Kasich’ Capital Bill and MBR Working Through Ohio General Assembly

Governor John Kasich is a man of action.  He has the Ohio General Assembly focused on the state of Ohio Capital Bill and the Mid-Biennium Review (MBR). The former U.S. House Budget Committee Chairman brought his connection to annual budget to the two state budget process with what he calls the MBR.

The MBR includes everything from budget corrections and reappropriation issues to agency regulator changes to major tax reform.  The MBR had so many substantive and budget changes the Ohio House decided to divide up the MBR bill into 14 different bills spreading out to a number of different House Committees for study.  The topics include taxes, higher education, K-12 education, gaming, workers’ compensation, environment, workforce, human services, veterans and of course revenues.

The Governor’s tax changes are probably the most controversial and the least likely to pass as a complete package before the summer recess.  The Governor is working overtime to reduce the state’s top income tax bracket below five percent and to accomplish this tax reduction proposed to raise the state’s corporate tax known as the Commercial Activities Tax, tobacco taxes and of course his favorite the severance tax.  While it is not completely clear yet, compromise on the severance tax between the House and oil industry leadership may finally be possible.  This compromise would give the oil industry certainty and help fund state government.

The proposal to increase the CAT is probably the most concerning to the Ohio business community.  Tax reform several years ago eliminated the existing corporate tax structure and replaced it with a low gross receipts tax aka the CAT.  The business community was not in complete agreement on the CAT. It punishes retailers but also made the business leaders nervous that it could be easily raised whenever state government was searching for revenue.  The nightmare of the business community has come true and time will tell whether the General Assembly raises the CAT to pay for an income tax cut.

Following a six month long, behind the scenes process, the General Assembly passed Governor Kasich’s state capital bill with few changes. The billion dollar plus capital bill generally happens every other year and provides funding for state agencies, K-12 schools, public works, higher education and arts and economic development community projects. Big winners for the Kasich capital bill include the state parks who are gaining a substantial increase in funding and local organizations happy to see community projects return to the Capital Bill. After a six-year hiatus, local government and business leaders had an opportunity to gain funding for community projects in the Capital Bill. Community projects were at one point about professional baseball, football and basketball stadiums in the 1990s. Then arts and historic sites got in the act.  Now broadband, economic development and workforce projects are in the mix.

The General Assembly passed the Capital Bill on April 1 and added session days in early April to move on the MBR at least through the Ohio House.

New PUCO Chairman Tom Johnson Inherits Legislative Energy Battle

Governor John Kasich did not look for a veteran of the utility industry when he appointed a new Chairman of the Public Utilities Commission of Ohio (PUCO).  Instead he appointed Tom Johnson.  Chairman Johnson is an experienced state government manager and leader in the Ohio House of Representatives. He served as Governor Taft’s Office of Budget and Management Director and prior to that served as a member of the Ohio House and Chairman of the powerful Ohio House of Representative Finance Committee. The Southeastern Ohio native had been out of state government since the election of Ted Stickland as Governor, but was recruited back by the Kasich Administration to run the PUCO. From the looks of current utility legislative battles, it appears the Team Kasich appointed the right guy to the PUCO.

 

Fifty State Perspective on Energy Renewable Requirements

Ohio has been transitioning to competitive electric, natural gas and telecommunications system for well over a decade. The PUCO has been working themselves out of the large role they used to play in the utility industry. Look at the electric market. Large Ohio incumbent electric companies were forced to divide their companies, creating competitive retail companies. However, competition is not the only battle the PUCO has to deal with. The General Assembly, like many other states, create renewable energy standards to promote the use of wind, solar, nuclear, biomass, water and other renewable sources for the state’s energy usage. Passed along with the renewable energy standards were requirements on the utilities to enact energy efficiency programs.

Neither the renewable energy standards or the energy efficiency mandates were popular with several Ohio utilities. These standards were the major accomplishment of Democratic Governor Ted Strickland. With Republicans now holding all statewide offices and a supermajority in the General Assembly, it was only a matter of time before these issues came up again. The Ohio Senate has been debating multiple plans to address the renewable energy and efficiency standards. Proposals range from complete elimination to major modifications. Ohio manufacturers like the energy efficiency program and the economic development benefits promoted by the wind industry has taken hold. However, now the Senate Republicans are launching a new effort to freeze the state’s energy mandates which are structure to increase every year. PUCO Chairman Johnson’s legislative experience will come in handy as the state again debates utility issues in the General Assembly.

