State of Ohio Operating Budget Enacted by the Ohio General Assembly

Following passage of the state operating budget by the Ohio Senate just barely a week ago, members of the Ohio House-Senate Conference Committee reached agreement on changes to House Bill 64 and both houses of the General Assembly moved forward to adopt the Conference Committee’s changes.  The $71B plus operating budget adopted most of Governor Kasich’s top priorities but the General Assembly set their own path with less tax cuts, fewer tax increases and stronger spending priorities around K-12 and higher education than Kasich proposed.  The General Assembly also piled on what many think are a record number of spending earmarks which designate funds in multiple agencies to specific organizations.

Major Ohio budget priorities for the state of Ohio in FY 2016-17 include:

  • Tax Policy- HB 64 made substantial changes to state tax policy including multiple tax cuts and one tax increase—
    • Provides a 6.3% personal income tax cut;
    • Provides a 75% tax exemption this tax year, followed by a 100% exemption next tax year, for business owners on their first $250,000 of net income. Business owners would pay a 3% flat tax on income beyond that; and
    • Enacts a 35-cents-per-pack cigarette tax increase with no tax hike on other tobacco products.
  • Workforce- HB 64 devotes a substantial amount of state resources to Ohio’s workforce development efforts starting with K-12 education continuing onto higher education and finishing in targeted workforce development efforts—
    • Increases spending beyond the $10B in Governor’s Kasich’s K-12 education budget proposal by over $900M, continued the Governor’s Straight A Fund and continued the state’s controversial approach of guaranteeing no school district will receive less state funding than they did in the previous budget even if they have fewer students;
    • Increases spending for the state’s prime public higher education subsidy by over double the increase proposed by the Governor, increased funding for the state’s need based scholarship program, continued funding the Ohio Board of Regents Co-Op and Internship Program and froze tuition and fees for two years at Ohio’s public colleges and universities;
    • Creates the Montgomery County Workforce Study Committee to study workforce development issues and trends in the Montgomery County Region, including workforce development system options for in-demand jobs and identifying supply and demand of in-demand job areas.
    • Provides $500,000 for the Ohio Career Exploration Internship Fund; and
    • Requires the Third Frontier Commission to operate the Third Frontier Internship Program in FY 2016 and FY 2017 to contribute to the expansion of a technologically proficient workforce in Ohio, and to encourage the retention in Ohio of highly knowledgeable and talented students through employing them upon graduation at for-profit companies doing business in Ohio.
  • Health Care- The majority of the state of Ohio budget is spent on providing health care services for Ohio’s poor residents through the Medicaid program and changes to Ohio’s health care policy include:
    • Adopts of the continued expansion of Medicaid services as funded by the federal government’s Affordable Care Act which provides Medicaid health insurance for the unemployed as well as the working poor;
    • Requires the Kasich administration to seek a Medicaid waiver from the federal government to create health savings accounts with exclusions for certain program recipients;
    • Expands Ohio’s Medicaid managed care program to include the growing field of behavioral health services into Medicaid managed care while going along with several Senate provisions on managed care;
    • Supports the House’s Healthier Buckeye Grant Program and appropriates $11.5M over the biennium for the initiative;
    • Requires that the Medicaid payment rate for medical transportation services include a component paying for providers’ fuel costs and that the rate for the fuel component be at least 5% higher than the national average for fuel prices;
    • Sets the Medicaid rate for nursing facility services provided to low resource utilization residents at (1) $115 per Medicaid day if ODM is satisfied that the nursing facility is cooperating with the Long-Term Care Ombudsman Program in efforts to help the nursing facility’s low resource utilization residents receive the services that are most appropriate for their level of care, or (2) $91.70 per Medicaid day if ODM is not satisfied;
    • Requires a Medicaid managed care organization to provide enhanced care management services to pregnant women and women capable of becoming pregnant in ODH-identified communities with high infant mortality; and
    • Requires the Medicaid rates for ambulette services provided during FY 2016 and FY 2017 to be at least 10% higher than the rates in effect on June 30, 2015.

The General Assembly ultimately rejected controversial Ohio Senate programs that would have cut in half funding for the Ohio Housing Finance Agency by redirecting housing awards to specific counties and effectively killing the Ohio Historic Preservation Tax Credit Program.  Another state operating budget is done and members of the General Assembly will head for a well-deserved summer recess.  Governor Kasich is expected to sign the bill but as the bill contains appropriations, he has the power of the pen and is expected to use his line-item veto on several provisions.

