Pay to Stay 

The astounding mediocrity of Ohio's job tax credits

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JCTC is administered and enforced by the Ohio Department of Development. They work in concert with Governor John Kasich's new non-profit private organization, JobsOhio. They're tasked with finding companies and facilitating their application for the credit.

The applications are approved by the five-member Ohio Tax Credit Authority which sets tax credit rate (usually kicking back 50-65 percent of employees' total withholding) and term, based on JobsOhio recommendations. The Authority is paneled by the ODOD director (or their designee), and four members appointed by the Governor, House Speaker and the Senate President.

"I don't think they take a serious look at every company that walks in the door and...negotiate something based on whether it's necessary and whether the state can provide the minimum assistance to get the maximum bucks and maximum development," Schiller says. "Instead it's like here's all we have to offer, what do you want?"

JobsOhio didn't respond to multiple requests for comment from Scene.

The High Cost of Mediocrity

The JCTC is like a .200-hitting middle infielder. They do a passable job, but don't get the kind of results that warrant significantly greater investment.

During JCTC's first 19 years, its companies promised to create more than 250,000 jobs and wound up coming through on fewer than 100,000.

Historically, only about two-thirds of approved projects are actually executed. Of those, more than a third are terminated by the state for failure to meet benchmarks. Another 10 percent are canceled or closed by the company before completing the project's term. That means just 37 percent of approved projects are either active or completed.

The numbers are even worse of late. Until 2003, three-quarters of approved agreements were executed. From 2004 to 2010 just 63 percent of those approved were ultimately executed.

Meanwhile, investment has decreased over time both in what's been promised and actually realized. Just twice before 2005 did total committed investment for executed agreements fall below $850 million. It's reached that just once since. Actual investment during that period (excluding 2011) has been around $600 million, less than half what it averaged in the years prior when it nearly always substantially exceeded the commitment. And this comes at a time when they've approved more projects then ever?

Job numbers are equally disconcerting going back to before the Great Recession. Using a three-year rolling average (because of the lag time for projects to ramp up), JCTC helped create an average of more than 6,000 new jobs annually until 2003. Since then it's averaged less than 4000. This despite receiving more job commitments the last five years than almost anytime earlier. (That shortfall's driven in part by the even lower execution rate of approved agreements recently).  

"There are other factors to consider," says Darryl Hennessy, ODOD's Assistant Chief of Business Services and sometime chair of the Tax Credit Authority. "Part of it is driven by wage commitment, part of it by investment, some of it by location in the state, others could be by targeted industry. So there are many factors that will affect an agreement, not just job creation."

Unfortunately, recent wage numbers aren't any better. After spending the entire '90s under $20/hour (in 2011 money), JCTC started creating better jobs. Average promised wage of new hires peaked at around $25 in 2002 and 2003. It's been in decline since, bottoming out under $21 in 2009 and 2011 for the second and third times since the millennium.

There's reason to wonder whether the JCTC is even headed in the right direction. In September, Kasich signed a JCTC exclusion into law for companies with "home-based employees." The six-year trial program will reduce the wage requirement to 131 percent of minimum wage ($9.50), presumably opening the door for Convergys, the Cincinnati-based call center operator. The company has reportedly been implementing "home agent" programs and testified in favor of the exception.

It's a nice thank you gift for Convergys, who last year had to pay Cincinnati $14 million for failing to meet the job requirements of a 2003 deal to keep them from moving their headquarters to Kentucky.

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