STATE LEGISLATIVE UPDATE

ven as states buoyed by the Supreme Court’s dismissal of the Cuno v. DaimlerChrysler case on lack of standing move to enact innovative and more far-reaching incentive programs, the cost of manufacturing in the United States continues to rise.

   So says “The Escalating Cost Crisis,” a report issued in late September by the National Association of Manufacturers, The Manufacturing Institute and Manufacturers Alliance/MAPI. Since 2003, the U.S. structural manufacturing cost gap vis-a-vis our major trading partners has increased by almost 40 percent, says the report, mainly because the U.S. corporate tax rate stays the same while other nations’ tax rates decline. According to the study, last conducted in 2003, corporate tax rates, employee benefits, tort costs, natural gas prices and pollution abatement collectively add 31.7 percent to U.S. manufacturers’ costs versus the nation’s nine major competitors, an increase from 22.4 percent just three years ago.

   As one remedy, NAM is not the only party calling for a renewal and extension of the R&D tax credit, which was allowed to expire at the end of 2005, adding roughly nine percent to manufacturers’ tax burden at a time when manufacturers account for nearly three quarters of private R&D in the U.S. But national competitiveness does not appear to be an election-year hot button. Congressional leaders say the R&D credit may be passed during a special lame-duck session in November. Meanwhile, according to a September report from high-tech trade association AeA, U.S. affiliates invested $28.8 billion on R&D in foreign countries in 2003 (the most recent annual data available), up 72 percent from 1999. And industrial funding of R&D on university campuses continues to wane.

   “When combining this expiration with the constant temporary renewals, companies in the United States are limited in their ability to plan for R&D projects,” said William T. Archey, president and CEO of, in early September. “As a result, some projects do not get the funding they deserve, or they are moved overseas. Congress must add some predictability to the system to help the United States maintain its lead in innovation.”

   The lame-duck session may also be the time for bringing forward another piece of 2005 legislation that has been allowed to languish: The Economic Development Act of 2005, which officially recognizes the power of states to offer tax incentives. According to the ACCRA incentives database, there are 383 state tax credit programs and 81 state enterprise zone programs. In late September, a bipartisan coalition of eight senators signed a letter supporting the act and calling on Senate Finance Committee members to take action.

   “Traditionally, it has been the prerogative of each state to determine how to use its tax base, including the best ways to promote economic development within its borders,” wrote the senators. “Congress generally has not interfered in that process. Before coming to the Senate, many of us were state and local officials who participated in these decisions and understand the important role that tax policy plays in maintaining strong states and communities.”

   One of those was Sen. George Voinovich (R-Ohio), who introduced the bill in 2005, and who has served as Ohio’s governor and Cleveland’s mayor. In a statement to Site Selection, he wrote:

   “The support for Cuno remains significant because the Supreme Court’s decision, which was procedural in nature, did not address the substantive issue of the Constitutionality of state tax incentives. The substantive law in this area remains ambiguous. For example, in Cuno litigation, the federal trial court and the federal appellate court disagreed as to the appropriate application of the dormant Commerce Clause. The disagreement between these courts reflects the differences between two general, but conflicting, legal principles the Supreme Court has developed regarding state taxes. The first principle is that a state may not impose a tax that discriminates against interstate commerce by providing a direct commercial advantage to local business. The second principle is that a state may use its tax system to encourage intrastate commerce and may compete with other states for interstate commerce so long as the state does not discriminatorily tax the products manufactured or the business operations performed in any other state. The Court does not appear to have ever completely reconciled these two principles. Consequently, the uncertainty for state and local governments remains, and the need for the Economic Development Act remains unchanged.”

   Meghan Keck, spokesperson for another of the letter’s signatories, Sen. Evan Bayh (R-Ind.), says Bayh’s office to date “has not heard any Senators express concerns or articulate any problems with the legislation.” Asked if the senator would favor a national incentives program, she says that while the senator “doesn’t think the federal government should be in the business of providing specific incentives for specific companies, he does believe it should reform its tax code to make America a better place to do business,” including making the R&D tax credit permanent. Asked if the two pieces of legislation might work well in tandem, she says, “Ideally, these issues would be taken up simultaneously, but that may be unlikely since the ED act is not considered a “tax extender” – or a tax provision, like the R&D credit, that is already a part of the tax code and is routinely extended by Congress.”

   “Congressional action is needed in order to more thoroughly affirm state’s right to compete, and give the markets the kind of predictability they require,” said Jay Biggins, executive managing director of corporate advisory firm Stadtmauer Bailkin Biggins LLC, in a September advisory. In an interview, he says the Economic Development Act has lost some traction, but not its momentum. Meanwhile, “this risk is still out there, and the risk of uncertainty is almost as important as the risk of a result.”

   Asked what intelligence there is about new court cases challenging the same principles as the Cuno case, he says, “We’ve been developing a questionnaire for major law firms with 100 lawyers or more, asking whether they’re aware of any Cuno progeny incubating in one of the other circuits. None of the legal information services track this subject matter with sufficient granularity.”

   In the meantime, says Biggins, based on a perception that the Cuno decision solved the issue, “the anxiety level is clearly lower, and the guard is down.”

   Tax coffers are not, however. The U.S. corporate tax rate of 39.3 percent in 2006 is second only to Japan’s in the world. Meanwhile, according to the Nelson A. Rockefeller Institute of Government, for the 12-month period ended in June 2006, state tax collections grew by 8.5 percent compared to the previous 12-month period. Comparing July-June fiscal years for 2005 and 2006 finds that corporate income tax at the state level increased by nearly 11 percent to $44.7 billion. That’s up from approximately $25 billion in 2002, and represents 7.4 percent of all state tax revenue, up from its mirror image, 4.7 percent, in 2002.