Economic Development Update: Third Frontier Commercial Acceleration Loans Begin to Roll, JobsOhio Announces Deals & MBR Legislation Development Changes Coming

Now both the Ohio Development Services Agency and JobsOhio are annoucing when they reach economic development deals. Both the Development Service Agency and JobsOhio have their own economic development incentive programs and they closely coordinate on incentive negotiations.  In fact, Ohio economic development incentive offers come from both the Director of the Ohio Development Services Agency and JobsOhio. Of more interest to high-tech companies, some of the 80+ companies in line for the Third Frontier Commercial Acceleration Loan program began to receive awards. Below is a list of recent Third Frontier Commercial Acceleration Loan awards:

  • 1,000,000 to NanoDetection Technology, Inc., from Warren County;
  • $1,000,000 to Zuga Medical, Inc., from Cleveland;
  • $1,591,335 to Checkpoint Surgical, LLC, from Cleveland;
  • $1,600,000 to Vadxx Energy, LLC, from Akron; and
  • $1,367,500 to SPR Therapeutics, LLC, from Cleveland.

JobsOhio posts monthly metrics reports to list the incentives they award and the list includes:

  • $100,000 workforce training grant Ace Hardware Corporation to retain 100 logistics jobs and make an $11,000,000 capital investment;
  • $50,000 workforce training grant for ALPLA INC. to create 30 and retain 64 jobs and make an $16,000,000 capital investment;
  • $250,000 loan for Education@Work to create 750 and retain 4 jobs;
  • $150,000 grant to GKN Sinter Metals to create 50 and retain 163 jobs and make a $160,000,000 capital investment; and
  • $750,000 loan for Updox to create 25 and retain 2 jobs and make a $675,000 capital investment.

Finally, the MBR legislation impacts the operation of state economic development programs. Under the MBR legislation, August 1 would become the uniform due date for reporting by recipients of state assistance through the Development Services Agency, the Ohio Venture Capital Authority, Third Frontier Commission and the Ohio Coal Development Office. The legislation permits the Director of Development Services to reduce the amount, percentage, or term of a research and development loan tax credit if the loan recipient fails to comply with the terms of the loan agreement. It shortens the minimum holding period of investments, from five to two years, necessary for the investment to qualify for the small business investment income tax credit and authorizes job creation and retention tax credits to be claimed against the newly proposed Petroleum Activity Tax (PAT). The MBR allows the recipient of a nonrefundable job retention tax credit to claim a credit initially awarded against the CAT against the PAT instead and eliminates the part-year computation of the base used to compute the increase in an employer’s Ohio income tax withholdings for the purpose of the job creation tax credit.  Finally, the MBR specifies that municipal corporations may award job creation or retention municipal income tax credits to taxpayers not awarded a corresponding state credit.

Additional Ohio Third Frontier Updates: Pre-Seed Fund Capitalization Program & Third Frontier Investment Metrics

 

 

 

 

 

 

 

In early March, the Ohio Development Services Agency received full proposals from applicants submitting for funding from the Ohio Third Frontier’s Pre-Seed Fund Capitalization Program (PFCP). The PFCP is designed to increase the availability of professionally managed capital and associated services to accelerate the growth of early-stage Ohio technology companies. The Pre-Seed Fund provides loans to capitalize for-profit and nonprofit funds that have attracted the support of other non-state investors. Funds capitalized by the program are expected to target investments to pre-seed stage technology-based businesses.

While twenty-one letters of intent had originally been submitted to the PFCP requesting a total of $50.75 million, only twelve proposals were actually submitted to Development staff requesting a total of $28.69 million. The program has made $20 million available for calendar year 2014, with awards in the form of loans expected to be made in the range of $500,000 to $3 million. Six of the PFCP proposals were submitted by entities from northeast (Cleveland region) Ohio, two each were submitted by entities from central (Columbus region) and southwest (Cincinnati region) Ohio, and one each from entities in west central (Dayton region) and northwest (Toledo region) Ohio. Final PFCP awards are expected to be determined by the Ohio Third Frontier Commission in June. A list of applicants is available at http://development.ohio.gov/files/otf/CY2014%20PFCP%20-%20Proposals%20Received.pdf.

