State tax break helps keep retired military in Ohio

State efforts to attract military retirees to Ohio have proven to be more expensive than original projections, but supporters of the initiative say such tax incentives pay off in the long run.

Military pensions were declared tax exempt under a bill signed into law in December 2007 by then-Gov. Ted Strickland. Fifteen states currently extend such tax benefits to military retirees, according to the Pew Charitable Trust.

When Ohio’s incentives passed, the state estimated it would cost up to $21.9 million in foregone taxes. Now the Ohio Department of Taxation figures the exemption actually cost $29.3 million in fiscal year 2014 and $31.3 million in 2015.

The agency’s forecast for fiscal year 2017 puts the figure at $36.3 million.

State Rep. Rick Perales, R-Beavercreek, who served 15 years in the Air Force and had a duty assignment at Wright-Patterson Air Force Base, said that expense is offset by what the state receives after retirees leave the military.

“All of that money that they get to keep, they’re going to spend in Ohio,” Perales said. “In terms of taxes, we’ll recover a lot of that when they go out and buy a new car, refrigerator or whatever. If they’re not here, that doesn’t happen.”

When those retirees join the private sector, the state also recoups some of that money through taxes on their new jobs.

“Those people retire, but they have 20 years left and that second job is fully taxable,” Perales said.

Jose “Rafi” Rodriguez, 60, passed up a final duty assignment in Southern California in the Air Force to retire as a colonel at Wright-Patterson after 26 years in uniform. A native of Puerto Rico, he and his wife and two children settled in Beavercreek, where he is a financial planner and active in volunteer activities. She works at the base.

A tax-free military pension did not exist in Ohio when Rodriguez retired in the Miami Valley in 2004. But he said Tuesday the incentive is valuable to retain educated professionals who retire at Wright-Patterson and weigh moving out of state.

“The quality of the military retiring here at Wright-Patt — it’s humongous because of the level of education that they have,” he said. “If the people retiring were to go someplace else, to me, I look at that as seasoned brain drain that I don’t know this region or the base would be able to retain otherwise. … I think it was a great decision (to offer tax-free military pensions) predominantly to keep all that brain capability, intellectual capital here in Ohio.”

Rodriguez said he decided to call the Dayton region home for a variety of reasons, such as housing affordability, access to the base hospital, ease of navigating traffic, and military and family-friendly communities.

Workers in demand

The nation has about 2 million military retirees who collectively receive a total of more than $50 billion in pension payments a year, according to the Department of Defense.

Of those, more than 46,000 live in Ohio, and Air Force retirees make up nearly half at more than 20,000, figures show. Statewide, the federal government pays about $1 billion a year to military retirees in Ohio.

In the three major ZIP codes in the Dayton region, the Defense Department counted nearly 14,000 military retirees in fiscal year 2013, or those who have served a full 20 years, or had a disabling injury while in uniform and qualify for a pension.

Ohio has more than 866,000 military veterans, according to the U.S. Department of Veteran Affairs.

Cassie Barlow, former 88th Air Wing and installation commander at Wright-Patterson, could have gone anywhere in the nation when she left the base in July 2014, but she chose to stay in the area.

“The number one reason for staying in Dayton is a sense of community and feeling like it is home,” Barlow said.

She said Ohio is facing stiff competition for military retirees. They are sought after by defense contractors and related industries for their knowledge base, dedication and work ethic.

John McCance, a Beavercreek consultant and veterans advocate who pushed for passage of the tax incentives bill in 2007, said it was needed to keep the state competitive.

“We were losing a significant brain trust leaving Wright-Patterson and not coming into the defense private sector,” McCance said.

McCance and Barlow said the region should be highly regarded among publications that list best places for military personnel to retire. The rankings, though, are a mixed bag. The web site listed Beavercreek as the No. 1 city in the nation for retired veterans, but none of Ohio’s cities made the top 15. ranked the state 36th in the nation for military retirees. Wyoming, Montana and South Dakota topped that list.

“I believe we are way better than that, and all you have to do is look around and see how many veterans stay here,” Barlow said.

Back home

Quality-of-life issues are what led Robin Titus to return to her native Dayton. The Navy reservist could have settled anywhere, but after multiple deployments overseas she wanted to return to the Miami Valley.

“What motivates me to come back to Ohio is it is someplace I can call home and live affordably,” said Titus, who works as a contractor for the county. She recently finished a term as president of the Montgomery County Veterans Service Commission.

Since passage of the tax incentives in 2007, the state legislature has made other changes designed to attract veterans to Ohio. Among them is a provision pushed by Gov. John Kasich that has the state recognize certifications earned in the military.

For example, it makes it easier for truck drivers who were trained in the military on how to handle a large truck qualify for a Commercial Drivers License.

Tax incentives and acceptance of military certification are not the end of Ohio’s effort to become more attractive to military retirees. Barlow and McCance said they will be part of an upcoming local effort, known as “My VA Community,” a volunteer organization designed to make the region even more supportive of military retirees.

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