   A promising note for development finance was sounded in May on almost the exact same day as the Cuno decision. Included in the final version of the Tax Increase Prevention and Reconciliation Act of 2005 was an amendment accelerating an increase in the capital expenditure limit on small issue Industrial Development Bonds (IDBs) from September 30, 2009 to December 31, 2006. The increase raises the capital expenditure limit from $10 million to $20 million. The change had been championed by the Council of Development Finance Agencies. The $10 million capital expenditure limitation was first established during the 1978-79 congressional session, but had not been adjusted for inflation. The $20-million cap was originally passed by Congress in 2004. Numerous economic developers testified to the acceleration’s immediate benefits to industrial projects that had been hamstrung by the previous expenditure limit.

   “This improvement to the laws that govern IDBs will provide yet another support structure for the continued advancement of tax-exempt bond finance by state and local economic developers,” said Gary Smith, CDFA board president, and president/CEO of Chester County Industrial Development Authority in Pennsylvania. “This change will also produce real benefits by providing more options for manufactures to consider when planning for expansion and growth.”

   In April, Gov. Bob Riley signed into law legislation that appropriates up to $2 million annually to help local industrial development authorities prepare sites for new industry. The law – which passed unanimously in both chambers – requires that at least 20 percent of all grants be awarded to rural parts of the state. The governor also was successful in passing tax relief for low-income families.

The law raises the income threshold to $12,500 from $4,600 before a family of four is taxed. The law also raises child tax deduction amounts – from $300 to $1,000 for families earning less than $20,000, and to $500 for families earning between $20,000 and $100,000.

   Workers’ comp reforms passed in 2005 have led to a proposed 10.5-percent reduction in workers’ comp insurance rates for 2007. Alaska’s rates had been second-highest in the nation after California’s. In August, Gov. Frank Murkowski signed into law House Bill 3001, which changes the state’s oil and gas production tax from a gross tax to a net profits tax. The bill sets the tax rate at 22.5 percent of a company’s net profits, with a “progressivity” provision that increases the tax by 0.25 percent for each dollar the price rises above $40 net per barrel. “This reformation of Alaska’s production tax to incentivize substantial oil and gas development is the first step to ensure a bright and prosperous economy for Alaska over the next 40 to 50 years,” noted Murkowski at the bill signing in August.

   Gov. Janet Napolitano signed the fiscal year 2007 budget into law on June 21st. It includes $370 million in income and property tax relief for families and businesses and $307 million to expedite transportation projects around Arizona. The state is also hearing from parties interested in Arizona as a location for film projects, now that the Motion Picture Production Tax Incentives Program is in place.

   The Arkansas General Assembly did not meet in regular session in 2006; it will next convene in January 2007. However, the legislature did meet in special session in April, at which time lawmakers voted to increase the state’s minimum wage by 21.4 percent to $6.25 from $5.15 per hour. The increase took effect in October. In June, Gov. Mike Huckabee signed a memorandum of understanding with The Honorable Lee Hee-beom, chairman of the Korea International Trade Association that promotes trade opportunities between South Korea and Arkansas.

   In September, Gov. Arnold Schwarzenegger vetoed bills he said would have undermined workers’ comp reforms passed in 2004 by raising the cost permanent disability benefits. The governor says the reforms lowered workers’ comp rates by 50 percent, created 600,000 new jobs and have saved employers over $11 billion in premium costs. The governor also signed legislation raising the minimum wage $1.25 to $8 per hour by January 1, 2008. The step is a 75-cent increase effective January 2007. Also, California will join several northeastern states in reducing greenhouse gas emissions 25 percent by 2020. Critics say the legislation could raise energy costs and stymie progress the state is making in improving its business climate. Meanwhile, the 2006 budget signed by the governor in June invests $55 billion in education and allocates $4.9 billion to create a budget reserve and to pay down the state’s debt early.

   Much of Colorado’s state legislative energy in 2006 went to strengthening the state’s immigration laws to make them among the strictest in the United States. One measure, for example, requires those receiving benefits (other than emergency services) to prove they are in the US legally. Numerous other immigration-related measures were passed by the legislature and will appear on the November general election ballot. Some of these are modeled on Georgia’s Security and Immigration Compliance Act. In June, Gov. Bill Owens signed legislation that requiring cities and counties to demonstrate that the taking of private property under eminent domain is for public use and not for economic development gains.

   In May, Gov. M. Jodi Rell signed Senate Bill 702 into law, noticeably boosting Connecticut’s business climate. The legislation exempts all manufacturing machinery and equipment from local property taxes after a five-year phase-out of the tax, with the full exemption taking effect October 1, 2011. Currently, only new manufacturing machinery and equipment is exempt from property taxes and only for five years. The bill also creates a new corporation tax credit for companies that produce qualified films and television shows to help expand the state’s attractiveness to entertainment producers. Other provisions in the legislation include a new Office of Business Advocate for small businesses, new student loan repayment programs, new resources for the Univ. of Connecticut to assist in economic development, new grants for incubator facilities, greater access to venture capital and new programs to increase secondary school student interest in math and science.

   In August, the governor signed a brownfields bill that establishes a one-stop shop for property owners and potential buyers to facilitate compliance with state and federal clean-up requirements and qualification for state funds. The law provides various regulatory and financial incentives for parties that clean up sites and protects parties from liability if they acquire a contaminated site from a town or its development agency. It also sets conditions on which the owners of existing manufacturing facilities qualify for clean-up funds.