An ongoing item of priority for the Ohio Third Frontier Commission and Advisory Board and Development staff has been the tracking and validation of Third Frontier metrics and the return on investments. While initially hoping to receive a leverage ratio of at least $3 for every $1 of state funds invested, the Ohio Third Frontier has consistently seen a leverage ratio of nearly $9 for every $1 of state funds invested. Leveraged dollars include funding from the federal government, industry and company support, risk capital investments, and other non-Third Frontier state dollars. Additional metrics collected by Development for Third Frontier investments include cost share, jobs created and retained, companies attracted and created, and average job salary.

To address questions posed by the Third Frontier Commission and Advisory Board regarding investments metrics, Development staff collaborating with the University of Akron’s Ray Bliss Institute will be surveying high-performing companies identified to the Commission and Advisory Board during their December 2013 meeting. The focus of the survey will be looking forward to characterize the outlook and prospects and resources necessary to continue these companies’ growth. In addition to collecting basic information from the companies, such as industry, region and stage of development, the survey will collect identification of critical success factors, prospects for growth and programs and resources needed going forward, degree to which Ohio Third Frontier and other state programs can address challenges or obstacles, and other non-Third Frontier resources, assistance and tools that are needed or helpful to the companies.

Development staff will be providing a survey status report to the Third Frontier Commission and Advisory Board during their April meeting.

Ohio Third Frontier Releases $6 Million Technology Commercialization Funding RFP

The Ohio Development Services Agency has released its Request for Proposals (RFP) for the first round of the 2014 Ohio Third Frontier Technology Validation and Start-Up Fund (TVSF). The program RFP is available here. Additional TVSF rounds are expected throughout 2014.

The goal of the TVSF is to create economic growth in Ohio based on start-up companies commercializing technologies developed by Ohio institutions of higher education, other Ohio not-for-profit research institutions and federal labs located in Ohio. The TVSF has been designed to (a) support protected technologies needing known validation that will directly impact and enhance their commercial viability and ability to support a start-up company and (b) support Ohio start-up and young companies that license these proven technologies from Ohio research institutions or federal labs.

The TVSF provides for two separate funding mechanisms:

  • Phase 1 (Technology Validation) is to (a) generate the proof needed to move a technology to the point that it is either ready to be licensed by an Ohio start-up company or otherwise deemed unfeasible for commercialization and (b) perform fund validation activities, such as prototyping, demonstrations, and assessment of critical failure points in subsequent development, scale-up, and commercialization to generate proof of the technology. Phase 1 eligible lead applicants are Ohio institutions of higher education or other Ohio not-for-profit research institutions, and are required to have a dedicated Technology Transfer Office.
  • Phase 2 (Start-Up Funds) is to (a) support start-up companies that have licensed technology developed at Ohio research institutions or federal labs in Ohio during the critical early life of the company and accelerate the time to market of this technology; (b) generate the proof needed to either commercialize the technology or move it to the point where additional funds needed for commercialization can be raised; and (c) fund activities to generate proof of the technology, such as beta prototype development and deployment to potential customers for evaluation and business development. Phase 2 eligible lead applicants are Ohio start-ups and young, emerging companies that will execute an exclusive license with the owner of the technology that has been developed at an Ohio institution of higher education, not-for-profit research institution or at a federal lab located in Ohio for a technology within the next nine months from the date of the Phase 2 application.

ODSA anticipates awarding up to $3 million each for TVSF Phases 1 and 2. Phase 1 awards may be up to $50,000 for each proposed technology, and requires a cash cost share commitment of at least one dollar for every TVSF dollar requested. Phase 2 awards may be up to $100,000 for each project, and cost share is not required.

ODSA is accepting written questions through April 7; Phase 1 Technology Transfer Office qualification documents are due by April 7; both Phase 1 and Phase 2 proposals are due by April 16; and awards are expected to be determined by the Third Frontier Commission in June 2014.