Thursday, May 14, 2009

Study: Ohio's incentives need fine-tuning

A new report on Ohio’s job attraction and retention strategies indicates a 2005 tax reform package has lessened the burden on existing and incoming businesses, but cautions that many reforms lie ahead in making the system work better.

The Ohio Department of Development released a report titled the “Ohio Economic Development Incentive Study,” first commissioned in 2007 and composed of development leaders from around the state. The study looks at Ohio’s job-creation tax incentives, loans and its local development programs along with the bureaucratic backbone of the system.

The good news in the report: A comprehensive tax reform package passed under the Taft administration in 2005 appears to have lessened the burden for business and has helped Ohio be competitive with nearby states. For example, a small manufacturer’s job retention project costs and total tax burden are expected to lessen by about 15 percent based on Ohio’s projected tax structure in 2011.

The tax reform package credited with easing the weight on businesses’ shoulders included a phased-in 21 percent reduction of the state’s personal income tax, a crucial revenue source that hit the spotlight once again this week. State officials on Tuesday said that sagging income tax revenue could lead to tapping Ohio’s rainy day fund to plug a hole of $600 million or more in this year’s budget

A detailed analysis of various business incentives, however, points to a need for improvement in a number of areas, including the state’s job creation tax incentive, a key weapon in its economic development arsenal. The study found that a 150 percent of federal minimum wage requirement for companies proposing to add jobs allows businesses to get a tax break for creating relatively low-paying jobs. Reporting requirements, the study said, also come at companies’ expense and generate “no apparent benefit to the public.” The study recommended the state increase the minimum-wage threshold for job-creation requirements and simplify reporting requirements.

The task force commissioned for the study also looked at localities’ Community Reinvestment Area and Tax Increment Financing district initiatives.

“Tax abatement began in Ohio as a targeted urban development program, but now virtually all areas of the state qualify,” the study said, recommending that Ohio redesign the programs to limit eligibility to a streamlined list of criteria.

The study also took aim at what it considered a fragmented economic development landscape, with hundreds of agencies within the state that can generate confusion for businesses. It urged that economic development incentives provided by the state be standardized and simplified, a recommendation that echoed for top-level operations at the Ohio Department of Development itself.

To download the full report, click here.

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