Ohio’s Intel incentives a big bet—will it be worth it?

Mark Williams
The Columbus Dispatch
Ohio Gov. Mike DeWine, left, receives a plaque as a gift from Intel President and CEO Pat Gelsinger during a January announcement of a $20 billion investment in Licking County.

To woo Honda to Ohio, the state gave the Japanese automaker $91.3 million in incentives.

That pricey bet has paid off nicely. Since those first incentives were awarded in 1977, Honda has invested $14 billion in Ohio and has 14,100 employees here earning nearly $1.2 billion a year.

Now the state is upping the ante with a $2.1 billion incentive package for Intel and its $20 billion plan to put two factories, called fabs, on land that New Albany is annexing in Licking County.

Was such a substantial investment necessary? Or would Ohio have landed the chipmaker with less? The question is a matter of debate.

Lots of Intel Ohio jobs, lots of potential

Construction of the Intel plants is expected to start this fall. There will be as many as 7,000 construction jobs. 

The semiconductor company will employ 3,000 workers earning an average of $135,000 per year when it begins making chips in 2025. But the Silicon Valley company says the site could one day become the largest semiconductor operation on Earth with up to eight fabs and a a total investment of $100 billion. 

The package that the state has put together is the richest it has offered any company, and Intel says the incentives were one of several reasons the company picked Ohio.

More:Intel posts first job openings for its $20 billion New Albany chip factory

"After a robust selection process, we ultimately decided that the Ohio site offered the best combination of attributes to meet our needs," the company said. "This was a holistic decision based on the best combination of infrastructure, access to talent and regulatory environment. The incentives were just one piece of the puzzle. We expect the total value of incentives will be consistent with the nature and magnitude of the project, and with incentive packages available from other competitive states."

JobsOhio, the state's economic development arm, said Intel indicated that other states offered more money than Ohio, but that the state had a better, more complete package that won the chip company.

"Intel has shared that it chose Ohio over 40 other competitor states, which certainly put significant incentive packages forward," JobsOhio spokesman Matt Englehart said. "Our assistance to companies is always determined through a process that ensures a return on investment for Ohio."

Englehart said the deals that JobsOhio works on result in more tax revenue from new jobs than what the incentives cost.

"Similar to the state of Ohio, JobsOhio assistance is performance-based, meaning the jobs and investment must be created to realize the assistance," he said.   

Economists and those in economic development say incentives are necessary when it comes to luring companies — just as it was back in the 1970s, when Gov. James Rhodes persuaded Honda to build its first American operations in Ohio.

Gov. Mike DeWine and Lt. Gov. Jon Husted say Ohio didn't stand a chance with Intel until state legislators changed Ohio law to sweeten what it could offer Intel for what are called "megadeals."

Critics challenge that notion and say that Intel would have picked Ohio anyway.

"The Intel plant is great news for Ohio and central Ohio," said Michael Farren, a research fellow at the Mercatus Center at George Mason University who grew up near where Intel is building the plants. "It will have a substantial effect on the local economy and it will be good for Ohioans.

"However, the fact that the state is providing $2.1 billion in taxpayer money ... is a downright shame because it's highly likely (Ohio) didn't need to offer those subsidies to begin with."

A billboard along Route 33 going to Marysville in 1982.

What Ohio is offering Intel

The package the state has proposed for Intel falls primarily into three buckets: a $600 million onshoring grant, $691 million for infrastructure improvements and $650 million for state tax credits.

On top of that, JobsOhio will provide Intel with up to $150 million in economic development and workforce grants, and the city of New Albany will give a property tax abatement to Intel. Intel also stands to benefit from federal legislation working through Congress that will award $52 billion to chip companies as part of a plan to return production to the United States.

The onshoring grant reflects what the state says is a 20% to 30% higher cost to build the plants in America compared with Asia.

The infrastructure improvements include $300 million to be spent on a water reclamation facility, $290 million on road work and $101.2 million to build out water and wastewater capacity. The plants will use 5 million gallons of water per day, water that Intel recycles.

The remaining $650 million in state tax incentives are based on the jobs that Intel creates and how much they pay. A small portion of each worker's state income tax payments will be given to Intel for the next 30 years, assuming the incentives are approved by the Ohio Tax Credit Authority. A vote likely will be held later this year.

