Concern Expressed at Bill to Help Ohio Auto Industry

Hannah Report - November 23, 2005

The Hannah Report

In a message he sent recently to members of the House Economic Development & Environment Committee on the effects HB414, Zach Schiller of Policy Matters Ohio expressed his concern that the the policy response contained in the bill is not the best course of action for the state. The bill would change the criteria under which manufacturers of automobiles and automobile parts are eligible to receive the job retention tax credit, Schiller said it will drain state revenue and subsidize companies that reduce their Ohio workforce without providing real assurances that it will retain additional jobs in Ohio. He said there are “numerous flaws in the bill as written, which would make five companies in the state — General Motors, Ford Motor, Daimler Chrysler, Honda and Delphi — eligible for credits based on their employment of at least 7,500 Ohio workers.”

According to Schiller, HB414 would allow healthy companies such as Honda to participate without making additional commitments beyond what they have already planned to do anyway. Given the company’s investment of $1.77 billion in its Ohio facilities between 1999 and 2003, Schiller believes the investment requirements of $125 million over three years and $10 million at each project site are weak.

In addition, he said the bill would further erode the newly created Corporate Activity Tax (CAT), which was supposed to be a fair tax applied at very low rates without loopholes. According to the Ohio Department of Taxation, Schiller said the General Assembly already has approved tax exemptions and credits that will reduce CAT collections by more than $200 million a year when it is fully implemented.

If HB414 generates another $100 million in annual credits, as one news report has indicated, Schiller said it would mean that fully one-fifth of all prospective new CAT revenues will have been eliminated before one cent of this new tax has been collected. “As it stands now, the CAT is not an adequate revenue replacement for the taxes it is replacing,” he said, adding that this new credit is unfair to other taxpayers, including the many other automotive suppliers in Ohio, and is a recipe for state fiscal problems.

While Schiller said healthy companies such as Honda are able to take advantage of the new credit, it is far from clear that Delphi will be able to do so. Under the proposed bill, the Ohio Tax Credit Authority must determine that, “the taxpayer is economically sound and has the ability to complete the proposed capital investment project. (O.R.C. Section 122.171(D)(2)). The authority also must find that, “the taxpayer intends to and has the ability to maintain operations at the project site for at least twice the term of the credit.

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