State handing millions to businesses who threaten to move
Posted October 08, 2012 in Press Releases
As he travels around Ohio, Gov. John Kasich regularly points out that the state’s unemployment rate is a full percentage point lower than the national average, and more than 123,000 jobs have been created under his watch.
But a Dayton Daily News investigation shows taxpayers are paying a high price for some of those jobs. Kasich’s administration approved $487.7 million in taxpayer-subsidized tax credits, grants and low-cost loans for businesses during 2011, a 44.3 percent increase over the $337.9 million approved in 2010.
More than $200 million of the 2011 incentives came in the form of tax credits to companies that simply agreed to keep existing jobs in Ohio after threatening to leave the state, the Daily News found.
Among 16 states with tax credits for job creation and retention, Ohio has the largest number of recipient companies, with 567, according to an April report by Good Jobs First, a Washington, D.C.-based incentives watchdog group. These incentives give companies tax credits equal to a percentage of their employees’ withheld state income taxes.
The use of such incentives, commonplace across the country, is increasingly coming under fire as companies get breaks for moving within states and, in some cases, within metropolitan areas. Companies that get incentives frequently miss their employment pledges.
“Economic times are so desperate, a lot of times communities will do whatever it takes” to attract or retain employers, said Cuyahoga County Executive Ed FitzGerald, a Democrat who is considered a possible challenger to Kasich in 2014. “It almost ends up being an extortion situation.”
Kasich defended his administration’s choices. “Incentives matter,” he told the Daily News. “They’re critical, sometimes more critical than others. It’s a situation we measure on each and every company. We don’t just throw money at everything.”
Kasich’s critics say that’s exactly what he is doing. Phillip Mattera, research director for Good Jobs First, said NCR Corp.’s 2009 decision to leave Dayton for Atlanta has made the administration quicker to offer incentives to companies that threaten to move.“What got everybody shook up was NCR,” he said.
Kasich has handed out richer subsidies to fewer companies than did his predecessor, Ted Strickland, state data maintained by Good Jobs First show. And the biennial state budget Kasich signed into law in June 2011 contains provisions allowing more businesses to qualify for tax credits for retaining existing jobs.
In some high-profile 2011 cases, the state subsidized new corporate headquarters for corporations that threatened to leave the state but ultimately used the money to move only a few miles, to wealthier communities.
• After securing $93.5 million in state incentives over 15 years, American Greetings Corp. last year announced it will leave its longtime hometown of Brooklyn and move a dozen miles away to the more upscale Cleveland suburb of Westlake. The new headquarters with its 1,750 workers will be in a chic lifestyle center part-owned by the family that controls American Greetings. The cost for each of those jobs: $53,429.
• Diebold Inc. received state and local tax credits sufficient to pay for a new $100 million headquarters in the Summit County town of Green. Diebold officials promised to keep 1,500 employees in Ohio for 18 years. But in a move allowable under incentive agreements, the company announced in April it will move 200 Ohio jobs to India.
• Columbus officials were surprised when Bob Evans Farms snubbed their incentives package and announced plans to leave the city’s south side for affluent New Albany. A spokesman for Mayor Michael Coleman said company officials told Coleman they planned to stay in Ohio, but used a relocation threat to squeeze $17.4 million in incentives from the state.
• The Wendy’s hamburger chain returned to its traditional hometown of Dublin after a brief corporate marriage to Arby’s in Atlanta. The state ponied up $8.9 million and Dublin gave $8 million for 223 jobs, bringing the total public expenditure to $75,785 per job. Meanwhile, Wendy’s racked up millions in severance and relocation payments to executives, including an $11.5 million golden parachute to former Chief Executive Roland Smith, who declined to move to Ohio.
• Kasich granted $78 million in incentives to keep Marathon Petroleum Corp. in Findlay. He also granted Marathon an exemption from the state’s commercial activities tax, against the recommendation of his tax commissioner.
Zach Schiller, research director for the left-leaning Policy Matters Ohio, said large awards went to companies that were unlikely to leave the state.
“We gave Marathon in Findlay an $80 million tax package when they had no intention of going anywhere,” Schiller said. “It’s $80 million that the people of Ohio will not (be able) to spend on schools or roads or, should they see fit, tax cuts.”
The conservative Buckeye Institute is no fan of incentives, either. “A clear, more transparent, lower rate is the recipe for job creation and a more robust economy,” said President Robert Alt. “If you’re looking for long-term growth, you want the stability created by clear rules rather than special carve-outs.”
Dayton City Manager Tim Riordan, frustrated by a spate of publicly financed corporate relocations in the Miami Valley, called on businesses to stop pitting communities against each other.
“We need something to change here,” he said. “The individual company is benefiting, but tax dollars are being spent moving people around on the checkerboard. Let’s spend our money on things that will really grow the economy.”
It’s hard to say how much tax money government entities expend on subsidies to business, experts say, because transparency is so poor in many states. But in a landmark study, Kenneth Thomas, associate professor of political science at the University of Missouri-St. Louis, calculated total government subsidies to business at $70 billion in 2005. That includes $46.8 billion through programs like Ohio’s Job Creation and Retention Tax Credits, up from $26.4 billion in 1996.
“Companies have come to expect them, so everybody’s pushing them,” Thomas said. “I think for the most part these subsidies are a waste of money