   Efforts to reform Delaware’s workers’ comp system are going nowhere fast. Governor Ruth Ann Minner, a Democrat, has met with resistance from Democrats in the state Senate despite increasing pressure from business leaders in the state and others seeking relief from the high cost of the system. Chief among the issues needing attention are the lack of managed care practices and unregulated attorneys’ fees. In February, the governor announced the launch of the Emerging Technology Center, which will support those seeking to become technology-based entrepreneurs. The Center is part of the governor’s New Economy Initiative, which includes creation of funds for closing economic development deals and other components.

   Numerous bills of interest to site seekers became law in Florida in 2006. Senate Bill 2728, for example, creates the Innovation Incentive Program and provides $200 million for Florida to attract high-wage jobs and to create prosperity in Florida communities. It provides $45 million for the Quick Action Closing Fund, established in 1999, which has provided nearly $20 million in incentives to 18 companies, creating 5,600 jobs. House Bill 415 provides sales tax exemption for machinery and equipment purchased for research and development. House Bill 69 expands current sales tax exemptions for machinery and equipment used by expanding manufacturers, mining operations and spaceports to expand output in Florida. The law allows tax-free purchases to occur immediately and will result in an estimated $24 million in tax savings in 2007. And House Bill 1237 invests $95 million in matching grants for universities to build the state’s innovation infrastructure. This includes $30 million to create and expand centers of excellence at universities around key sectors of the economy; $45 million for the State University System Research and Economic Development Investment program to help universities build high-tech facilities for research; and $20million to create the “World Class Scholars Program” that attracts key researchers to the state.

   New legislation in Georgia limits state and local governments’ ability to seize property under eminent domain – it forbids the practice for economic reasons. At press time, voters were preparing to decide on a resolution that would call for a constitutional amendment to curb eminent domain. In September, Gov. Sonny Perdue proposed a sales tax exemption for materials and equipment used in the construction of biofuel facilities in Georgia. The 4-percent tax incentive, an annual savings of $2 million to $4 million, would be available to facilities producing and processing certain biofuels (ethanol, biodiesel and butanol) derived from Georgia-grown agriculture products and biomass.

   Gov. Linda Lingle’s administration is determined to make Hawaii less dependent on fossil fuels and managed to pass a measure in 2006 that requires the state to meet goals for energy efficiency and conservation. The bill creates a pilot program to use solar panels on public schools, updates state policies on promoting fuel efficiency and secures funds for making state facilities and equipment more energy efficient. The governor also signed into law a measure that quadruples the tax credits for film projects executed in Hawaii.

   The 2006 legislature concluded its business in April without passing any measures relevant to capital investment in Idaho on the part of industry. Property tax reform and social issues dominated the deliberations. In June, Governor James Risch gave his first inaugural address, having assumed the governorship from Dick Kempthorne, who was tapped by President Bush to replace Gale Norton as Secretary of the Interior. “Economic development continues to be a subject near and dear to my heart,” said Risch. “I pursued that passion as Lt. Governor and will continue those efforts in the governor’s office. My passion arises from the fact that it is economic development that creates the quality of life we all long for. The jobs created by economic development are not created by government,” he added, “but by private enterprise, entrepreneurs, capitalists and risk takers. The government does play a role in that it must strive every day to provide a business friendly climate, encourage commerce and industry, and provide a quality education system. I commit to you that my administration will do just that.”

   Illinois’ legislature passed several measures of interest to site seekers. Workers’ comp reform will reduce business costs, increase benefits and curb fraud. Two direct benefits of recently passed medical malpractice reform legislation are (1) decreases in insurance premiums and (2) the addition of more than 2,000 new doctors practicing in Illinois. New legislation provides a sales tax exemption for building materials on projects within an intermodal terminal facility. Illinois also is creating a Biotechnology/Bioscience Training Investment Program (BioTIP) to train graduate students working in biotech and biomedical positions. The program will provide grants to companies to cover training costs for students who find part-time employment as lab technicians or engineers. Like Illinois’ existing Employer Training Investment Program, employers would be reimbursed for up to 50 percent of the cost of training the students.

   Several measures were signed into law in Indiana. A new, single tax factor will shift the way corporate taxes are determined, providing benefits to companies that invest in Indiana jobs and capital. The bill eliminates the tax penalty on companies with substantial Indiana employment. HB 1008 provides $3.85 billion from the lease of the Indiana Toll Road to fund nearly 200 statewide transportation and economic growth projects. Work force training in Indiana is being streamlined from 17 programs to 11. HB 1380 reduces from $500 million to $100 million the amount of worldwide revenue a business must have in order to qualify for a headquarters relocation tax credit. HB 1380 provides that an applicant for an EDGE credit for the retention of jobs must employ at least 35 people rather than 75 as was the case; it also increases the cap on EDGE credits per fiscal year to $10 million from $5 million.

   Governor Vilsack signed a bill into law in February that provides an exemption from and a refund of sales and use taxes on materials and services used in the construction of a building or addition to a building to be used as a collaborative educational facility. Medical malpractice legislation was passed that should lower malpractice insurance rates for doctors in Iowa. In May, the governor signed a bill that allows border communities to use tax benefits to help them compete for projects that will create jobs. Gov. Vilsack also signed a bill that expands the enterprise zone tax benefit program to assist more communities. Several bills were signed in May that promote Iowa’s renewable energy and bio-energy industries.

