Winning new jobs costing taxpayers more in Ohio

0

Winning new jobs costing taxpayers more in Ohio

ABOUT THE SERIES

The Journal-News is reprising its special series “Following the Money,” which examines how government spending impacts business and job growth.

Last year’s inaugural series included six stories and was recognized by the Ohio Associated Press Media Editors. It placed second for Best Enterprise Reporting in 2014 by Ohio newspapers with daily circulation of 25,000 to 74,999.

New stories on this topic will publish every Thursday and Sunday in September. Find all articles online at: www.journal-news.com/projects/following-the-money/

SEPT. 17: Why some companies don’t own their own buildings

SEPT. 13: CORE Fund properties still a hard sell to private investors

SEPT. 10: Townships balance need for new business with wants of residents

SEPT. 6: Changes at this government agency may impact your job search

SEPT. 3: New government created in Butler County just for Liberty Center

THREE WAYS THIS MATTERS TO YOU

1. TAXES FOREGONE: In the competition to win new jobs from businesses, tax breaks for companies cost Ohioans at least $83.8 million last year in foregone tax revenues, according to state government budget projections. Those estimates are higher than previously thought and only reflect the state budget impact. Any incentives approved by local governments to companies are in addition to that amount.

2. JOB GROWTH: One reason for why the dollar value of estimates have grown for tax breaks under the Ohio Job Creation Tax Credit program is that companies approved for credits have created more jobs than expected. According to Ohio Department of Job and Family Services, employment in Ohio has grown by 26,000 jobs to 5,436,000 working residents in July, the most recent information available.

3. MORE ACTIVITY: Private companies and local governments are teaming up to help finance business expansions. “Economic developers are able widen the opportunities to land complex projects through the collaboration of our public and private sectors. We are seeing more activity as a result of creative partnership opportunities,” said Kimm Coyner, Managing Director of the Project Team and JobsOhio for REDI Cincinnati.

THREE WAYS THIS MATTERS TO YOU

1. TAXES FOREGONE: In the competition to win new jobs from businesses, tax breaks for companies cost Ohioans at least $83.8 million last year in foregone tax revenues, according to state government budget projections. Those estimates are higher than previously thought and only reflect the state budget impact. Any incentives approved by local governments to companies are in addition to that amount.

2. JOB GROWTH: One reason for why the dollar value of estimates have grown for tax breaks under the Ohio Job Creation Tax Credit program is that companies approved for credits have created more jobs than expected. According to Ohio Department of Job and Family Services, employment in Ohio has grown by 26,000 jobs to 5,436,000 working residents in July, the most recent information available.

3. MORE ACTIVITY: Private companies and local governments are teaming up to help finance business expansions. “Economic developers are able widen the opportunities to land complex projects through the collaboration of our public and private sectors. We are seeing more activity as a result of creative partnership opportunities,” said Kimm Coyner, Managing Director of the Project Team and JobsOhio for REDI Cincinnati.

State budget estimators drastically underestimated the value of tax breaks awarded to companies for new job creation in Ohio.

The actual amount of tax credits claimed under the Ohio Job Creation Tax Credit program last budget year, which ended June 30, was more than double what state officials writing Ohio’s previous two-year operating budget predicted. They forecast tax savings just for the job creation program would be $40.7 million.

But when the budget was revised for the new biennium that began July 1 and figures were updated to reflect actual job creation for prior years, those savings for companies in Ohio was actually closer to $83.8 million.

Ohioans are foregoing more money every year for these cash incentives used to lure job-creating projects from new and existing businesses in competition with other states. Updated projections expect the state budget will give up another $85.5 million this budget year and $88.1 million next year, climbing from $82.7 million in the 2014 fiscal year, according to state budget records.

“We’re seeing that the companies have claimed significantly higher tax credits,” said Gary Gudmundson, spokesman for Ohio Department of Taxation.

Companies claim these credits against their Commercial Activity Tax bill due to Ohio, but they qualify for the tax breaks based on how much payroll they generate. It’s important to know these are savings or tax deductions for companies and Ohio does not necessarily pay out these millions.

The Job Creation Tax Credit program is one of the largest business tax credit programs offered by the state, but additional programs for job retention and research and development activities cost the budget more.

It’s also not the same as saying Ohio would collect $83.5 million this year if the companies did not receive the tax credits, because in that case, it’s unknown whether the business project would generate the same tax revenues.

There are several reasons why companies operating in Ohio could be claiming more credits on their annual returns. Once a company is approved for a job creation tax credit it has three years to meet its promises for new job creation, so it’s possible that the difference between 2011 — the year initial estimates were based on — and 2014, the base year for the new projections, was a lag in claims, according to John Charlton, spokesman for Ohio’s Office of Budget and Management.

“It’s more jobs,” said Stephanie Gostomski, spokeswoman for Ohio Development Services Agency, as an explanation that companies created more jobs than expected.

To be eligible for state-level tax credits, projects must add a minimum of $660,000 a year in new payroll to Ohio; be economically sound; and tax credits must be a major factor in a company’s decision to move forward with a proposed project in the state, Daryl Hennessy, chief of the Business Services Division for Ohio Development Services Agency, previously told this news outlet.

The terms — percentage level and length (years) — of an incentive deal are determined by the number of jobs to be created, jobs retained, wages, capital investment, location, local incentives, and other factors. For example, the Ohio Tax Credit Authority approved in July a 70 percent, seven-year Job Creation Tax Credit for Barclaycard’s plans to open a credit card-servicing call center in Hamilton. In exchange, Barclaycard US promises to create 1,500 full-time positions, generating $49.9 million in annual payroll, over the next three years, according to state records.

When the state awards a tax credit or other financial assistance to a company, officials are looking for companies to generate a return on the public investment by adding payroll and investing money in land, buildings and equipment. Hopes are new employees will spend money on coffee, houses and cars that generate more sales tax revenues.

Credits can only be used if jobs are actually created, according to Ohio Development Services Agency.

If the full projected commitments aren’t reached after a three-year hiring period, companies still receive tax credits for jobs created, but the terms might be modified to reduce their tax benefits.

If a company ceases operations during the time period of its agreement, any tax credits claimed could be clawed back. Companies can also overperform, and create more jobs than they’re required to by tax agreements.

Also, this year’s estimated $83.5 million foregone is just the state budget impact. Local governments often give companies additional incentives in the form of low-cost loans, property tax abatements, earnings tax credits and other incentives. There’s no statewide estimate for that amount.

Companies in Greater Cincinnati have already pledged to create more jobs, retain more jobs, and invest more on buildings and equipment, than in all of 2014, according to the region’s top development agency.

As of August, promises for new job creation in the region including Butler and Warren counties about doubled from the year before to 5,779, according to economic development agency REDI Cincinnati.

It’s becoming more common for private companies to partner with local governments to finance, build or operate a project, said Kimm Coyner, managing director of the Project Team and JobsOhio for REDI Cincinnati.

Public-private partnerships might include tax credits, local government tax-exempt or low-cost bond issues, and other incentives mentioned.

“With competition for funding and rising project costs, this partnership is becoming a viable option for companies,” Coyner said. “… Sharing the risk in complex projects is driving these partnerships.”

View Comments 0

Weather and Traffic