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Growing liquor sales means more funding for JobsOhio to attract jobs

Every time a shot glass is raised to cheers in Ohio, more sales are generated to help fund job creation and retention in the state.

Liquor sales reached a record more than $1 billion last year statewide, according to Ohio Department of Commerce.

Revenues from sales of tequila, vodka and other spirits go to fund JobsOhio, the private economic development firm formed in 2011 to lead Ohio’s business recruitment and retention efforts.

As liquor sales have grown each year since JobsOhio acquired the business, the development nonprofit has invested more in marketing and sales efforts to lure companies as well as staffing, according to JobsOhio. Liquor sales grew 7.3 percent in 2015 from the year before, according to the commerce department.

JobsOhio’s growth, which also increases funding available to companies seeking to expand in Ohio; an improving economy; and business climate; combined to generate record levels in 2015 of job creation and capital spending commitments from businesses, said John Minor, president and chief investment officer of JobsOhio.

“We’re finding that Ohio is actually now much more competitive than it ever used to be,” Minor said.

Last year, companies that negotiated deals with JobsOhio, a JobsOhio regional partner such as REDI Cincinnati and Dayton Development Coalition, or the state government, promised to create about 23,600 jobs in the coming years and to invest approximately $6.7 billion on building improvements and equipment upgrades, according to JobsOhio records.

FOLLOWING THE MONEY

JobsOhio raised money by issuing bonds and paid approximately $1.5 billion in 2013 to acquire Ohio’s liquor business for 25 years, according to the organization. It also makes additional payments annually to the state based on achieving certain profit levels. Those payments so far have amounted to more than $40 million, according to the nonprofit.

Part of the $1.5 billion consideration to Ohio was used to pay off about $800 million in government debt backed by liquor sales, according to JobsOhio.

Now JobsOhio manages the operation, distribution and merchandising of spirituous liquor in Ohio and contracts with Division of Liquor Control, part of the commerce department, for its employees to do the same work they did before. The state is still responsible for regulations such as permitting.

Some liquor revenues were previously deposited into Ohio’s general fund for a variety of uses, said Jacqueline Williams, Ohio’s director of commerce. Sales have grown due to a wider selection for consumers to choose from and consumers buying more expensive drinks, Williams said.

Revenues from liquor sales at retailers, bars and restaurants, totaling more than $1 billion in 2015, are collected by a sister nonprofit organization to JobsOhio called the JobsOhio Beverage System to pay costs of operating the business including remitting sales taxes to the state government and an operating contract with commerce. Costs also include the debt payments for borrowing the $1.5 billion or so acquisition price.

Net profits are transferred to JobsOhio, and that money is spent to pay JobsOhio staff, provide funding to six regional partners across the state including REDI and the Dayton Coalition , and to pay the costs of marketing. Last year, of the $90 million transferred to JobsOhio, nearly $41 million was spent on economic development programs such as grants to companies. Another approximately $12 million last year was loaned out to businesses, according to JobsOhio.

Less money was transferred from the beverage system in 2015 ($90 million) than in 2014 ($220 million) even though revenues grew, which JobsOhio attributes to a difference in “timing” of financial reporting and some leftover 2013 profits that could have been carried over with the $220 million in 2014.

“Have we transferred all the dollars that we could from (JobsOhio Beverage System) to JobsOhio that we could? The answer is no. We have to set aside profits to cover future obligations,” said JobsOhio spokesman Nick D’Angelo.

JobsOhio has also used its growing cash arsenal to start new programs such as SiteOhio to help certify properties as ready for development and help gather more information about real estate locations that need more done to make them ready to build on, JobsOhio President John Minor said.

“What we’re providing is the resources to gather that information,” Minor said. “If there became a project that’s going on that site, that’s where our loan and grant programs come into play.”

MORAL HAZARD?

From Minor’s perspective, funding and services provided by JobsOhio including marketing the state globally as a place to do business has made Ohio more competitive to attract new businesses.

In addition to marketing and cash that JobsOhio puts on the table for companies, it and its partners are also meant to be the first point of contact for businesses interested in opening in Ohio whether the companies receive a financial deal from JobsOhio itself or not.

“We found that the projects that have been most successful and the wins that we have achieved, those wins happened because of the state, regional, local players all working together as one,” Minor said.

That also means JobsOhio negotiates deals with companies coming to Ohio that seek taxpayer-backed financing. But that’s not to be confused with its own funding sources. Minor argues that JobsOhio’s funding is private money because it owns the liquor sales business.

However, in addition to its own deals, JobsOhio negotiates upfront with companies on the terms of tax credits they could receive from the state including the percentage discount and the years of the life of the credit.

Any publicly-funded incentives negotiated are recommended for approval to Ohio Development Services Agency — a state government agency — which reviews it. Then Ohio Tax Credit Authority, an independent public body of appointed business and government leaders, has the final say by vote whether or not to approve the tax benefit.

“Communities in Ohio have actually been very good about measuring the abatement deals but I think more so recently there’s been an even greater emphasis of not just making sure companies are in compliance… but looking at the project as a whole to see if it’s generating a return,” said Paul Brehm, economic development director of Forest Park and president of the Ohio Economic Development Association. “Ultimately it’s the payroll that’s creating the return.”

This reporter asked Minor if by JobsOhio providing an additional source of funding to companies and negotiating other financial incentives could encourage companies to leverage state, national and international governments to get the best deal possible.

“If we do not see a return on the investment then we are not going to make it. We’re not going to go and chase bad deals,” Minor said.

RETURN ON INVESTMENT

JobsOhio and its funding sources may be growing but Minor said every business deal hatched should be a good deal for taxpayers, whether it’s funded privately or publicly.

Ohio Job Creation Tax Credits approved by the Ohio Tax Credit Authority, for example, can only be claimed if jobs are actually created, according to information previously provided by Ohio Development Services. If the full projected commitments for job creation and capital spending 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. Also, if a company ceases operations during the time period of its agreement, any tax credits claimed could be clawed back.

Companies can also over-perform, and create more jobs than they’re required to by tax agreements.

JobsOhio’s grants and loans also require companies to meet commitments for job creation and other metrics and the agreements contain similar claw back and modification provisions as the state, Minor said.

“We want to be smart with these funds,” Minor said.

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