Pay to Stay

The astounding mediocrity of Ohio's job tax credits

Four major companies in the Dayton area announced layoffs in the first half of 2012

Collectively, Eastman Kodak, Appleton Paper, Computer Sciences Corporation and  Supevalu Inc. sent 637 Ohioans to the unemployment line.

All four also share the distinction of receiving money from Ohio through the years via the Job Creation Tax Credit (JCTC), an underwhelming (to put it charitably) state program that's been annually handing out millions of dollars in taxpayer cash to corporations on the promise of job creation without producing appreciably better results.

The JCTC is Ohio's main driver of economic development. It is for many conservatives what social programs are for liberals—something to throw money at with too little regard for results, simply because it feels right.

"It's not that it doesn't work at all, it's just an expensive way to get fairly small results and there's a lot better things they could do with their money," says Dr. Peter Fisher, a professor of Urban and Regional Planning at the University of Iowa. Fisher has studied state tax incentives and consulted for the State of Ohio.

Between the JCTC's origin in 1993 and 2003, the state issued breaks totaling $230 million (in 2011 dollars) and approved deals creating around 70,000 new jobs.

Since then, the state's spent over $623 million and signed off on agreements producing about 30,000 new jobs (as of the 2011 annual JCTC report, released in late October).

While it's not a one-for-one comparison decade-over-decade—that $623 million includes ongoing expenditures from those earlier agreements - the question remains: How much bang are we getting for our buck?

Lately it sounds more like a paper popper than an M80.

The question becomes even more relevant as money that could be ticketed for local firemen, teachers and policemen is diverted into a program inextricably tied to the new, quasi-private JobsOhio organization, which promises even less transparency and apparent accountability. On top of it all, many economic studies indicate the effects of state tax breaks on hiring are small, costly and ergo tremendously inefficient – often paying corporations to do what they already planned to do.

Take for example IBM's November announcement that the company was opening a state-of-the-art data center in Columbus creating 500 jobs. What role state tax credits may have had in IBM's decision will forever be colored by the fact that they weren't announced until three weeks later. While it was noted in November that they were in ongoing negotiations with the state, you don't come away with the impression their arrival hinged on it.

Or consider the December announcement of a JCTC credit for King Nut's expansion in Solon. The deal was approved about two weeks before the new distribution center opened, and apparently after they'd ordered $1 million in machinery and hired 25 new employees. If plans were in place before a deal is finalized doesn't that make the taxpayers' money more like a Welcome Wagon than a jobs incentive?

"It's become something of an entitlement," says Zach Schiller of Policy Matters Ohio, noting the record 181 agreements approved in both 2010 and 2011. "This has not been a program where [the money] was given out as judiciously as it should be, or enforced as much as it should be."

Chasing the Hatfields

The JCTC began, ironically enough, just as the feds were tightening requirements on social welfare programs. It was spurred locally in part by Kentucky's passage in 1988 of the Kentucky Rural Development Act. It offered, in addition to breaks on corporate income tax, a new gambit which diverted part of their workers' payroll taxes to the employer.

Worried about losing jobs to border-hopping companies, Ohio inaugurated in 1992 its own corporate tax credit tied to employee withholding. Indiana followed suit two years later, and now half the country offers some payroll-diversion job creation tax break. The rationale is that there's nothing wrong with giving away money you otherwise wouldn't see.

While this is true, a lot hinges on "otherwise wouldn't see." A 2002 study comparing employers who did and did not receive a similar Georgia job-creation tax credit over a three year period concluded that 75 percent of the jobs would still have been created otherwise. But as Jimmy Kimmel says, who doesn't like more money?

The Ohio program requires that applicants maintain current job levels and add at least 10 new hires at 150 perecent of the federal minimum wage ($10.88) within three years.

The credit is fully refundable, meaning it can reduce the company's tax liabilities to where the state has to write them a check. This is important because studies have shown anywhere from 44 percent (Indiana) to 65 percent (North Carolina) to as much as 88 percent (Georgia) of corporations may not pay any state taxes. (Little information is available on Ohio corporate taxes since 2005's massive reform.)

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