Rural Hospitals Receiving Long-term, Fixed Rate Funding

Hospitals are more region’s largest employers and are a critical part of a community business infrastructure as they serve area employers by providing quality health care for their employees.  Access to quality rural hospitals is a growing concern as major urban hospitals across the nation make substantial investments to meet growing demand.  Hospitals all across the nation are facing an unprecedented need to accommodate a populace that is aging.  This need requires in many instances an investment in new facilities and/or an upgrade to existing facilities.  Rural hospital systems are even more acutely aware of this need given their desire to remain independent and provide the best possible care to their populace.

The US Department of Agriculture’s Rural Development Community Facilities Direct Loan and Grant Program is designed to meet the needs of hospitals that need to invest in new and aging facilities.  The program offers a long-term, fixed rate loan.  The USDA just enhanced the program by lowering the interest rate to 3.125%.  Not only is the interest rate attractive but the USDA can term out the loan for as long as 40 years.  Unlike municipal bond issuances which have a defeasance penalty for early pay back, the USDA Rural Development Community Facilities Direct Loan can be paid off at any time during the term of the loan without having to pay a penalty. The Direct Loan can be used to construct new facilities, rehabilitate existing facilities and can also be used to pay off existing debt.  The Direct loan program is not limited in size with projects having been funded up to $91 million and as low as $1 million.  In order to qualify for the program the rural hospital facility must be located in a city, town, village or township with a population of not more than 20,000.

A companion to this program is the USDA Rural Development Communities Facilities Grant Program.  This grant program can be used for the same purposes as the Direct Loan but grant amounts vary in size and are typically any greater than $500,000.  The amount of the grant is determined by the size of the community in which the Rural Hospital facility is located.

Some examples of hospitals that have received funding through this program include:

  • Memorial Hospital in Apalachicola, Franklin County, FL, received $10 million in financing at 3.5% interest to construct a 19,000 square foot addition to its existing hospital to include 10 new patient rooms, each with private bath, and all new entry and lobby, plus a new radiology department and emergency department;
  • A $5 million loan to the Faulkton Medical Center in South Dakota for a state of the art 12-bed critical access facility;
  • Boone County Memorial Hospital in Madison, WV received a $31.8 million direct loan to construct a new hospital and updated medical equipment. The Hospital was a County hospital that converted to a 501c3 non-profit in 2013.

These funds are not just limited to hospitals.  They can be used for other community facilities that include:

  • Health care facilities such as hospitals, medical clinics, dental clinics, nursing homes or assisted living facilities
  • Public facilities such as town halls, courthouses, airport hangars or street improvements
  • Community support services such as child care centers, community centers, fairgrounds or transitional housing
  • Public safety services such as fire departments, police stations, prisons, police vehicles, fire trucks, public works vehicles or equipment
  • Educational services such as museums, libraries or private schools
  • Utility services such as telemedicine or distance learning equipment
  • Local food systems such as community gardens, food pantries, community kitchens, food banks, food hubs or greenhouses.

The capital stack for public projects has become just as important as it has for private projects.  There is no longer one source to fund all projects.  The USDA Rural Development Communities Facilities Direct Loan and Grant program provides a good funding source of long-term, fixed rate capital.

Ohio Third Frontier Releases $60 Million for Pre-Seed/Seed Investments

The Ohio Development Services Agency (DSA) has announced its release of a Request for Proposals (RFP) for the Ohio Third Frontier’s Pre-Seed/Seed Plus Fund Capitalization Program.  Over the past several years, Ohio has become a key location for early-stage capital investments by growing the number of its professionally managed, pre-seed and seed investment funds.

The 2015 Pre-Seed/Seed Plus Fund Capitalization Program is designed to increase Ohio’s number of professionally managed Pre-Seed Funds, create additional support for developing, retaining and attracting technology companies, increase early-stage capital investments in tech-based Ohio companies, accelerate the growth of high-potential tech companies as well as high-paying tech jobs, and continue building a deal flow pipeline that attracts VC firm resources from both within and outside of Ohio.  The Pre-Seed/Seed Plus program provides capital to new and proven existing Pre-Seed Funds for early-stage tech company investments and to existing and active Pre-Seed Funds providing capital to Seed Plus stage technology companies having received professional seed stage financing that are progressing towards an institutional venture round.   One hundred percent of Third Frontier and matching private funds must be invested in Ohio tech companies in the Imagining, Incubating or Demonstrating commercialization phases.

