A boon for rural jobs? Or a $60 million boondoggle?

A $60 million boondoggle created to benefit large investment firms?

Or a program that will create much-needed jobs in rural areas?

That's the debate over a new rural jobs tax credit program that made it into the final proposed budget the General Assembly sent to Gov. John Kasich Wednesday.

The proposed $60 million in tax credits would go to companies that invest or loan up to $100 million for either rural jobs or "high-growth" industries. It's a concept that has popped up across the country, but also drawn some opposition from both progressives and conservatives.

"We need to get capital funds into areas outside the big urban areas and this is a good way to do that," said state Rep. Wes Retherford, R-Hamilton. "If you want to open a business in one of the big Cs (Cincinnati, Columbus or Cleveland) and you have a decent business model, you have pretty good access to capital and state and local programs. In rural Butler County or Adams County, not so much."

Retherford twice sponsored versions of a bill that would have created a rural tax credit program, but fell short of passage in each of the last two years.

He said the version headed to the governor now includes better safeguards that came after backers of the proposed credits learned from other states' "mistakes" and listened to critics.

But those critics aren't so sure.

"It's horrible legislation," said Julia Sass Rubin, a Rutgers University public policy professor who has studied such tax incentive programs for decades. "Ohio here is giving away $60 million in taxpayer dollars and writing a check to these firms. In return, all they need to do is make loans – making money both on the interest rates and tax credits.

"That's not a business model the state should be getting into."

Kasich's office Thursday offered no indication as to whether the governor was in favor or against the tax credit program, saying all aspects of the budget are under review.

Kasich can line-item veto any budget provision but must do so by midnight Friday.

Mixed reviews from other states

Ohio's proposed program is the latest variation of other programs that have also been called "new market tax credits" or "certified capital company programs (CAPCOs)" in different states.

At least 20 different states have implemented a version of such tax credit systems in the last decade.

In short, such programs allow investment companies that are approved by the state to either loan or grant businesses funds at market rates and get a tax credit in return.

The results have been mixed. For example, Florida officials have said that the state has gotten back only 18 cents for every dollar invested in such tax credits.

In the last few years, officials in six states as well as Washington, D.C. recommended that such programs not be continued after audits and reviews found they were not working as hoped.

Maine, however, issued a report stating that its program made a difference. That's even though that state's program came under intense scrutiny following a major controversy involving a failed attempt to save a paper mill in that state.

Other examples include businesses that failed yet are still on the hook for their loans to companies that still receive the tax credits.

Retherford said backers of Ohio's proposal considered those issues elsewhere when crafting the latest version.

"That's why their mistakes won't become ours," he said.

Who controls the investments?

Critics say such programs give all the power to outside firms actually making the investments, especially three large companies that specialize in such programs. They also argue the programs strip states of being able to hold firms accountable.

Those firms, Columbus-based Stonehenge Capital Co LLC, Advantage Capital Partners and Enhanced Capital (both from Lousiana) have been involved in similar programs nationally. Stonehenge and Advantage both actively lobbied in favor of Ohio's version.

Officials with the firms say that they are not the only such companies investing in rural/new market tax credit programs and tout their success and effectiveness.

"The beneficiaries of any community and economic development program are the companies that receive the investments – not the firms that manage the capital and invest in and manage the businesses," Stonehenge spokeswoman Mackenzie Ledet said in a written statement. "The investments allow the companies to grow, create jobs and improve the communities in which they are located."

Ohio's proposed program indeed allows such firms to pick the investments with little to no input from state economic development officials.

The tax credits themselves would come from the state's general revenue fund.

That's similar to Georgia's version that came only after state legislators on both sides of the aisle battled for years before passing it earlier this year.

"This is a fundamentally flawed model that has been tried many times and forms and under many different names," said Wesley Tharpe, research director for the left-leaning Georgia Budget & Policy Institute. "The way they track the jobs created can be a complete mirage and it becomes incredibly difficult for lawmakers and regulators to monitor the program and hold them accountable."

And in other states, such firms profited off of tax credit programs even though little to no job creation occurred.

But Retherford said that Ohio will be different because it requires the investment firms to make the required $100 million in investments in next two years – and the state won't start handing out the tax credits for another four years.

"It's like in Popeye, I get my hamburger today and don't have to pay you until Tuesday," said state Sen. Bill Seitz, R-Green Township, who co-sponsored the Senate version of the bill last year.

In return, the investments need to create at least 2,000 jobs, or Ohio gets to hold back $30,000 of the tax credits for every job not filled under that target.

And the final version includes several reporting requirements for both investment companies and the businesses involved regarding job growth.

The conservative Buckeye Institute also opposes the program, but primarily for reasons other than its more liberal counterparts.

"But our opposition is on a higher philosophical level – we think the market should decide these things and that tax credits and incentives are a bad idea and don't work as an overall concept," said Buckeye Insitute research fellow Greg Lawson.

Cincinnati Enquirer


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