   By May, Governor Kathleen Sebelius had signed more than 150 bills into law during Kansas’ 2006 legislative session. Among them is a bill to extend until July 1, 2008, the ability of the secretary of commerce to offer incentives for major project investments under the Investment in Major Projects and Comprehensive Training program. It also adds the responsibility to promote and evaluate work force development to the legislative economic development committees. HB 2583 eliminates property taxes on business machinery and equipment purchased after July 1, 2006. It also raises the exemption for low-cost items from $400 to $1,500, which will reduce paperwork. And it helps local governments compensate for the loss of local tax revenues.

   Gov. Ernie Fletcher signed House Bill 1 into law in June, which provides immediate relief for approximately 70,000 businesses, roughly seven out of every eight business taxpayers. It repeals the taxation of gross receipts and gross profits for companies with gross receipts or gross profits of $3 million or less. This provision, which will provide relief from the Alternative Minimum Calculation, goes into effect for the 2006 tax year. It preserves the reduction of the tax on corporate profits from 7 percent to 6 percent beginning January 1, 2007, helping attract and retain strong, profitable businesses in Kentucky. And it treats the taxation of net income of pass-through entities like LLCs in the same way as federal law beginning with the 2007 tax year. House Bill 1 also provides an incentive package to lure the FutureGen project to Kentucky. The total incentive package is valued between $60 million and $90 million. FutureGen is a $1 billion pilot project exploring the feasibility of using cutting edge technology to create the world’s first zero emissions power plant. Seven states, including Kentucky, are proposing 12 different sites. The power plant is expected to create 1,500 construction jobs, with an estimated payroll of $250 million over four years. FutureGen is expected to create 150 high-tech, high paying permanent jobs.

   The Gulf Opportunity Zone (GO Zone) Act of 2005, signed into law in December 2005, establishes tax incentives and bond provisions to rebuild in 31 Louisiana parishes. In addition to existing state incentives programs like enterprise zones, quality jobs, and headquarters and R&D credits, the state’s menu of incentives now includes the $10-million Governor’s Rapid Response Fund for economic development projects, and early stage angel investment incentives. HB 1, the bill that included the rapid response fund renewal, also included $6 million to establish the Economic Development Matching Grant program; $4.57 million for land acquisition and site planning for a megasite and $15 million for the development of our construction work force. SB 292 and HB 870 provide businesses the option of using an expedited DEQ permitting process. The Road Home Housing Program is designed to help homeowners rebuild and to make rental housing available and affordable to the returning work force. The resolution specifically approves the allocation of $8.08 billion of Supplemental CDBG funds and approximately $1.05 billion of Hazard Mitigation funds to The Road Home. To fully fund The Road Home at those levels, Governor Kathleen Blanco urged, Congress passed and President Bush signed the appropriation of an additional $4.2 billion of CDBG funding dedicated to housing redevelopment.

   Like voters in Montana, Mainers in November will decide on a Taxpayer Bill of Rights ballot measure to limit state spending by statute. Since a 2004 conference on the promise inherent in the state’s creative economy, Gov. John Baldacci has signed legislation to support creative economy initiatives, created a Creative Economy Council and a Steering Committee, funded a number of local initiatives and approved tax incentives aimed at expanding Maine’s film industry. In May the governor signed LD2056, which exempts certain personal property placed in service on or after April 1, 2007. According to analysis by CCH Group, “the legislation largely eliminates the Business Equipment Tax Reimbursement (BETR). Since 1995, Maine has reimbursed businesses for the personal property tax (PPT) through the BETR program. LD2056 eliminates the PPT on new business equipment purchases; reimbursement for taxes on equipment already in the BETR program will continue for the remainder of its eligibility, up to 12 year.” The new law includes an additional extension for property still in service after 12 years, allowing those taxpayers to get a partial reimbursement against PPT.

   Overriding the veto of Gov. Robert L. Ehrlich, Jr., lawmakers in January passed into law a requirement that companies with more than 10,000 workers spend at least 8 percent of their payroll on health benefits, or pay the difference into a state fund providing health insurance for low-income workers. The law, aimed primarily at Wal-Mart, currently affects only three other private employers in the state, including Northrop Grumman. The Healthy Air Act prohibits affected facilities collectively from emitting more than specified amounts per year of oxides of nitrogen, sulfur dioxide, and mercury, on or after specified dates; authorizes the Department of the Environment to set a specified interim stage of sulfur dioxide emissions reductions; and requires the Governor to include the State in the Regional Greenhouse Gas Initiative. A new law allows a business entity operating in an enterprise zone when the enterprise zone’s designation expires to claim property tax credits for qualified real property within 5 years after the expiration of the designation. The Maryland Clean Energy Incentive Act of 2006 provides for an income tax credit for renewable energy to cover facilities placed in service on or after January 1, 2006, but before January 1, 2011. Calvert County was authorized to offer a new property tax credit program, while in Washington County, certain nonresidential building expansions are now exempted from the building excise tax and the definition of full-time employee for the purposes of certain incentives now includes contract employees whose agreements last for at least 12 months. The Maryland Stem Cell Research Act of 2006 established a stem cell research fund.

   The state legislature overrode Gov. Mitt Romney’s veto in passing a graduated hike in the state’s minimum wage. Meanwhile, under new permitting law, communities will be able to select certain sites for expedited permitting, and they agree to complete their local permitting process in 180 days. Other related programs now in place from Romney’s agenda include a $100-million fund to help municipalities pay for infrastructure costs directly related to job growth; technical assistance grants totaling $3 million available to help communities update local bylaws and procedures to comply with the reformed permitting process; and more than $2 million to be used by regional planning agencies and MassDevelopment to hire permitting specialists to assist municipalities.

