One More Time!

Given this economy, not doing as well in 2009 as in 2008 at attracting capital investment isn’t necessarily bad. In fact, it can be great, if you still did better than everyone else. That’s how Ohio clinched its fourth consecutive Governor’s Cup for total qualifying project announcements in 2009. Weighing in at 381 projects (it had 503 last time), Ohio squeaked past runners-up Texas, Michigan and Pennsylvania in a repeat of last year’s pecking order, with 374, 371 and 335 projects respectively. Tennessee with 234 projects rounds out the top five.

Site Selection’s annual Governor’s Cup award recognizes the state with the most new or expanded private-sector capital projects as tracked by publisher Conway Data Inc.’s New Plant Database. Facility projects counted in the Governor’s Cup, Top Metros and Top Micropolitan rankings meet one or more of these criteria: capital investment of US$1 million or more, creation of 50 or more new jobs and/or new floor space of at least 20,000 square feet (1,860 sq. m.).

“Like every governor in America, I am facing very severe challenges,” says Ohio Governor Ted Strickland. “During these times of challenge, we have tried to determine priorities and focus on the factors that are essential to future growth and development.”

Two Sides of the Tax Coin

One is a continued focus on corporate taxation.

A Tax Foundation summary of significant state tax changes identifies these Ohio developments in 2009: “Ohio reduced its income tax across the board slightly as part of a package to phase out the corporate income tax, phase in a gross receipts tax, cut the sales tax slightly, phase out the inventory tax, and reduce the income tax by 21 percent over five years. The income tax reduction scheduled for 2010 has been postponed.”

“Because of the condition of the economy, we postponed the final phase-out of the income tax by 4.2 percent, but we have followed through on the other aspects of the tax reform,” Strickland explains. “The purpose of that reform, which passed before I became governor but that I have embraced, was to have the implementation of the CAT, or commercial activity tax, that would be very low rate but broadly based. That would allow for the elimination of the corporate franchise tax and inventory tax and these other taxes that we felt were onerous and discouraging to business growth in Ohio.”

Adds Lisa Patt-McDaniel, director of the Ohio Department of Development, “Tax reform has been a great selling point for us. Companies look at that and see the money they won’t be spending on taxes as an incentive. It also means we don’t have to offer as much in the way of incentives to counteract a poorly structured tax incentive system.”

The top corporate tax rate in Ohio is 5.1 percent, which is the lowest in the Midwest. “Companies can grow their business here, and we won’t tax that investment nor the machinery you need nor the profits you’re making. We’re taxing the transactions. Companies really like that.”

Still, postponement of the income tax reduction did not go over well with proponents of reducing business taxes as a way of making states more hospitable to businesses. In fact, the Tax Foundation ranks Ohio 47th in its 2010 State Business Tax Climate Index and calls for the state to “enact and stick with real tax reform.”

Behind Another Buckeye Win

In other areas, says Strickland, “We have worked to cut red tape where we could appropriately do that. We had a robust effort to look at all of the state regulations that businesses must deal with and, where possible, eliminate them, and in many other cases modify them so they were less of a burden.”

The governor also credits his administration’s commitment to keeping utility costs low, among other measures. Electricity rates for Ohio businesses are about 10 percent less than the national average, he says.

“We have reduced the size of government by 5,000 employees since I became governor three years ago, and we have continued even in this recession to invest in education and job creation. We have increased funding for elementary and secondary education by an average of 5.5 percent over the biennial budget we are currently living through. I believe we have done more than any other state in America to constrain the costs of college tuition at our public institutions.”

A $1.57-billion stimulus bill signed into law in June 2008 also contributed to Ohio‘s business climate in 2009, says Strickland. “We did that well before the federal government decided to pass their stimulus bill, and that has given us some access to tools we have used to encourage investment in Ohio.” Companies in the logistics and renewable energy sectors were among the beneficiaries of that program.

The state’s Third Frontier program, which uses bonding to secure funding resources for strategic, mainly high-tech, industry sectors, is not a program the governor claims credit for. But it’s one he’s glad the state has, he says. In fact, the same week Gov. Strickland spoke with Site Selection about how another Governor’s Cup went to Columbus, the state legislature voted to put on the ballot a $700-million extension of the program over four years. “The funds will be used to encourage research and to turn that research into job-creating commercialization,” says the governor. “I had suggested a $1-billion sum to be utilized over a period of five years. The House passed a $950-million amount, and the Senate countered with a $500-million proposal. We ended up with a compromise we can all feel good about.”

Though not asked specifically about his re-election run against Republican challenger John Kasich, Gov. Strickland says he has worked at “not being an ideologically driven executive. I have come to believe deeply in this challenging time that the people of this state need to feel that I, the governor, and our government are focused and steady, not allowing ourselves to be whipsawed by the daily crises we confront.”

What All Businesses Need

Among the projects mentioned by the governor as significant wins for Ohio are DuPont’s photovoltaic film line expansion in Circleville (see sidebar above); GE Aviation’s $161-million expansion in Evendale near Cincinnati, retaining about 5,000 jobs; Whirlpool’s $175-million expansion in Clyde; and General Mills’ $70-million, 70-job expansion in Wellston.”

Strickland says he has visited all of these plants, and many more, spending two and three days per week at times meeting with business and industry leaders throughout Ohio.

What, then, is most on their minds when it comes to expanding their businesses in Ohio, or anywhere else, for that matter? What is their consensus in terms of what it would take to get even more companies building and expanding and hiring?

“Easy,” says Strickland. “The single biggest factor in inhibiting a robust economic recovery in my judgment is lack of access to capital, especially on the part of smaller manufacturers. I am convinced that if capital were readily available, investments would be made and jobs would be created. I hear that every day.”

The president has suggested a $30-billion fund to encourage banks to make capital more readily available, notes Strickland.

“I fear that the manufacturing sectors, especially the smaller manufacturers with 50 to 500 employees, will perhaps not benefit from this measure as I think they need to benefit,” he says. “If we can get greater access to capital, we will see this economy start to grow rapidly.”