going to do, you’re wrong, because we are not going to get into bidding wars with other states.”
Meanwhile, the state is also checking into what’s happened with incentives it has offered. The Ohio Tax Credit Authority voted earlier this month to take what it calls “remedial action” against 16 companies which it says failed to deliver on promised jobs. Those actions range from reductions in the rate or term of the credits to a demand for payment, or clawback. This year, the Tax Credit Authority has ordered remedial action against 59 tax credit projects and has referred eight grants and loans totaling almost $7.5 million to the attorney general for what’s called “clawback”. Daryl Hennessy is with the Ohio Tax Credit Authority.
“It’s sort of consistent with the notion that the companies have made a commitment to us, and we just want to make sure that they’re accountable and responsible for those commitments that they’ve made.”
This practice isn’t unique to the Kasich administration – others have done clawbacks too. And they’re important, says Zach Schiller with the progressive-leaning think tank Policy Matters Ohio. But he says what’s more important is the reasons that tax credits are awarded in the first place.
“This should be a negotiation and this is not a matter of us throwing the goodies at anybody who shows up. We should make a critical evaluation of whether incentives are needed and we should walk away when they aren’t. And this administration has done that at least on occasion.”
And Schiller notes that the state offered $78 million in incentives to Marathon, though company officials acknowledged it was unlikely to move. And he says the state proposed what he calls “gigantic” incentives to Shell to get a chemical plant known as a cracker. That facility ended up going to Pennsylvania, and that if the company had accepted, that would throw off the state’s totals.
“With these kinds of questions still out there, it’s way too soon to be concluding that there’s been a sea change in the way the administration operates. That said, the numbers are, do suggest that there may have been a change, and if there has been, great.”
Schiller says tax credits should be used less and with strict criteria, and he proposes that criteria include jobs with certain wage requirements and what he calls “desirable” economic development.