Photo of Oberlin, courtesy of John Peterson

Despite the demise of federal climate change legislation, cities across the nation continue efforts started under the 2009 federal stimulus act to revitalize their communities and make them sustainable. One of the most inspiring examples is right here in Ohio.

The Oberlin Project is a collaboration among the City of Oberlin, Oberlin College, the city’s municipal electric utility, as well as community and business stakeholders, to make Oberlin, Ohio the greenest little city in the U.S. and a national model for sustainable economic development. In the process, the project hopes to revitalize the ailing local economy, equip local residents with the green skills needed to do the work and create an educational laboratory for younger generations.

This effort builds off nationally-renowned environmental educator David Orr’s past success in creating the first-of-its-kind “living building” that still wins architectural and sustainability awards a decade later. The Adam Joseph Lewis Center was designed by nearly 250 students and 20 design-group members charged to do no harm in the world.

The Oberlin Project applies this same high-road approach to community-wide green development. It recognizes that past practices of the conventional energy economy and low-road economic development strategies that produce vast amounts of waste, leave workers unemployed or earning low wages, communities impoverished, residents dependent on fossil fuels imported from out of state and the environment polluted. This project seeks to forge a new way forward. An approach that balances the three E’s of sustainable development— economic development, environmental integrity and social equity—by driving demand for clean energy while leveraging green investments in a way that maximizes their value to the community.

The aggressive goals of the Oberlin Project require a holistic approach that addresses all energy-using and emissions-producing sectors. An inventory of the city’s energy use and greenhouse gas emissions identified the need to reduce emissions from electric power generation, green the community’s commercial and industrial sector, develop a more sustainable transportation system and promote energy saving opportunities for residents. Participating stakeholders are divided into working groups and challenged to develop sustainability strategies to achieve these goals.

In Ohio, half of all carbon emissions come from the electric power sector. One of Oberlin’s greatest assets, however, is its community-owned electric utility that operates in the best interest of its citizenry rather than for profit maximization. Oberlin Municipal Light & Power is on track to secure 90 percent of its energy from local renewable energy resources by 2015—largely from landfill gas captured and turned into useful energy.

Doing so will not only significantly reduce the community’s emissions, it will also stabilize customer rates, promote greater self reliance on local energy sources, keep the community’s energy dollars in the region, and supply green power to local residents and businesses. Manufacturers located in Oberlin can tout that products are made with green power and a low carbon footprint. It’s this kind of commitment to sustainability that convinced GreenField Solar, a designer of high-tech solar photovoltaic cells that also capture solar thermal energy, to move to Oberlin.

The local government and its anchor institution, Oberlin College, also plan to lead by example. The city and the college are analyzing their energy usage, setting goals to increase renewable energy generation, promoting energy efficiency, and developing green, local and efficient purchasing standards. The City of Oberlin completed a climate action plan, the Oberlin public school district is studying the concept of a consolidated, green school building and the Oberlin public library has undergone a green retrofit. Oberlin College is hoping to secure two megawatts of solar energy, has adopted campus building standards and is investigating geothermal heat pumps to replace the college’s coal-fired heating plant, among other things.

To promote greater sustainability of Oberlin’s transportation system, Oberlin College is developing a13-acre green arts district in the town square and planning a 20,000 acre greenbelt around the community to grow the market for local foods and explore other agricultural opportunities such as biogas. This effort is based on two key smart-growth principles— reinvestment in downtown, Main Street and existing infrastructure to create a vibrant town center, and preservation of natural land, in part by promoting agricultural activities and supporting efforts to process rural resources.

Visions of a multi-modal transportation system that could include electric vehicle infrastructure, light rail, street cars, bike- and pedestrian-friendly streets and car-sharing services are being discussed. Innovative ideas to green the commercial and industrial sector, such as ecoindustrial parks, are on the table, as is a city-scale home retrofit program to promote energy savings for residents.

Keep your eye on this exciting project as it develops. If it can be done in a small town of 8,000 residents, where resources are limited, it can be done anywhere.

Link to EcoWatch

“Tax expenditures deserve to be examined and debated just as state spending is. Many tax expenditures have continued for decades, draining state revenue, providing a special advantage to certain taxpayers, without an accounting for whether they serve their original purpose or even what that purpose is. Others are as new as the current biennial budget.”

Hannah Halbert

Prepared for delivery December 1, 2011

Chairman Schaffer, Ranking Member Tavares and members of the committee: Thank you for the opportunity to testify today on tax expenditures in Ohio. I am Hannah Halbert, policy liaison for Policy Matters Ohio, a nonprofit, nonpartisan research institute with offices in Cleveland and Columbus.

Policy Matters Ohio is glad that the committee has taken up this important subject. Tax expenditures deserve to be examined and debated just as state spending is. Many tax expenditures have continued for decades, draining state revenue, providing a special advantage to certain taxpayers, without an accounting for whether they serve their original purpose or even what that purpose is. Others are as new as the current biennial budget.

As the Taxation Department says in the most recent Tax Expenditure Report, “In essence, a tax expenditure has the same fiscal impact as a direct government expenditure.” A good example of this came with the elimination of the tax credit for investing in machinery and equipment in 2005. It was replaced by a grant program that did the same thing. In one case, the money came out of a tax credit that reduced revenues; in the other, by the state writing a check. 

Some tax expenditures have existed for decades with no scrutiny. For example, brewers and beer importers receive a credit on beer and malt beverage taxes they pay just for paying part of them a few weeks in advance. This credit, estimated to cost $1.4 million a year, dates to 1963.

