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Pay to Stay

The astounding mediocrity of Ohio's job tax credits


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"If you have a business that publicly announces they're thinking of coming to your state, the consequences of losing that business to the competition is pretty severe," says Fisher. "But if they come to the state, it doesn't seem to matter a whole lot to people how much you have to spend to get there. You can claim credit for it. You can claim it's a good use of money, and your opponent is going to have a hard time attacking you."

Just Stay the Way You Are

The JCTC is probably financially inefficient, and undoubtedly rewards companies for hiring they already intended to do, but at least you can argue that it doesn't take money out of the treasury; if they don't create any jobs, they don't get any tax break.

Not so with the Jobs Retention Tax Credit, which rewards companies for simply doing what they're already doing. It's the flipside of the JCTC, in a way, which was designed to lure companies to the state. This one's designed to keep them from leaving and as such is the very definition of a slippery slope.

"That one was started as an incentive that was going to be used very occasionally for the very biggest investments —originally it required a $200-million investment, so it was essentially for an auto assembly plant," says Schiller. "They watered down the criteria to allow a much greater range of companies and projects to apply for this tax credit after a state study that came out in 2009."

The cardinal problem is there's little way of knowing how honest they are about their intentions or if they're just extorting more money from the government. Schiller points to the recent deal with Marathon Oil as a prime example

The company, which began in Findlay over 125 years ago, makes over $2 billion in profits, and yet Ohio's offering a break worth 75 perecent of its 1,650 employees' taxes for the next 15 years. Despite the fact they made no noises about leaving.

"I think Marathon always wanted to be here," Kasich told reporters at the announcement. "All we're doing is helping them. Never take more credit than you deserve." (Excepting, of course, when that's none.)

In the eight years of the retention program prior to the Kasich administration, there were 14 approvals. In Kasich's first two years there were 17.  There are plenty of lowlights.

Last year Abercrombie & Fitch, which fired 220 people from its headquarters as recently as 2009, received a 10-percent job retention credit for consolidating two distribution centers in New Albany (one of which received a JCTC credit). This despite the fact that Abercrombie executives had told stock analysts since February of their intention to remain in New Albany.

There's Diebold, which also received a 75 percent credit last year to build a new $100 million headquarters in Green where it would retain at least 1,500 of their 2,000-person workforce. In April, it cut into that margin by shipping 200 of those jobs to India. In October of last year, Dibeold announced they'd changed their mind about building that headquarters, citing the challenging economic environment. (More so than two years ago?)

And of course there's American Greetings, which much like Bob Evans received a tax credit to move within the same metropolitan area. (Bob Evans received a job creation tax credit.) They'll receive a 75 percent retention credit for maintaining their 1,750-person workforce the next 15 years.

Fisher believes these kinds of agreements are particularly dangerous and foolhardy. "[They] produce no benefits for the state as a whole or for the local labor market," he writes in last year's paper, Corporate Taxes and State Economic Growth. "The incentives merely shift activity around, with no net gain for the region or the state, but with a loss of local tax revenue. State governments should not facilitate such beggar-thy-neighbor competition among their own local governments."

For its part, the ODOD seems to appreciate the gravity of paying for something you already have. "Each is considered on the merits of the individual case and we use the job retentions tax credit very selectively," Hennessy says. "People can question whether or not those jobs were going to be kept, but I can say for certainty that a lot of due diligence is done and [the credit] was a major factor in keeping those jobs in the state."

In the end job retention credits contribute mightily to the zero sum game of competitive corporate relocation. It's hard to advocate unilateral disarmament when "everyone's doing it," particularly when presented with individual cases. But as a whole they're a dodgy investment that drains revenues from government coffers for what's at best a threat and at worst blackmail.

"What that creates is a race to the bottom situation, where instead of just spending to bring in new jobs, you have existing companies saying well, where's mine?" says Leigh McIlvaine of incentives watchdog group, Good Jobs First. "These are examples of huge one-off investments in a relatively limited company to keep those big names in the state."

It's simply philosophically poor form because you're creating the very problem you hate.

No Daddy Warbucks

Like a reserve player, the Jobs Creation Tax Credit can be good in small doses, but tends to get overexposed the more you use it.

"The more careful and limited the amount of the incentives, and you tie them only to good jobs so taxpayers aren't subsidizing a reduction in the average wage, the better off you're going to be," Fishers says. "But there's no real way to guarantee that you're giving money when it's absolutely essential."

When Kasich came onto the scene it was like a sailor on shore leave. In 2011 he gave out more tax credits than any other governor, including $132 million in job creation and $242 million in job retention. During the last two years the Tax Credit Authority approved more than 362 projects, that mostly on top of more than 567 active projects, according to a report from Good Jobs First in April of last year.

However, in the last year Kasich has made noise about drawing a line on incentives and this year they only approved $70.5 million in job creation and $27 million in job retention credits. Maybe Kasich's arm got tired from signing all those checks.

Though he didn't show it here, Kasich had a reputation during his time in the U.S. Senate as being tough on corporate welfare. We can only hope so because so-called "economic development" has a strange tendency to resemble a hole in our pocket that they sell like it's air-conditioning.

"The line between a tax cut and spending is almost invisible. But it's much easier for legislators to generate tax credits because in some way it seems to be free money," says Schiller. "It doesn't seem the same as appropriating x amount of dollars that would be going to public schools or highways or whatever important public service we might need."


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