Mahoning County secured $863.4 million to create and protect 1,863 jobs, or an average of $463,000 per job — the highest rate in the state.
Butler County ranked third in the state at $349,177 per job created or retained.
In each case, Ohio taxpayers shoulder the risk of companies falling short of their hiring goals while the private sector reaps the benefits. Critics decry these as government handouts that often go to corporations that have the most political influence.
Despite the inherent risk, state and county development officials say financial incentives in the form of tax breaks, grants and loans are vital to job creation, especially now when many companies are making decisions on where to locate based on how much it costs to do business there.
“The fact is that everybody has them,’’ said Michael Juengling, director of the Butler County Department of Development. “Does it give us an advantage over somebody else by offering the same incentives that they have? Probably not. But if those incentives aren’t available, then we’re out of the game.’’
Martin Russell, Juengling’s counterpart at the Warren County development department, described state-funded tax breaks as an essential part of the equation for bringing jobs to the region.
“Sometimes it’s straight out tax incentives to reduce the cost of doing business and sometimes it’s coming up with creative ways to meet companies’ infrastructure needs,’’ Russell said. “Each community has to be very aggressive to demonstrate to businesses that have significant options as to where they can go about why they should come to Warren County or the state of Ohio.’’
Reversing the state’s job losses has become almost an obsession in Ohio. In his State of the State address, Gov. John Kasich said only Michigan and California, “which has completely lost its way,” have lost more jobs” than “our beloved Buckeye state.” He even titled his first two-year budget proposal “The Jobs Budget.” The economic development nonprofit corporation Kasich and the legislature launched carries the name JobsOhio.
But growing and maintaining jobs in Ohio will continue to carry a price tag no matter how the state goes about economic development. Unless someone changes the rules of the game, competing with other states for jobs — or even within the state — will mean doling out tax breaks, loans and grants — benefits that often go to big, profitable companies that can leverage one community or state against another. While the inducements might seal the deal, they can also result in other burdens on communities and taxpayers. Critics say the costs for each job created are so high it takes years of tax collections from each worker to recoup the investment.
Zach Schiller, research director for Policy Matters Ohio, a left-leaning think tank, said recent major incentive packages for companies such as Diebold and Bob Evans were focused primarily on keeping the jobs the state has rather than growing employment.
That was supported in the Ohio Department of Development data studied by the Daily News. The number of new jobs promised in the eight-county Dayton region from 2008 through 2010, for example, was 5,222. Meanwhile, the number of jobs retained through those incentives was 6,920.
Schiller said Ohio should only provide incentives to companies that really demonstrate a need. But that’s hard to do, he conceded, when everybody is playing the game.
“It’s not like we’ve done this and nobody else has,” he said. “This has become the generalized environment and it’s not just happenstance.”
Samuel Staley, an adjunct professor at the University of Dayton and director of urban growth and land use policy at the California-based Reason Foundation, said there is no guarantee companies will stay in Ohio long enough for taxpayers to realize a full return on their investment.
“The companies that are in a position to take advantage of those tax incentives are also pretty fickle,’’ Staley said. “If a project is not making the money they want it to, they will go ahead and leave, regardless of the commitments they’ve made.’’
The Daily News analysis showed that Ohio spent $5.4 billion in tax incentives across the state to create and protect just over 81,000 jobs during the three years. The average per-job cost during that time was $66,658.
One way to recoup the state’s investment is seeking reimbursement from companies that don’t live up to their promises. But while Ohio has gotten more aggressive at pursuing these so-called claw-back cases, it can be a lengthy process with little to show for it.
So far this year, the state has “clawed back’’ about $1.6 million in Rapid Outreach Grants, said Nate Green, director of the development department’s Strategic Business Investment Division. But the money hasn’t actually been collected.
Instead, Green said, the claw-back cases have been referred to the Ohio Attorney General’s office for settlement.
“These are taxpayer dollars, and we need to be accountable to the taxpayer,’’ Green said. “We try to get our money back the best we can.’’
‘It’s the No. 1 thing we put out there’
Green said government support in the form of tax break and benefit packages is crucial to competing with other states, which may offer similar inducements and have other attributes (such as oceans, warm weather or mountains) that may be attractive to companies on the move.
“When we compete with other states, it’s the No. 1 thing we put out there,’’ said Green. “It’s a huge benefit, not only to the companies that are looking to grow here but also the companies we are looking to attract.’’
The claw-back program helps to keep companies honest, Green said. But Staley said recouping money after the fact is “a lot more difficult than people realize.” The large, influential businesses that typically receive large benefit packages from governments, he said, often have teams of lawyers well-versed in arguing that their companies couldn’t fulfill job-creation or capital expenditure goals because of circumstances beyond their control.