   Amid a fierce gubernatorial campaign, in August the state senate voted to repeal the Single Business Tax by the end of 2007, without having a plan in place to compensate for the $1.9 billion in tax revenue that tax collects. In the meantime, economic developers face a business attraction quandary as their ability to offer a Single Business Tax abatement to corporate prospects has been eliminated. In July, Michigan’s Renaissance Zone Act was amended to allow 10 more tax-free zones statewide to grow renewable energy companies. Another bill created forest products renaissance zones. Among topics that Gov. Granholm recently said called for legislative action was a tax credit for workers transitioning out of the auto industry and support for stem cell research in the state.

   Legislation will be introduced and supported by Gov. Tim Pawlenty in 2007 to move corporate income tax apportionment to a single factor tax on sales within Minnesota by 2011, accelerating a previous timetable that called for the move by 2014. The 2006 legislature provide $160 million in infrastructure funding for specific projects, bioscience and economic development support. A supplemental budget measure provided $15 million for collaborative research projects in biotechnology and genomics by the University of Minnesota and the Mayo Clinic at their joint Rochester facility and $11.5 million for infrastructure needed for a new steel mill planned in Itasca County. Highlights of the nearly $1-billion 2006 bonding bill included the final state payment of $60 million for the Northstar Commuter Rail Line from Minneapolis to Big Lake and $307 million for higher education facilities. In the first two years of the tax-free, 12-year Job Opportunity Building Zone (JOBZ) program, JOBZ businesses have agreed to create more than 3,100 new jobs and make $276 million in capital investments. A second-year analysis of the JOBZ initiative, prepared by the Minnesota Department of Employment and Economic Development, confirmed that 92 percent of the businesses would not have made the same investment in the same location without the JOBZ benefits.

   A special session in early October reduced the sales tax on modular homes from 7 percent to 3 percent, allowing Mississippians who must build new homes because of Hurricane Katrina to save between $4,000 to $6,000 per home. At the other end of the state, incentives for the proposed $2.7-billion Riverbend project in Desoto County – a 4,500-acre multi-phase master planned community that will consist of a blend of commercial, recreational, resort, tourism and residential development – were also due to be considered at the special session. The Legislature is being asked to approve $23 million for roads, water and sewer to serve the project and a tourism sales tax rebate that is limited to 30 percent of capital expenditures for each eligible project investment for 10 years. The State has received nearly $85 million in new, special work force development funds to assist residents with training and skills development. The Mississippi Development Authority is currently working with the U.S. Department of Housing and Urban Development on the state’s proposal to use $300 million of CDBG funds for targeted economic development projects and community assistance in the 49 GO Zone-designated counties. Derived from legislation passed this year, the Gulf Coast Regional Infrastructure Program Action Plan will administer $500 million in federal grants for building new water and sewer infrastructure. As of early 2006, more than $12.3 million had been loaned to qualifying businesses, including more than 500 small businesses in hurricane-ravaged areas of the state, through the Mississippi Small Business Disaster Bridge Loan program, created by the legislature in late 2005.

   The state general assembly established a 10-percent ethanol requirement for gasoline sold in Missouri, and strengthened Missouri’s eminent domain laws. Gov. Matt Blunt reduced the number of full-time state employees to below 60,000 for the first time in eight years. HB 1859 would provide withholding benefits for the “gap” projects that are not creating enough jobs to qualify for the Missouri Quality Jobs program. In a parallel “gap” measure, HB 1782, the Missouri Economic Development Code bill, would allow cities and counties and other taxing districts to form agreements to jointly finance projects in previously undeveloped areas, as an alternative to current TIF programs. Both measures stalled in committee. So did a measure to phase out the corporate franchise tax over four years, as well as a $450-million plan to invest state funds in research and commercialization. SB 696, which contained a provision to double the state’s investment in the Missouri Quality Jobs tax incentive, died in the final minutes of the 2006 session in May. In 2007, the Missouri Dept. of Transportation MoDOT will propose a funding mechanism to finance multimodal operations. Gov. Blunt is now pursuing a revision of his Lewis and Clark Discovery Initiative, designed to transform the Missouri Higher Education Loan Authority (MOHELA) into a public-private partnership that would generate $425 million for higher education institutions across the state. Among its provisions: $300 million for capital improvement projects at state universities; a $100-million endowed scholarship fund; $5 million to be utilized by the Missouri Discovery Alliance to attract and retain life science companies and to commercialize existing research; and $20 million to create endowed professorships for Missouri research scientists.

   While Montana’s state legislature did not meet in 2006, a major ballot measure called CI-97 has everyone’s attention. A version of Colorado’s controversial Taxpayer’s Bill of Rights, the measure would limit state spending based on a formula taking into account population growth and inflation. Opponents say it will deplete job training, education and public services funding. A region of central and eastern Montana comprising 32 counties and six Native American reservations received a $15-million WIRED grant from the U.S. Dept. of Labor early in 2006, and plans to focus on bio-product and energy-related economic development projects.

