News Column

Ohio Governor Turning Away from Tax Credits, 'Bidding Wars'

Dec. 10, 2012

Joe Vardon

Perhaps no governor in Ohio history handed out more business tax credits worth more money than John Kasich in 2011.

The governor made headlines last year with lucrative tax credits to companies such as Bob Evans, American Greetings and Diebold to get them to remain in Ohio.

He also failed, despite a bid worth hundreds of millions of dollars, to lure Sears headquarters away from suburban Chicago. Now he's de-emphasizing the use of tax credits to lure companies to the state, and he's trying to move the state even further away from offering tax breaks to businesses threatening to leave the state. And he says he's not as likely to engage in bidding wars with governments in other states.

Last week, The New York Times reported state and local governments hand out $80 billion in incentives annually to businesses.

"We've kind of discontinued that practice here in the state," Kasich said last week. "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."In his first year in office, the Republican Kasich scrapped the decades-old Department of Development for his private JobsOhio as the state's vehicle for attracting and keeping businesses in Ohio.

In 2012, Kasich moved to reshape how the state conducts economic development --again. But the changes this year are more subtle.In 2011, the Kasich administration gave companies 181 Job Creation Tax Credits --the state's most common financial incentive for economic development dating to 1993 --worth up to $132 million.

The value isn't exact because the credits are awarded over a period of years and based on a company creating a certain number of jobs, but the $132 million appears to be a record, according to statistics available on the state's website.

The state also offered 181 such tax breaks in 2010 under Democratic Gov. Ted Strickland, worth up to $97.1 million. The previous record was 157 tax credits in 1995.

Kasich also set a record last year with the state's Job Retention Tax Credit, basically the tax credit companies get when they're threatening to leave the state or simply close up shop, with 10 such credits worth up to $241.8 million. American Greetings, Diebold and Ford Motor Co. were each approved for retention credits in 2011.

This year, the Kasich administration has cut down dramatically on retention credits offered --just six worth up to about $28.6 million, with one more 2012 meeting in which tax credits can be approved. The state has also approved 138 job-creation credits this year worth about $70.5 million --all in a year when economic activity is up. Ohio has added nearly 100,000 jobs in 2012.

JobsOhio conducts economic development in part by working with six regional development agencies, which have each been instructed to de-emphasize retention credits. The strategy now is to persuade companies to stay by creating a broader, friendlier business climate, speaking to them to discover what their needs are beyond tax credits, and re-enforcing Ohio as an attractive place to do business by showing them the companies that have relocated to the state or chosen to expand here.

"In the past, companies would come in and say they're going to leave, everyone would just start throwing incentives at them," said John Minor, new chief investment officer for JobsOhio. "Now, what we're trying to do is sit down with them, help them determine where they are the best positioned from a location standpoint."

Minor also said JobsOhio's secret return-on-investment formula, in which the agency determines when the state's revenue from jobs created through a tax-credit deal outpaces the cost of the tax credit, has allowed the state to hold down the number and potential cost of tax credits. JobsOhio has not shown that formula, nor does it reveal how particular projects are determined to be return-on-investment positive for the state.

But Minor said the calculated value of each job-creation tax credit awarded per job promised in 2011 was $6,431, while this year it has dropped to $4,760.

"In the past, if a company just barely qualified for a credit, they usually got it," Minor said. "We don't take that approach."

In the event Kasich's complicated model for funding JobsOhio becomes active --in which the entity would lease the state's wholesale liquor profits --JobsOhio would have additional money available to offer support loans to companies. But for now, JobsOhio continues to operate on private donations because of legal challenges.

In the meantime, any harder bargaining being done by Kasich and JobsOhio this year doesn't appear to have turned off the business community.

"I do not think our members are worried that they are not being thought about or that help is not available if needed," said Andy Doehrel, president of the Ohio Chamber of Commerce. "The big picture should be looking to recruit new companies and new jobs because, let's face it, not that many companies are growing in a major way. You see very few 200-plus job expansions.

"If you can recruit new companies, your existing companies take note and want to be where job creation is happening. Recruiting success leads to more success as other companies then say, 'Hey, why are those other folks going to Ohio?' "

Dispatch Senior Editor Joe Hallett contributed to this story.



Distributed by MCT Information Services



Source: (c) 2012 The Columbus Dispatch (Columbus, Ohio)


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