Oftentimes, start-up technology companies experience venture funds are moving farther away from the pre-seed stage and, prior to investing, require more validation.  Thus, many companies are forced to put together bigger and more pre-seed/seed rounds before achieving a Series A funding round.  The new Seed Plus program is intended to assist companies moving from pre-seed, seed and angel funding to institutional financing and allows Third Frontier Funds to directly participate in Seed Plus and early-stage Series A fundings in hopes of enabling companies to achieve more milestones and market validations and, therefore, better valuations.

The Pre-Seed/Seed Plus program targets start-up companies commercializing new products and processes in key technology industry areas, including medical technology, business and healthcare software applications, advanced materials, aeropropulsion power management, fuel cells and energy storage, sensing and automation technologies, situational awareness and surveillance systems, and solar photovoltaics.  A Pre-Seed/Seed Plus Fund must have a formal relationship with organizations like the Entrepreneurial Signature Program, previous Third Frontier funded Pre-Seed Funds or other organizations in connection with tech-based commercialization opportunities.

Under the program, $60 million is available for awards.  Pre-Seed Fund loan awards will range from $500,000 to $5 million and must provide cash cost share match of at least $1 for every $1 of Third Frontier funds requested.  Seed Plus Fund loan awards will range from $2.5 million to $5 million and must provide cash cost share match of at least $3 for every $1 of Third Frontier funds requested. Eligible lead applicants are Ohio-based Funds or those with an Ohio principal place of business.  Funds are expected to distribute investment returns to cost share providers, whether they be for-profit or nonprofit entities or individual persons.  Eligible lead applicants for Seed Plus must be a Fund with an active Pre-Seed Fund supported by Third Frontier.  Eligible lead applicants can submit a proposal for a Pre-Seed Fund, a Seed Plus Fund or a combined proposal for both.  A combined proposal for both may be proposed as a single Fund.

Applicants are expected to address key areas, including their geography and technology and market focus; investment structure, size, phase and use; ideal opportunity or company being targeted and why it will attract follow-on investment to move to the next commercialization phase; ongoing sources of deal flow; projected outcomes and exit timing; support network within the geographic area served by a lead applicant; and, outreach plans to women and minority entrepreneurs.  Applicants will also need to address their performance on prior Third Frontier awards and other investment funds, including previous fund track records and material successes and failures.  Expectedly, key focus by applicants will need to be placed on projected economic impacts and regional priorities for Pre-Seed and Seed Plus Funds, including new jobs and average salaries; follow-on investments and grants, licensing income and other revenue; active and new companies in Ohio and attracted to Ohio; new research institution spin-out companies; and, portfolio companies raising at least $1 million in follow-on investment capital.

The Pre-Seed/Seed Fund Capitalization Program’s RFP timeline provides for a Bidder’s Conference on July 23, letters of intent from potential applicants are due by August 6, full applicant proposals are due by September 15, and evaluator reviews and awards are expected to be considered and announced by the Third Frontier Commission in December.

The full 2015 Pre-Seed/Seed Fund Capitalization Program RFP is available for review at http://development.ohio.gov/bs_thirdfrontier/pfcp.htm.

To discuss your organization’s interest in the Pre-Seed/Seed Fund Capitalization Program and how The Montrose Group can assist, please feel free to contact David Robinson (614-738-2109; drobinson@montrosegroupllc.com), Nate Green (740-497-1893; ngreen@montrosegroupllc.com) or Jon Dudley (660-864-5731; jdudley@montrosegroupllc.com).

Interest Rates at Historic Lows

Historical Rates May 2015

Click for full interest rate summary.

Interest rates, as shown by the market update, are at historic lows. Oil prices, unrest in the Middle East and Russia, a stagnant European economy, a cooling Chinese market, and a domestic market that seems to be heating, add to the intrigue and speculation of where interest rates may go over the next 6-12 months. The Federal Open Markets Committee has signaled it may not raise the short term rate at its June meeting. European Central Banks are following suit. In economic development we must follow and track these trends to understand how it will impact our local and regional economies.