   Through April 20, 30 applications already had been submitted for a potential $511.6 million investment and 4,403 jobs under the new Nebraska Advantage Act. Of those, 14 were manufacturing/ processing projects for a potential $367.6 million and 1,010 jobs, four were financial services projects investing $75 million for 2,639 jobs, and 12 were for telecommunications/other services projects for $69 million and 754 jobs. By location, 17 projects were in Douglas, Sarpy, Saunders and Washington counties, three were in Lancaster and Seward counties, and 10 in other Nebraska counties. Beginning Jan. 1, 2006, manufacturing machinery and equipment purchase, lease, rental, installation, repair and maintenance was exempt from sales and use tax. The sales tax exemption for molds and dies has been expanded to include raw materials, chemical catalysts and solutions used to make molds and dies. A new measure allows for informal arbitration of workers’ comp disputes between a medical provider and an insurer. The Dept. of Environmental Quality has further enhanced its own quality through its Kaizen Quality Improvement program, facilitating shorter time for permitting.

   In September the state legislative commission adopted regulations passed by the legislature in 2005 that provide tax incentives for LEED-certified buildings. With funds provided by SB1 to help diversification projects in Nevada’s rural communities whose economies are impacted by mining industry fluctuations, the Nevada Commission on Economic Development awarded $500,000 to the Northeastern Nevada Regional Railport project in Elko.

   SB 386 makes it easier for cities, towns and individuals to get involved in the permitting process for large groundwater withdrawals if they could be impacted. It also expands the permit appeals process. A new law requires power plants to reduce mercury emissions. SB380 would have established a research and development credit against the state’s business profits tax. The bill unanimously passed out of the Senate, but was voted down in the House by a roll-call vote of 192-107. In July, Gov. John Lynch kicked off a three-year enterprise resource planning project that will modernize computer systems in seven branches of state government and save $6 million in procurement alone.

   The economic growth strategy unveiled by Gov. Jon Corzine in September included the $150-million Edison Innovation Fund, designed to leverage $350 million in private capital to support research and commercialization in several growth sectors including the life sciences, nanotechnology, communications, renewable energies and expansion of stem cell research. Also in the works is the $185-million New Jersey Urban Fund, designed to leverage private investment in order to generate $555 million in total investment in New Jersey urban revitalization projects over the next year. Those initiatives come at the same time as the establishment of the New Jersey Economic Growth Council, which may include up to 50 members from the private sector. Also seeing revitalization will be Fort Monmouth, schedule for BRAC closure, thanks to the legislative establishment of the Fort Monmouth Economic Revitalization Planning Authority. A budget impasse that forced a government shutdown in mid-summer also forced a one-cent sales tax increase as part of the compromise agreement. A Transportation Trust Fund reform bill provides for a capital program of $1.6 billion annually over five years, supported by the restructuring of approximately $1.8 billion of the State’s existing transportation bonds and the dedication of the final 1.5 cents of the existing 10.5-cent gas tax, which historically was diverted to the general fund.

   As a result of legislation passed in 2006, New Mexico is now able to invest $110 million in building New Mexico’s Spaceport in Upham. Of that, $100 million dollars will be spent over the next three years to build the Spaceport. The other $10 million dollars in previous funding will now be available to help move forward on the RFP process for the design and construction of the Spaceport. A related new law allows the State Investment Office to invest in New Mexico aerospace companies that receive more than $100 million in funding from federal agencies like NASA. Other signed measures increased the film production tax credit, established a tax increment for development program, created a solar market development income tax credit and created fee-free zones near the Mexican border.

   The $2.9 billion Rebuild and Renew New York Transportation Bond Act is part of an overall five-year, $17.9 billion Department of Transportation capital program approved by the Governor and the Legislature in 2005 that will fund improvements to New York’s multi-modal transportation system through 2010, with an additional three years of aviation funding. Gov. George Pataki in October signed legislation limiting the use of eminent domain by electric and gas companies. Pataki initiated the effort to create the Regional Greenhouse Gas Initiative (RGGI), an agreement signed in December 2005 by seven Northeast states (Maryland has now joined them) to combat global climate change through a mandatory cap-and-trade program for carbon dioxide emissions from power plants. Pursuant to legislation creating 12 new Empire Zones over three years, six new Empire Zones were announced in July, one each in Delaware, Greene, Rockland, Schoharie, Tompkins and Wyoming counties. The enacted budget added funding for various economic development programs including Site Available New York, Essential New York, Explore New York, American Axle Tonawanda, and the restoration of the Empire Zone administration. But the legislature denied Pataki’s proposed cut to the top personal and corporate income tax rates to 6.75 percent, as well as his proposal to allow the immediate expensing of capital investments in New York.

   In late August, North Carolina Gov. Mike Easley announced the signing of the House Bill 2170, an act designed to focus credits for job creation and business investment more narrowly. The law creates new tax credits, one for creating jobs and one for investing in business property. It also creates a credit for making major investments in real estate in the state’s most distressed counties. The tax credits will be available in all counties until 2010. The law expands the list of targeted industries under the William S. Lee Quality Jobs & Business Expansion Act to include R&D firms, motorsports and various distribution centers. It also establishes high-poverty “urban progress zones” and “agrarian zones” where locating businesses can receive enhanced job creation and business property credits, and has simplified the tiering of those zones from five to three tiers, which should result in more year-to-year stability for planning purposes. The new One North Carolina Small Business Fund, which disbursed $1 million in grants to firms already qualifying for federal small business grants in 2005, was expanded to $5 million in funds through legislation passed in 2006.

