Ohio cracking down on tax breaks when companies fall short
September 30, 2014
The state is getting tougher with companies that don't follow through on plans to add jobs and make investments in return for tax incentives.
The Ohio Tax Credit Authority revised or canceled incentive contracts with 105 companies yesterday, an unusually large number to be done on one day.
This is part of an attempt by the Ohio Development Services Agency to more closely monitor companies' compliance, and it is likely to be followed by similar actions involving many other companies, said David Goodman, the agency's director and the chairman of the authority.
"I think it's important for people to understand: No one gets a tax credit unless you create those jobs," Goodman said.
In the past, Goodman said there has not been enough verification of company performance.
"We want to help the companies create the jobs they promised," Goodman said. "If they can't quite make the numbers, we adjust."
In many cases, the state is reducing the incentives that it previously offered to reflect companies falling short of what they had promised to do, Goodman said.
"Our investment is geared toward economic development and job creation," he said. "It's not about feel-good opportunities."
Among the businesses affected is ITC Manufacturing of the South Side, a maker of welded wire products. In 2010, the company received a seven-year, 50 percent income-tax incentive in exchange for hiring 120 people and meeting payroll goals. But ITC hired only 94 people and did not meet the payroll goals.
In light of this, the Tax Credit Authority has reduced the credit to 40 percent. Ron Kaminski, the company's director of corporate development, was at the meeting and said he has had a difficult time attracting and retaining qualified employees. At the same time, he doesn't begrudge the state for its actions.
"We certainly understand their fiduciary duty to the taxpayers," he said after the meeting. "We'r e not happy by any means, but we're not upset by any means."
The actions by the tax-credit panel are just one example of how the state has stepped up its monitoring and enforcement of business incentives.
Another example is Attorney General Mike DeWine's annual report on compliance. The most recent report, issued in December, looked at the 266 companies with incentive packages that ended in 2012, and found that just 55 percent had met their contractual obligations. The annual report is the result of a 2008 state law.
In the case of yesterday's actions, deals with 56 companies were canceled because the companies did not take the final step to complete a contract with the state for the incentives after the tax authority approved them, Goodman said.
Some of the deals changed yesterday go back as far as 2006; most are from 2011 and 2012.
While Ohio officials highlight these efforts as noteworthy, every state has the tools to do this type of monitoring and should use them, said Timothy Bartik, senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.
"It's kind of puzzling why you would ever have a problem with monitoring," he said. "States have data about earnings, number of workers."
He thinks some states might be reluctant to enforce rules on incentives because they don't want to be viewed as hostile to businesses.
Goodman said he expects the tax authority to take action against another big batch of companies at its meeting next month.
Part of the reason why there is so much now is timing, he said. Companies that have received incentives are required to file annual reports with the state in April.
The state has been working with the companies since April to determine what action the state should take. In some cases, companies have self-reported that they will come up short, he said.
"We work closely with the companies on the front end to understand what they're doing, to understand what their projections are and understand what their business model is," he said.