State legislators will have to sign off on the grants and infrastructure money. 

No other incentive that the state has given to a company comes close to what is being offered to Intel.

General Electric has been awarded tax incentives for three projects in Cincinnati that go back to 2007, according to a database kept by the Ohio Department of Development. The incentives have an estimated value of $189 million.

Amazon is in line for tax incentives with an estimated value of $134.3 million for nine projects in Ohio, with more than half of that going to its data centers it has built in Greater Columbus.

The state's database lists a total of $3.2 billion in tax incentives for 2,214 projects going back to 2007.

The projects have resulted in investments totaling $37.2 billion, creating 191,510 jobs and retaining 339,034 jobs.

What did Honda get to move to Ohio?

The firm of Levin Driscoll & Fleeter, which did research and analysis on economic, budget and tax issues, had been asked by Honda to evaluate the economic effect of Honda's operations in Ohio after 25 years, to see if the state's investments were worthwhile and to understand if Honda was making a long-term contribution to the state's economy.

The state provided $26.9 million in direct incentives to Honda from 1977 to 1988, according to the report, which was released in 2004. The state also invested $64.4 million to improve and widen U.S. 33. 

As of 2003, Honda and its associates paid nearly $1.1 billion in taxes in Ohio and, by that point, tax payments were topping $100 million a year.

That study noted that Honda's suppliers back then had nearly 41,000 workers with operations in 52 of Ohio's 88 counties.

Honda has produced 21 million vehicles in Ohio over the past 40 years, the automaker said Friday. In 2020, Honda spent $7.8 billion in parts and materials from 140 Ohio suppliers.

One of the authors of that report, Howard Fleeter, said that the $100 million a year in taxes probably has grown since then.

"Ohio got a really good deal," he said.

At the time when Honda came to Ohio, there were questions about whether a foreign automaker could operate profitably in the U.S. with American workers, the report noted. The first foreign automaker to produce cars in the U.S., Volkswagen, closed its plant in Pennsylvania after years of losses.

Even with its size, Ohio's offer to Intel makes sense, he said.

"You're building something integral to the future. Their plant is the most sophisticated plant of its kind. The likelihood is very high that this will be successful," he said.

Do economic development incentives work?

Research has shown that subsidies for most projects were unlikely to have affected a company’s decision on where to locate or expand, said Farren of George Mason.

Instead, Intel likely picked that site because of its access to workers and proximity to Ohio State University along with other colleges and universities, he said. Ample, affordable supplies of water and electricity likely helped along with Ohio's location close to major population centers.

He questioned the claims about whether there was real competition for the project.

"It's going to be built anyway," he said of the plants.

Farren said the money would be better spent on making Ohio a stronger state, whether that's providing a tax cut, putting more money toward education or some other purpose.

"We should be making our states great places to live rather than becoming middlemen for corporate handouts," he said. "But we're trapped in this economic arms race."

To his point, other states have been increasing what they can offer companies.

Kansas legislators are debating legislation that would provide incentives totaling more than $1 billion for an unidentified company that would invest $4 billion in the state. The project would create 4,000 jobs and 16,000 construction jobs, according to media accounts.

The problem with subsidies is that companies grow dependent on them and they can lead to economic distortions that reduce economic growth, Farren said. Companies should focus more on how to better serve their customers, he said.

"The more subsidies, the better companies are at figuring out to ask for more subsidies," Farren said.

States should work together on projects so that the incentives packages are clear early on, he said.

"Let's not allow them to pay us against each other," he said.

As far as the onshoring grant for Intel, Farren said Ohio shouldn't be put into a position where it has to compete with other countries to land a project.

Michael Jones, an economic professor at the University of Cincinnati, equated Ohio's offer to Intel to a sports team that spends big money on a critical player.

"The perspective is that Ohio really is playing a long game here," he said.

The chips Intel will make Ohio are the brains of so many critical products used in products from cars, to cell phones to appliance.

Beyond the jobs at the plant, Intel will bring in suppliers that will create more jobs and investment, he said. 

"These are classic cases of virtuous cycles," he said. "Ohio is going to reap benefits we can't even measure," he said

mawilliams@dispatch.com

@BizMarkWilliams