Not only did General Electric Co. make Ohio’s single biggest announcement of the last decade for new job creation, the company is also eligible for the state’s single biggest tax break over the same time period and possibly longer, this newspaper has verified.
Multinational corporation GE announced earlier in 2014 plans to build a new U.S. Global Operations Center in the Cincinnati market, one of five worldwide, creating 1,400 new jobs for Ohio. A total of approximately 2,000 people will be employed there when it fully opens in 2017, including transfers from other GE sites.
On June 23, the company confirmed the $90 million, 10-story center will be built at downtown Cincinnati riverfront development, The Banks.
The size of the job creation commitment and the value of tax credits for which a company is eligible go hand in hand, Daryl Hennessy, chief of the Business Services Division for Ohio Development Services Agency, said. The state department administers and monitors incentive agreements with companies.
In other words, the bigger the job announcement, the bigger the tax break, typically.
The Ohio Tax Credit Authority approved in May an 85 percent Job Creation Tax Credit worth $51.6 million over 15 years to reimburse GE for income taxes paid on growing payroll. Companies don’t pay state income taxes; their employees do. But GE will claim the state tax credit against their Ohio Commercial Activity Tax bill.
GE’s estimated $51 million Ohio tax break is the most valuable tax credit the state has awarded since 2003, according to records from Ohio Development Services Agency. That’s based on agreements the state has executed with companies committing to create the most new jobs during that same time. The state does not track tax credits just by the estimated value of the company’s tax savings, so information about the most valuable tax credit ever awarded prior to 2003 was not available.
Ohio and GE have yet to sign their tax agreement for the new shared services center. But GE’s approval for $51 million is more than double the value of a tax break for JPMorgan Chase & Co. to expand its Columbus-area operations, the second biggest job announcement in the last 10 years, state records show.
JPMorgan has a tax agreement with the state worth $13 million; the bank originally committed in 2009 to create 1,150 new jobs in Ohio. The agreement was amended in 2012, and the company upped its promise to create 1,500 new jobs, according to Ohio Development Services Agency.
As of the end of 2013, JPMorgan actually created 7,336 new jobs at locations in Columbus, Westerville and Gahanna, according to development services.
JPMorgan’s terms are 75 percent for 15 years compared to GE’s terms of 85 percent for 15 years.
The size of the deal reflects the impact of the GE project, Thomas Seward, project manager for JobsOhio, said. JobsOhio recommended an incentives package for GE to state government.
“We equate it to winning a Fortune 500 headquarters,” Seward said.
JobsOhio, a private nonprofit development agency, was established by Ohio Gov. John Kasich’s administration in 2011. JobsOhio leads efforts to recruit companies to Ohio, and sometimes leads negotiations on tax and other financial incentives with prospective companies. Any incentives negotiated are recommended for approval to Ohio Development Services Agency, which reviews it. Then Ohio Tax Credit Authority, an independent body of appointed government and business leaders, votes on it.
JobsOhio and Ohio Development Services Agency meet regularly to discuss ongoing projects, Seward said.
The Ohio Job Creation Tax Credit is one among a package of financial incentives approved for GE’s project:
• Cincinnati City Council approved in June a Job Creation Tax Credit with the same terms as the state — 85 percent for 15 years. GE is expected to generate total payroll for the city of $142 million a year. The average salary to work at GE is expected to be $79,000 a year, according to city officials;
• Included in both the Ohio and Cincinnati tax agreements is a provision that if GE’s income tax credits are ever greater than the company’s tax liability in a given year, the company will get a refund;
• Cincinnati and Hamilton County governments have a joint development agreement regarding The Banks. On June 23 they passed an amendment to the agreement to approve a 15-year, 100 percent property tax exemption for developer Carter Dawson to build the 340,000-square-foot shared services center. Cincinnati Public Schools will still receive a yearly payment from developers;
• GE employees will receive a 30 percent discount on parking rates, for space at the county-owned parking garage along Freedom Way;
• JobsOhio also offered GE financial assistance of its own. GE will get two grants, $4 million total, for workforce training and economic development.
In exchange for these incentives, the company is obligated to maintain operations at the site for at least 18 years and employ at least 1,800 workers, according to city records.
“It’s a great deal,” Joe Allen, manager of the new U.S. Global Operations Center for GE, said. “We’re going to bring about 2,000 people into the city.”
“The Banks was not the cheapest when it came down to it, but it was attractive for what we’re trying to develop and that’s to bring 2,000 world class folks into a great facility,” Allen said. “Sometimes being the cheapest without the talent doesn’t work.”
GE also considered sites in Mason and Oakley.
One of the terms of Cincinnati’s tax credit agreement — the 85 percent credit on income taxes — is the highest awarded by the city to a company ever, Jeff McElravy, Cincinnati’s interim director of trade and development, said. A joint Cincinnati City Council and Hamilton County Commissioners meeting was held June 23 at Great American Ball Park to vote on the local incentives, and McElravy presented at the meeting.
City council members view the deal as a potentially transformational one that will bring the community a “huge jolt of momentum.”
Councilmen Chris Seelbach and P.G. Sittenfeld questioned why GE was getting such a good deal, but also still voted yes in favor of the incentives offered.
“It’s time that we re-analyze and take another look at the sort of set of incentives that we offer to land deals like this,” Sittenfeld said. “I think it’s imperative that we strike a balance between competitiveness — and nobody would want to put ourselves in a position where we risk losing up to 2,000 awesome jobs — but balance competitiveness with fairness.”
Councilman Christopher Smitherman said it isn’t a perfect deal, but the market is competitive.
“I think it’s important for my colleagues to understand that competitive market and the City of Cincinnati and our region won because our team was competitive,” Smitherman said.
Cincinnati got a great deal on the GE project, Doug Moorman, vice president of Development Strategies Group LLC, said. The Cincinnati consulting firm is hired by businesses to find and negotiate financial incentives. Development Strategies was not involved with GE negotiations.
“GE locating 1,800 jobs in Cincinnati, Ohio, causes other companies that are expanding and relocating to think ‘what’s going on in southwest Ohio that GE wants to be part of that I should think I want to be part of too,’” Moorman said.
Cincinnati’s central location to support other U.S. operations, and close proximity to different businesses of General Electric were key factors in the region landing the project, company officials said.
The Fortune 500 manufacturer of jet engines, washing machines and medical scanners is consolidating finance, technology, human resources and other corporate administrative functions at the shared services center, which will fully open in 2017. Construction is slated to start later this year and be completed in 2016.
GE’s aviation division is based in the northern Cincinnati suburb of Evendale. Subsidiary GE Appliances is based in Louisville, Ky. And GE Lighting is based in Cleveland.
GE Capital has an office in Kettering.
In fact, GE has more employees in Ohio than any other state (nearly 16,000) including the corporation’s world headquarters in Connecticut, according to the company.
GE already has an outstanding Job Retention Tax Credit with the state, and has received grants for workforce training, according to Ohio Development Services. A look at GE’s track record on other financial incentive agreements with Ohio show the company is meeting and in some cases exceeding job creation and retention commitments, also according to development services.