“These claw-back efforts can quickly descend into protracted litigation in which the company typically has an advantage,’’ Staley said.
Mark Calabria of the Washington, D.C.-based Cato Institute, a libertarian research group that has issued several reports on corporate welfare, argues that many of the corporations seeking job-creation incentives don’t actually need the money.
“Most corporations are in a position now where their profitability is pretty good,’’ he said. “So the argument that people are in need of any sort of bailout rings hollow.’’
General Electric Co. is a prime example.
One of the nation’s largest corporations, GE will receive $8.8 million in public funds — including about $6 million in tax credits — to build a research and development center for electrical power systems on the University of Dayton campus.
Last year, GE posted worldwide profits of $14.2 billion, paid no U.S. taxes and instead claimed a disputed $3.2 billion tax benefit while laying off 25,000 workers and hiring 30,000 workers overseas.
“Companies like GE don’t go after the money because they need it. They go after the money because they know they can get it,’’ said Calabria, who noted that business tax credits, grants and loans are so widely available most companies have simply come to expect them.
Critics argue that the free flow of public money has trapped communities like Dayton, which may be put in a position of diverting government resources away from potentially more productive uses in order to make a competitive offer to a company.
Staley suggests cities and states reduce the tax and regulatory burden for all businesses, not just big, high-profile companies that politicians can tout as a feather in their cap.
That way, “it’s not about the local government or state government choosing which company gets the privilege of operating in a better business climate,’’ he said. “It becomes a question of giving everyone who operates in our community access to the same privileges.’’
$56.1 million to Diebold
This year Ohio agreed to provide $67.3 million in tax credits, loans, grants and other funding to help two Ohio corporations with deep roots in the state build new headquarters.
The biggest incentive package —$56.1 million — went to Diebold Inc., a North Canton-based manufacturer, and that doesn’t include local incentives.
Diebold, which has been in Ohio for 150 years, says the project will cost roughly $100 million, roughly equal to all the incentives.
Ohio also agreed to provide Bob Evans Farms Inc., the Rio Grande-based restaurant chain and food manufacturer, $11 million to move its headquarters from inside the city of Columbus to New Albany, a suburb of the state capital.
In return for the incentives, Diebold agreed to maintain 1,500 jobs at or close to its new headquarters over the next 18 years, while Bob Evans will maintain a work force of 400 at its new headquarters. The company said it weighed competing offers from Texas before making its decision.
Kristie Tanner, deputy director of the Ohio Department of Development,, said manufacturers such as Diebold, which currently has 2,000 employees, always look to boost productivity — gains which can result in smaller work forces over time. However, she said, those improvements keep the companies competitive.
Diebold spokesman Mike Jacobsen said the new headquarters was critical to Diebold because it currently has its northeastern Ohio operations inefficiently spread over several buildings.
A decision by Diebold’s primary competitor, NCR Corp., to move its headquarters from Dayton to Duluth, Ga., made getting incentives imperative, Jacobsen said. The NCR incentive package put Diebold at a competitive disadvantage, he said.
The company fielded offers from North Carolina and Virginia, said Jacobsen.
“Other states were very, very serious about attracting us and presented extremely compelling incentive packages,” he said. “We owed it to our shareholders to carefully consider these offers.
“However, that said, staying in Ohio was always our strong desire.”
The debate continues
Matt Mayer, president of the Buckeye Institute, a conservative think tank, said he wants development officials to focus more on separating companies truly at risk of leaving Ohio against those angling for a better deal.
“I feel like we’re hearing an awful lot of businesses that are threatening to shut down or move,” Mayer said. “In some cases, I’m not quite certain if the threat is real or if it’s a bluff to get tax credits and the types of things that help them earn more profit.
“Given the historical lack of oversight and accountability in the program, I’d be hard-pressed to think employers haven’t learned how to game the system. There’s arbitrage in any type of environment like this.”
Mark Partridge, an Ohio State University economics professor who studies incentives, doesn’t believe they work. And he said many economists across the political spectrum agree with him.
“They’re akin to playing a slot machine,” said Partridge. “It doesn’t mean every time you play, you’re going to lose. But on average, you’re going to lose.”
Development officials disagree.
Tanner said various grant and loan programs offered by the state provide incentives not only for business expansions, but also pave the way for infrastructure improvements such as roads, sewers and water lines.
“All of these things actually go to help build the assets in the state of Ohio and they go beyond just cash for companies,” Tanner said. “Of the other incentives that are there, they often are necessary to make the project move forward.”
Partridge said public officials are under tremendous pressure to create jobs — and eager to claim credit when companies announce they are staying in Ohio.
“They know paying a lot of money to Bob Evans to move it 12 miles is maybe not the best use of money,” he said. “They know this. They don’t need economists to tell them that.”
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