Incentives don’t always lead to job creation with Ohio company

Backers say economic incentive tool helps keep companies from leaving state

Ohio companies large and small each year receive millions of dollars in assistance from the state in the form of job-creation tax credits, grants and low-interest loans designed to boost job growth and payrolls, but the return on investment for taxpayers isn’t always fully recovered.

Statewide, about 27 percent of companies that received job tax credit awards in 2012 were not compliant with the terms and conditions of their agreement in 2015, and the most common reason for noncompliance was failure to create jobs, according to a recent report from the Ohio Attorney General’s office.

RELATED: CareSource to add 650 new jobs in tax incentive deal

The overall compliance rate in 2015 — including companies receiving grants and low-interest loans — was 80 percent. But that still means 72 of the 341 companies highlighted in the report failed to create jobs and payroll at the rate they promised.

Critics say the tax credits are sometimes given to companies that don’t need them, but backers say if the state doesn’t offer such incentives it will continue to lose important job creating businesses to competing states.

Locally, at least eight companies did not live up to their projected job creation commitments — including such prominent names as Procter & Gamble, and Dayton-based defense contractor Projects Unlimited — after receiving grants and generous tax credit subsidies.

“We work with companies,” Todd Walker, a spokesman for the Ohio Development Services Agency, said. “The goal is to create jobs for Ohioans that would not have been here without these incentives.”

RELATED: Hundreds of new jobs expected from companies receiving tax credits.

At least 17 companies in the region were granted new job creation tax credits this year, and at least one company — CareSource, a fast-growing downtown Dayton-based nonprofit health insurer — has been approved for a three-year extension of an existing job-creation tax credit that was set to expire in 2018.

All toll, approximately 97 new economic projects were approved by the Ohio Tax Credit Authority for incentives. Those projects were expected to create 11,210 jobs and retain another 17,312 jobs, according to the state.

ADDING JOBS

The Ohio Tax Credit Authority reviews economic development proposals brought to the board monthly by entities like JobsOhio. The state awards are split up into four categories: workforce awards, grants, tax credits and loans.

In December alone, 19 proposals were reviewed, and the approved projects are expected to result in more than $138 million in new payroll, $127 million in investments and more than 2,194 new jobs, according to the state.

Cincinnati-based Health Carousel, a workforce solutions company for the healthcare industry, received a six-year tax credit this month from the state to help it move its Next Medical Staffing office in Washington Twp. to the five-story Progress Park Tower in Austin Landing. Ty Nelson, the president of Health Carousel, said Next Medical Staffing has about 37 employees on the payroll, and is currently hiring for 15 more positions.

“We have aggressive plans to continue that hiring,” Nelson said.

By taking the tax credit, the authority requires the company to maintain operations at the project location for at least nine years. According to a state report, the company expects to create at least 60 full-time positions, generating more than $2 million in new, annual payroll. It will also retain $1.8 million in existing payroll as a result of its expansion project in Montgomery County.

DMAX, with its plant in Moraine, received its first eight-year job creation tax credit back in August. The company is expected to create 150 full-time jobs. Mary Ann Brown, plant communications manager, said the company will not discuss publicly how it plans to create jobs or increase payroll.

“That said, we intend to live up to the terms of our agreement with the state,” she said. “We are very grateful to the State of Ohio for providing this show of support for our DMAX operations.”

Jeff Hoagland, president and CEO of the Dayton Development Coalition, said job creation tax credits are one of the many tools the coalition uses to attract new jobs to this region.

“Incentive programs help the region remain competitive nationally and create a strong business climate for Ohio companies,” he said. “We work with the state, counties, cities and other partners to structure business proposals that are competitive, meet companies’ needs and bring jobs to our region.”

CRITICS OF TAX CREDITS

But critics say such tax credits are not only ineffective but also create an uneven playing field for companies not on the chosen list.

“Whenever you give one person a tax break, and not somebody else, you’re giving somebody preferential treatment,” said Greg Lawson, policy director of the conservative Buckeye Institute in Columbus. “What you’re doing is creating higher effective (tax) rates on some companies than others. In that way, you’re picking winners and losers.”

Lawson said he understands why some political leaders engage in what he describes as a “bribe-and-grow” philosophy: “They’ll tell you if we don’t do it (offer incentives) somebody else will, and we won’t get the jobs. That’s obviously at the root of all of this.”

But Lawson said he suspects that governments all too often give away tax credits and other financial incentives when it’s not even necessary.

RELATED: State wants economic development money back.

“The most charitable justification for grants and tax credits is that they (companies) really wouldn’t do it (create jobs) if you didn’t give them the incentives,” he said. “It’s hard to prove a negative because we don’t know what will happen…but the question is how many of these tax breaks are going to companies that probably would have done it anyway.”

CareSource, for example, has promised to create 650 new jobs by 2019, including about 400 in downtown Dayton, where the company is planning to build a new office tower near its headquarters.

But the company, which has experienced rapid growth in recent years due mainly to the passing of the Affordable Care Act and the expansion of Medicaid in Ohio and other states, has already blown past job growth projections under the original tax credit agreement, adding more than 800 new employees this year alone.

“I don’t know this company, and I haven’t studied this particular deal, but it sounds like they don’t need any help,” said Greg LeRoy, executive director of the Washington, D.C.-based Good Jobs First — a non-profit watchdog group for economic development. “Why would a big company like that with obviously a competitive product and a strong growth trend need help when you’ve got other business having trouble getting access to credit or other things that they need.”

LeRoy said the slow pace of the jobs recovery has contributed to the push to put incentives on the table for sought-after companies.

“You’ve got public officials who want to get reelected and are very anxious to appear that they are aggressive on jobs, and that means they’re not being very strategic with many of these deals,” he said. “To many programs have been loosened to the point where they’re not really an incentive anymore. An incentive is for something that should happen but won’t happen until public dollars reduce private risk. But because of the slow recovery, big companies know it’s a seller’s market for economic deals, and they’re taking it to the bank.”

KEEPING COMPANIES

For some companies, tax credits mean the difference between staying in Ohio or taking their business elsewhere.

Saf-Holland, Inc. in West Chester Twp. received a seven-year, 2.181 percent job creation tax credit. The company expects to create 30 full-time positions, generating more than $2 million in new, annual payroll. Had the tax credit not been approved, the company likely would have left Butler County by 2018, company officials said.

The company, which manufactures coupling, lifting, and suspension systems for trucks, buses, tractors and trailers, will retain more than $755,000 in existing payroll through its consolidation project.

RELATED: Dayton development fund awarded $40M in tax credits.

“Kentucky and Indiana were both interested, so it would have meant movement of jobs,” Mesker said. “We might not have moved the Cincinnati jobs right away, but we probably would have within two years.”

The Ohio Job Creation Tax Credit Program provides a refundable tax credit against a company’s insurance premiums tax, commercial activities tax, or an individual’s Ohio personal income tax obligation. Each month (except for November), the five-person board reviews and approves applications. They also set the tax credit rates and terms for each applicant.

RELATED: Village offering property incentives to buy homes

Projects approved by the Ohio Tax Credit Authority enter into a tax agreement summarizing the commitments, according to the Ohio Development Services Agency. Under that agreement, companies must comply with requirements outlined in state law. Walker of the ODSA said tax credit recipients must file annual reports about the company’s progress to determine if performance standards have been met.

If a company is under-performing — or over-performing — the authority can adjust or even terminate the agreement, Walker said. Sometimes companies self-report, but the annual reports are the best way for the authority to gauge the success of a company.

“Both cities and regional partners are doing a better job of only bringing projects forward that are going to create jobs,” Walker said.

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