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Pay to Stay

The astounding mediocrity of Ohio's job tax credits


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Toledo had its own run-in with Convergys, offering tax abatements to open a south Toledo call center in 2000 that had been shipped overseas by February 2004. JCTC also had a deal on the Toledo phone center and terminated the agreement with clawback of some state monies.

At times it's unclear whether they even care what industries they promote. For example, in 2004, the JCTC approved a tax credit for Buckeye Check Cashing Services, now generally known CheckSmart. They promised to bring 159 jobs to Dublin for which they would receive a tax credit valued at $2 million.

Though the plan fizzled out and the agreement was terminated, one wonders what role the nearly $200,000 owners Michael Lenhart and James Frauenberg and their family made in political donations might have played in the initial offer. The state also offered them a $7 million loan offer they passed on. (Maybe the interest rate was too high?)

"[These tax credits] are getting to be like Enterprise Zones. Everybody wants a piece of the action," says Fisher. "Now they're all over the place, not just in a few depressed areas."

And Still You Say Goodbye

Drill down beneath the numbers and you find numerous examples of broken promises and changing fortunes that belie the difficulty of betting on commercial businesses. Simply put: shit happens.

In December 2010, the Tax Authority announced an estimated $2.4 million in tax credits for Citigroup to add 300 new jobs to their investment consulting entity in Columbus, Citi Fund. (Never mind that at the time, an executive explained planning for the jobs had begun 18 months earlier.) Then in October of last year, Citigroup hired new CEO Michael Corbat, and in December he announced 11,000 in layoffs, including a quarter from the investment banking side.

In 2008 the Tax Authority approved a deal with Nexergy Inc. to add 75 jobs to a Columbus plant that made rechargeable battery packs. Few of the jobs had materialized when in October 2010, Nexergy merged with International Components Corp to become ICCNexergy Inc. Nine months later they announced plans to close the plant, laying off 86 full-time and 34 part-time employees. In 2007 signed an agreement to add 128 jobs at their Solon HQ. Three years later it was sold to QuinStreet Inc., who announced 144 layoffs within a year.

In 2006, Core Molding received approval for a plan to hire 69 new employees at its Columbus plant. Then Navistar Inc., who supplied 57 percent of Core Molding's revenues, shifted part of its production to Mexico. To better serve their best client, the truck parts maker Core Molding sent 90 jobs to Mexico, and the JCTC terminated the agreement. Other companies like Advanced Lighting Technologies, who had a deal with the JCTC for at least five years, simply decided to go with the cheaper labor, shifting manufacturing to India and laying off 100 at their production facility in Solon.

While the Job Creation Tax Credit was designed to encourage investment, it doesn't exactly ensure fealty, as history shows. The business cycle, technology and competition demand change, and companies must answer to survive. That offers far greater impetus for action than what the state offers. This is in essence why economists have little love or patience for these tax giveaways. Supply and demand are much bigger levers.

"The real issue is lack of consumer spending. It doesn't matter how cheap it is to build a plant, you're not going to build it if there's nobody to buy your products," Fisher says. "But that doesn't slow people down in their efforts to give more breaks and incentives."

Nor do these breaks tend to constrain large companies' desire to move plants or headquarters because they're so small in comparison. State and local taxes on business amount to 1.8 precent of total business costs, and corporate income taxes only represent around 10 percent of that. Thus even a 50-percent cut in state corporate taxes would save them less than 1 percent of their business costs. And for this we expect some allegiance?

If we were flush, perhaps we could afford to make an increasing number of these bets, but it's hard to ignore the $1.3 billion in cuts to schools and local government demanded by Kasich the last two years.

This is the very core of the argument. Whatever your quibbles about their craftsmanship, Cleveland firemen, teachers and policemen aren't going to go out of business or be outsourced to Asia, something for which the state would be left to pick up the pieces (i.e. unemployment, health care, job training and, perhaps eventually, substance abuse counseling).

Then again, public spending isn't nearly as sexy as giving cash to business under the auspices of jobs that often never show. And why not promise big?

A 2002 study of the Ohio's job creation program by Todd Gabe and David Kraybill not only found no employment growth by companies receiving the incentive, but that those companies overstated their anticipated hires by more than 40 prcent. They suggested the companies misrepresented their hiring prognostications to improve the level of the tax award. (The JCTC typically offers better terms as the number of jobs created and retained increases.)

For a politician, it amounts to an almost victimless crime. Promise companies grants and subsidies to come to Ohio, and if they don't, you tried, and if they do, you're a job-creator. Only rarely do people tend to look at the price tag or dig into the subject deep enough to find all the hidden costs. Hopefully you've moved on to a better job before it goes south, but even then, you can always shrug your shoulders and argue it's not your fault conditions changed.


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