   North Dakota had no 2006 legislative session. However, a major legislative directive passed in 2005 took force in April when the North Dakota Business Hotline (866-4DAKOTA) was launched. The concept was a 2005 legislative directive. The hotline was launched at the outset of the state’s 2006 Business Congress, where the proceedings would help shape a legislative agenda for 2007. Part of that agenda was unveiled in September when Gov. John Hoeven and legislative colleagues announced a $116-million property tax cut plan that will include a 5-percent cut in commercial property tax that would save businesses some $22 million. Funding for the plan will come from recurring revenue sources currently accumulating in the state’s reserve funds, which are projected to sustain growth even with property tax relief funding in place.

   Job Creation Tax Credits were expanded to include major insurance operations. In November, 2005, voters approved bonds for public infrastructure and job-ready sites. In addition, $200 million was set aside for technology initiatives including the Ohio Fuel Cell Initiative. In July 2005, the new state budget implemented sweeping tax reform that eliminates over a phase-in period the Corporate Franchise Tax and tangible personal property tax. Personal income tax rates were reduced 21 percent over a five-year period. Rates were reduced in July 2005 and again in January 2006. Ohio’s legislature declared a moratorium on all government takings until the end of 2006, and is studying the issue in committee.

   The legislature created the Oklahoma Quality Investment Act, which allows the state to provide incentives to keep manufacturers in the state. Economic development initiatives include a $150 million investment to the EDGE research endowment and $95 million for research infrastructure improvements. The budget includes a record $6 billion over the next 10 years for the state’s roads and bridges. Lawmakers also authorized the establishment of regional economic development authorities located within the boundaries of cities, towns, or counties. These regional development authorities have the same powers of current transportation authorities in the planning

   Oregon had no 2006 legislative session, but there was positive follow-up to 2005 projects. The Oregon Nanoscience and Microtechnologies Institute, established in 2003 on the state’s university research campuses with $20 million, had received another $7 million from the 2005 state legislature. Those funds were backed this year by $5.8 million in federal funds derived from a defense appropriations bill passed in September. In addition, that defense bill authorized $2.5 million for the Northwest Manufacturing Initiative, which helps the region’s manufacturing cluster become more competitive in defense-related contracting. In other follow-up to 2005, an unemployment insurance tax rate reduction signed into law in 2005 will go into effect in January 2007: The state will assess employers under Rate Schedule 3, meaning they will pay the unemployment tax on 1.97 percent of taxable income, on the average. Presently, employers pay the tax on 2.28 percent of taxable income under Rate Schedule 4, on the average. The measure is projected to save companies $64 million.

   Business tax cuts in the Commonwealth’s 2006-2007 budget include $249.4 million for an accelerated phase-out and other changes to the Capital Stock and Franchise Tax, which will be eliminated in 2011; $21 million to increase the cap on Net Operating Loss Deductions from $2 million to $3 million, or 12.5 percent of a company’s income, whichever is greater; $14.1 million to increase the sales factor for Corporate Net Income Tax apportionment to 70 percent; and $10 million to increase the R&D Tax Credit from $30 million to $40 million. The budget includes $15 million in new funding for the World Trade PA Initiative, which plans to accelerate and expand the commonwealth’s current trade and investment activities. Legislators also increased the minimum wage to $6.25 an hour on Jan. 1, 2007, and to $7.15 on July 1, 2007.

   The $6.7 billion state budget includes several tax cuts. It lowered the cap on increases in annual property tax revenue from 5.5 percent to 4 percent by 2013. It also contained a plan that allows the state’s wealthiest residents the choice of a flat 8 percent income tax with no deductions, lowered each year until it reaches 5.5 percent – or the current 9.9 percent, after deductions. Rhode Island’s minimum wage was increased to $7.10 an hour effective March 1, 2006, and will climb to $7.40 on Jan. 1, 2007. Lawmakers also enacted several energy-related bills. Here are some highlights:

   • Electric energy pricing will remain stable by extending a process known as the Standard Offer while working on reforms to the electric wholesale market.

   • The state’s two renewable energy funds will be merged to create an even larger funding source for investment in renewable resources. This will mean approximately $7 million for renewable energy, which will help achieve the goal of obtaining 15 percent of the state’s electricity requirements from wind power.

   • “Fair siting criteria” will be established to facilitate the siting of wind power facilities. Setting up such criteria will result in regulatory certainty for those developers who want to invest in such projects in Rhode Island. As part of his energy agenda, the Governor set the goal of serving 15 percent of Rhode Island’s energy needs through wind power.

   Gov. Mark Sanford signed a bill creating an eminent domain study committee, part of eminent domain reforms aimed at protecting South Carolina property owners from government property takings. The bill sets up a study committee to look at which local governments have the ability to take property and the scope of those powers, and will ultimately issue further recommendations for eminent domain reform. Also, lawmakers okayed removal of school operating costs from homeowner property taxes, cutting taxes in half for some property owners and will compensate by raising the state sales tax from 5 to 6 cents. The sales tax on groceries will drop from 5 percent to 3 percent.

   Lawmakers broadened the South Dakota sales and use tax refund for value-added agriculture projects to include existing operations in addition to new projects. Any new or expanded value-added agriculture operations with a capital investment of $4.5 million plus is eligible for a 100 percent refund. Also approved was an exemption for local economic development corporations of $100,000 of the full and true value of the total amount of real property or portion of owned by a local industrial development corporation. Also, any facility operated as a multi-tenant business incubator and owned by an entity recognized as an exempt nonprofit corporation is exempt from property taxation.

   With a large budget surplus in hand, Tennessee lawmakers spent much of it on education, creating 250 new pre-kindergarten classes, increased lottery scholarships and gave raises and bonuses to state employees, university employees and teachers. In addition, lawmakers increased the number of businesses eligible for a tax credit for investing in Tennessee, and gave almost $17.8 million in property tax relief to seniors and disabled homeowners. Also, a proposal to raise the state’s minimum wage to $6.15 was defeated.