If a purpose for a specific tax expenditure cannot be clearly identified, the tax expenditure should be scrapped. We urge the committee to recommend approval of the review process that was included in the Senate budget bill, both for new and existing tax expenditures.

We would suggest that you add automatic sunsets to that review process. In Oregon, for example, nearly all state income-tax credits sunset every six years; a third come up for review every two years. Ohio could require that a quarter of its existing 128 tax expenditures expire every two years, in line with the Senate’s budget bill, which called for all of them to be reviewed over an eight-year period.

Seventy-three existing tax expenditures, accounting for more than half the total value, go for business assistance and economic development. These should be included in a unified economic development budget, which would require disclosure of who is benefiting from all of the state’s economic development programs and what beneficiaries provide in return over time. This should include a specific listing of the recipients of these tax expenditures and the public benefits they provide – jobs, wages, investments, etc. – as is already required for some existing economic development programs.

Policy Matters Ohio published a report in 2008 identifying a dozen tax loopholes that the state can do without. A list from the report is attached to this testimony. One example: Big companies that lost money years ago are allowed to write off those losses against the commercial activity tax – a tax break not available to small companies. Under the old corporate franchise tax that has now disappeared for most companies, the right to write off losses against future income was a benefit earned based on generating profits in the future that could be taxed. Now, of course, there is no tax on such profits and no risk that they will be taxed. Thus, it no longer makes sense to allow such companies to write off those losses.

Our list from 2008 is hardly comprehensive. In 1963, nine years before the U.S. Environmental Protection Agency was created, the Ohio General Assembly approved a new sales-tax exemption for pollution-control equipment. This fiscal year, according to the state taxation department, the cost of this exemption will be $17.3 million. Most of the equipment purchases utilities make for pollution control are mandated by environmental rules. Thus, by providing the sales-tax exemption, the state is providing an incentive for something that would be happening anyway. This leads one to wonder:  Exactly what is the purpose of this tax break?

Unfortunately, tax expenditures do not consist only of decades-old exemptions that remain on the books for lack of scrutiny. The General Assembly approved multiple new tax expenditures as part of the budget bill. One, dubbed by some ‘the Bambi exemption,’ excludes from the sales tax building materials used in livestock structures for captive deer. A new tax credit for investment in small businesses was dropped into the budget bill with no public review—and nothing resembling the analysis that the Senate budget language would have required.

We agree that, as provided in the Senate budget bill, the tax expenditure review process should include an examination of how many taxpayers benefit from each tax expenditure (at least for the 95 breaks listed in the report worth more than $1 million). In addition, with income-tax breaks, it should look at the income levels of those receiving the benefit. Fred Church of the taxation department described this in earlier testimony, and the taxation department did this for a few tax expenditures in its 2009 report. It found, for instance, that in 2006, 6,591 Ohio taxpayers with income over $500,000 saved $10 million because of an income-tax exemption for Social Security and railroad retirement benefits. They don’t need it.

We urge the committee to look not just at the 128 tax expenditures listed in the Tax Expenditure  Report, but at other elements of the tax law that have the same effect. As Mr. Church previously testified, estimates of sales-tax revenue foregone from untaxed services are no longer included in the report. The sales tax is defined in state law to cover sales of tangible property; services are not covered unless they are specifically included under the tax. Thus health services, a very large share of our economy, are excluded. Also excluded are construction services, though their exclusion is estimated at nearly $1 billion a year in a recent analysis by Prof. William Fox of the University of Tennessee. Nor will you find a sales-tax exemption for lobbying, though those who employ lobbyists do not pay the sales tax. In 2003, Gov. Taft proposed extending the sales tax to a number of these services, such as real-estate transactions, debt collection and lobbying. These should be considered in your review.

Nor does the report cover local property-tax credits and reimbursements, though these are a creation of state law. Both Gov. Voinovich and Gov. Taft attempted to set a ceiling for the two property-tax rollbacks, so that they would not go to owners of the most expensive homes. When he was House Speaker in 2007, Jon Husted similarly attempted to means-test the homestead exemption, which was significantly expanded. At that time, Policy Matters Ohio found that doing so would save more than $100 million a year. The number no doubt would be greater today, as the amount of homestead exemptions was $364 million in 2010, up from the projected $260 million when the law was enacted in 2007. 

There are good reasons, some of them outlined above, to limit or eliminate many tax expenditures. Doing so in order to cut tax rates, however, is unlikely to spur Ohio’s economy. We have recent evidence of this. In 2005, the corporate franchise tax, portrayed as a Swiss cheese because of its many exemptions and credits, was voted out of existence for companies except financial institutions. At the same time, the tangible personal property tax was also phased out, while the commercial activity tax was created. The overall number of exemptions and credits was not reduced as drastically as one might think, because new ones were created that could be used with the new CAT tax, and some corporate franchise tax credits were transferred so they could be used against the CAT. Still, the number of tax expenditures was reduced by 15. The effect of the business tax changes, the tax department has estimated, was a reduction in business taxes of $1.8 billion a year. Separately, of course, the individual income tax was also slashed.

Did it work? In a word, no. Ohio has lost more jobs relative to the rest of the nation since the tax overhaul was approved in 2005. Ohio has lost 5.8 percent of its jobs since then, while the country has lost 1.8 percent. 

We strongly support your efforts to review tax expenditures, and believe that significant amounts of revenue can and should be made available by limiting or eliminating unnecessary tax breaks. This revenue is badly needed to invest in Ohio’s people. Thank you very much for the opportunity to testify.

Download testimony PDF (3 pages)

Table 1 lists some loopholes, estimated foregone state revenue and the year each loophole was approved.

Download list of loopholes PDF (1 page)