 

Top Ten Economic Development Projects, May 2015

Top Ten Economic Development Projects, May 2015

  1. Volvo Chooses South Carolina for its new, $500 million assembly plant committing to 2000 jobs, receiving a reported $214 million in incentives: http://www.thestate.com/news/politics-government/politics-columns-blogs/the-buzz/article20628765.html
  2. American Specialty Alloys commits to $2.4 billion investment and 1450 new jobs in Louisiana Plant: http://businessfacilities.com/2015/05/american-specialty-alloys-announces-plans-for-mill-complex-in-central-louisiana/
  3. Amazon commits to 1,000 new jobs, $1.1 billion investment in Ohio: http://www.dispatch.com/content/stories/business/2015/05/29/amazon-has-big-plans-in-ohio.html
  4. General Motors will invest $1.2 billion in a 1.5 million expansion of its Fort Wayne, IN assembly plant: http://www.areadevelopment.com/newsitems/5-27-2015/general-motors-expand-fort-wayne-indiana675454.shtml
  5. Shintech to spend $1.4 billion on new ethylene cracker in Louisiana: http://www.opportunitylouisiana.com/index.cfm/newsroom/detail/1065
  6. Advanced Refining Technologies to invest $135 million in Lake Charles, Louisiana Plant: http://www.areadevelopment.com/newsItems/5-18-2015/wr-grace-production-plant-lake-charles-louisiana743543.shtml
  7. Steel Dynamics to invest $100 million and create 40 new jobs at its Columbus, MS plant: http://cdispatch.com/news/article.asp?aid=42134
  8. Kubota Tractors to Relocate Company Headquarters: http://businessfacilities.com/2015/05/kubota-tractor-headquarters-relocating-to-texas/
  9. REI plans 400,000 square foot DC in Goodyear, Arizona: http://www.azcentral.com/story/news/local/southwest-valley/2015/05/11/seattles-rei-open-distribution-center-goodyear/27126813/
  10. Techtronic makes $85 million investment in South Carolina: http://www.greenvilleonline.com/story/money/business/2015/05/29/techtronic-anderson-south-carolina/28176259/

Five Reasons John Kasich Should Run for President

14519752393_f0b532299b_bAs Ohio Governor John Kasich edges closer to officially running for President, five reasons exist as to why Kasich should make the run for President.

  1. The Experience Factor. The poor performance of President Obama based upon his lack of experience positions the 2016 election to favor experience. John Kasich brings experience in Washington and managing a major state. Kasich’s service for 18 years on the Armed Services Committee of the U.S. House as well as Chairing the Budget Committee the last time the budget was balanced is critical in challenging times. His work balancing a major state budget and turning the economy around as Governor also matters.
  1. The Ohio Factor. There really is not an Electoral College map that adds up to the 270 votes the Republicans need that does not include Ohio. With California and the voter rich Northeast off-limits for Republicans, Republicans need Ohio to win the White House. While Republicans must win the Desert Southwest as well as compete in other states to win, Ohio is the central battleground where Republican candidates should win based upon the voter base. Kasich won a landslide re-election victory and is best positioned to win the Buckeye state.
  1. Midwest Connection. A second Electoral College map argument for Kasich expands beyond the Ohio borders and speaks to a larger effort to compete in the Great Lakes states. Many point to the real reason Mitt Romney lost was he failed to sell a positive plan for the success of the Big 3 automakers so critical in the Industrial Midwest. A Republican winning Ohio, Michigan, Indiana, Illinois, Pennsylvania and Wisconsin is unbeatable. While winning all these states would only be the result of a landslide, competing in these states requires someone from the region who can speak to these voters. Ohio’s Governor meets that test.
  1. The Populist Republican. There is a strong ideological argument supporting a Kasich run as well. While the news media points to Kasich’s decision to accept Medicaid funding from Obama Care as a sign he is a “moderate,” the reality is John Kasich is a Republican Populist. He is compassionate about helping people and believes the key to success is having a job. Kasich’s support for Tax Reform that includes raising taxes on the oil industry to reduce state income tax rates illustrates his Populist streak. A Populist Republican can appeal to the base of the Republican Party (insert Tea Party here!) as well as conservative Democrats unhappy with a national liberal agenda.
  1. Clinton, Bush and Everyone Else. Finally and most importantly, the crazy political process used to elect President’s also should encourage Kasich to run. There are three candidates for President in 2016: Hilliary Clinton, Jeb Bush, and Everyone Else. Clinton is facing a coronation not a Democratic Primary. Bush will face a national Primary test with the news media waiting for him to lose and about 10-15 Republican candidates are waiting in the wings for that loss. John Kasich has the ability and contacts to raise the early money he needs to survive the early Primary battles and positioned to shine if Bush stumbles.

Factors such as experience, geography, ideology and politics all point to the fact that John Kasich should make the run for President.