   During a special May session of the legislature, Gov. Rick Perry signed into law the largest tax cut in the state’s history, a $2,000 across-the-board teacher pay raise and major education reforms. The tax cut will save homeowners and businesses $15.7 billion on school property taxes over the next three years. Effective Jan. 1, 2007, a reformed Texas franchise tax will be imposed upon each taxable entity that does business in Texas, or that is chartered or organized in Texas, at a primary rate of one percent. The rate will be 0.5 percent for trade businesses primarily engaged in retail or wholesale trade. Also, a House bill will lead to significantly lower workers’ compensation costs for Texas employers, control medical costs and expade access to care and improve benefits for those hurt on the job so they can return to work sooner. The bill will reduce bureaucracy, increase the cap on weekly benefits and provide employers financial relief on insurance costs.

   Lawmakers approved reform of personal income tax during a special September 2006 session. The changes include: Effective for tax years beginning Jan. 1, 2006, the bill modifies tax brackets to reduce taxes. This change affects the current tax year and will be reflected in the 2006 Utah Income Tax Return instructions and tax calculation worksheets for returns due on April 15, 2007. It provides for future tax bracket changes beginning January 1, 2009 based on the difference between the consumer price index for the preceding calendar year and the consumer price index for calendar year 2007. Effective for tax years beginning Jan. 1, 2007, the bill implements a single rate tax calculation method, commonly referred to as a “flat tax” calculation. It allows taxpayers to choose a single rate of 5.35 percent with credits and limited deductions instead of the traditional bracketed rates with traditional deductions and credits. This change will affect future returns starting with the 2007 Utah Income Tax Return due April 15, 2008.

   General Assembly passed legislation supporting the renewable fuels industry. The state agriculture department will encourage businesses utilizing or providing emerging and existing technology to locate in Vermont that are involved in renewable farm-based energy, such as biodiesel, biomass fuels, methane, wind, solar, ethanol and other renewable sources. Lawmakers also raised the state’s minimum wage to $7.25 per hour effective Jan. 1, 2007, to be increased by 5 percent each subsequent Jan. 1 or by the percentage increase of the Consumer Price Index.

   The newly named Economic Development Access Program (formerly Industrial Road Access Program) broadens the availability of state funding for construction of road access to new and expanding business sites. Those funds are now available to research and development facilities, distribution centers, regional service centers, corporate headquarters and other projects, in addition to manufacturing and processing facilities. Virginia also enacted an Energy Plan, creating a statewide energy policy designed to encourage the establishment of a wide variety of energy generation and storage facilities. Tax-wise, Virginia eliminated the state estate tax. State officials anticipate this move will encourage entrepreneurial activity. Other changes included broadening of the semiconductor manufacturers’ sales and use tax exemptions to cover purchases used primarily in the integrated process of producing chips.

   Lawmakers passed legislation to encourage development of a biofuels industry by requiring fuel sellers to gradually increase the percentage of biofuels in diesel fuel and gasoline as state biofuels production rises. Provided start-up funding for a $3 billion Life Sciences Discovery Fund. Beginning in 2008, the fund will use tobacco settlement and private funds to finance medical and crop research. Also, a $4 million Economic Development Strategic Reserve Account was created to help businesses with infrastructure or technical assistance. Legislators also broaden tax incentives for the aerospace industry to include companies engaged in research, design and engineering of airplanes and airplane components. The incentives include a sales-and-use tax exemption for certain computer equipment used primarily in this field.

   Legislators passed a law that will boost the state’s minimum wage above the national minimum wage. The bill boosted the state’s minimum wage to $5.85 cents an hour beginning June 1, 2006. The bill then calls for the state minimum wage to continue increasing until hitting $7.25 an hour by June 2008. Lawmakers also granted cities and states the ability to merge and consolidate functions. Supporter said the measure will allow local governments to improve their credit ratings, increase their tax base and reduce costs by consolidating services. Gov. Joe Manchin considers state tax reform a priority for an upcoming special legislative session to be held sometime after the November election.

   Governor Jim Doyle signed legislation that will attract the film industry to Wisconsin by providing tax incentives for films produced in the state. Because of the high cost of production in California and New York, filmmakers and investors are increasingly looking for new areas of the country to produce film. Doyle also signed a bill which will help encourage economic growth and has the potential to increase commercial airline service in Wisconsin. The bill creates the Airport Development Zone Program through the Department of Commerce to award income and franchise tax credits to businesses and individuals who locate around airports.

   Eminent domain will be among the issues the General Assembly will consider when it convenes in 2007. Proposed legislation would make it illegal to take property for the benefit of a private developer or for economic development, industrial development, an increase to the tax base, and increase to tax revenues, an increase in employment or an increase in general economic health. Another bill would eliminate the sales and use taxes for the purchase of pollution control equipment. Gov. Dave Freudenthal signed a bill during the legislature’s 2006 budget session that eliminated sales tax on food for the next two years, a measure expected to save the average family of four $518 per year.

   Puerto Rico Gov. Anibal Acevedo-Vila has been at odds with the island’s legislature since taking office two years ago. He shut down the government last May, a stalemate broken when the governor and legislature agreed to borrow $740 million to cover the island’s budget deficit. Acevedo-Vila hopes to build on Puerto Rico’s reputation as a bio-pharma enclave. He cites public-private infrastructure projects on the island that will help speed the industry’s development.