Ohio House Republicans Primed to Change Kasich Budget, Impacting Jobs and Economic Development

Majority Ohio House Republicans will make major changes to the two year state operating budget proposed by Governor John Kasich. While both Kasich and the Ohio House are dominated by Republicans, major differences over the Governor’s tax proposals are apparent. In addition, the House Republicans filled the budget bill, HB 64, with a long list of economic and community development oriented provisions to address local needs.

House Republicans Propose Major Ohio Tax Policy Changes

The Ohio House gutted the Kasich Tax Proposal as expected by eliminated all the suggested tax increases but providing a 6.3% across the board income tax cut beginning in FY 15 that lowers the top income tax rate below 5% and provides over $1.2 billion in tax relief to Ohioans over the next two years. The Ohio House also made permanent the 75% small business tax deduction. Increases in the state sales tax, elimination of sales tax exemptions, and increasing the state severance tax on oil and gas production all hit the chopping block. House Republicans also made changes to the Governor’s Ohio Job Creation Tax Credit Authority Program. An amendment adopted requires the Tax Credit Authority, upon the request of a taxpayer subject to an existing JCTC or JRTC agreement, to amend the agreement to account for decreases in state income tax rates. The tax credit percentage and any threshold excess income tax revenue (in the case of a JCTC) or income tax revenue (in the case of a JRTC) would be decreased by the same percentage that state income tax rates decreased since the agreement’s effective date or June 30, 2013, whichever is later. In addition, the House Republicans amended Ohio’s Tax Increment Financing statute by authorizing townships with a population of 15,000 or more to amend a TIF resolution adopted before December 31, 1994, to extend the exemption of the parcel or parcels included in the TIF for up to an additional 15 years. The amendment does not permit an increase in the percentage of improvements exempted from taxation and requires the township to notify the affected school districts and counties before adopting the amendment. Also, the Ohio Enterprise Zone was given a two year extension in the bill.

Dayton’s Aviation Industry Getting Fuel for Economic Growth

The House Republicans adopted several provisions targeted at supporting the aviation industry. First, the House Republicans requires an appropriation for airport improvements and calls for the Ohio Department of Taxation to draft legislation to exempt sales of aviation fuel from the state sales and use tax and, instead, tax such sales under a new, separate excise tax levied solely on sales of aviation fuel by the end of FY 2016. The House Republican budget also requires the Federal Research Network to be allocated to Applied Research Corporation to collaborate with Wright Patterson Air Force Base, NASA Glenn Research Center, Ohio’s research universities, and the private sector to align the state’s research assets with emerging missions and job growth opportunities emanating from the two federal installations, strengthen related workforce development and technology commercialization programs, and better position the state’s university system to directly impact new job creation in Ohio. Finally, the House Republican budget earmarks $4,000,000 for the Defense/Aerospace Workforce Development Initiative for the Applied Research Corporation to strengthen Ohio’s aviation, aerospace and defense industries. Also, HB 64 was amended to add earmarks of $250,000 in each fiscal year to establish, support the Wright State Policy Institute and the Workforce Immersion Program at the Wright State University, a $2.5M grant was provided to the Montgomery County Port Authority for the Midtown Redevelopment Initiative, establishes Defense/Aerospace Workforce Development Initiative and funds this program with $10M, and earmark of $2,500,000 in each fiscal year for Wright State University to support the development of the Global Engineering and Management (GEMS) program.

Long List of Budget Earmarks in State Budget

Of greater interest is the long list of specific budget allocations the House Republicans made in HB 64 that have a direct impact in local economic and community development projects. A partial list of these changes include:

  • $500,000 to fund the Healthy Lake Erie Program;
  • $2.0M in each fiscal year for the Thomas Edison Program to support small- and mid-sized manufacturers with $450,000 in each fiscal year to assist in accelerating the development and adoption of technology for small- and mid-sized manufacturers, $450,000 in each fiscal year to assist small- and mid-sized manufacturers in adopting emerging digital technologies, $425,000 in each fiscal year to develop and manage an accessible online of technological resources to support small- and mid-sized manufacturers, and $675,000 in each fiscal year to administer the Applied Research Grant Program to award direct cash grant assistance;
  • Appalachian Local Development Districts will be awarded funding for $173,287 to the Ohio Valley Regional Development Commission, (B) $173,287 to the Ohio Mid-Eastern Government Association, (C) $173,287 to the Buckeye Hills – Hocking Valley Regional Development District, and (D) $70,139 to the Eastgate Regional Council of Governments;
  • Requires GRF appropriation for the Ohio-Israel Agricultural Initiative;
  • Earmarks $17.25M for the Ohio Association of Foodbanks;
  • Earmarks $625,000 in each fiscal year for the Ohio Alliance of Boys & Girls Clubs;
  • Earmarks $125,000 for the Indian Lake Watershed Project;
  • Earmarks $50,000 to study the effect that zebra and quagga mussels have on Lake Erie, and $50,000 to study the effect that Canada geese have on Lake Erie’
  • Earmarks $2,854,000 in FY 2016 and $2,996,000 in FY 2017 to support the development and implementation of information technology solutions through OARnet;
  • Earmarks $134,244 in FY 2016 and $141,136 in FY 2017 for 4-H Clubs in Cincinnati and Cleveland;
  • Earmarks $75,000 in each fiscal year to the Ohio University Leadership Project, Ohio University’s Voinovich School of Leadership and Public Affairs, Ohio State University’s John Glenn College of Public Affairs, Bliss Institute of Applied Politics at the University of Akron, Center for Public Management and Regional Affairs at Miami University, Ohio Center for the Advancement of Women in Public Service at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University, University of Cincinnati Internship Program, Center for Regional Development at Bowling Green State University, Center for Liberal Arts Student Success at Wright State University, Kent State University Columbus Program, University of Toledo Urban Affairs Center, Center for Urban and Regional Studies at Youngstown State University,
  • Earmarks $2,000,000 in each fiscal year to support the National Center of Education Research on Corrosion and Materials Performance at the University of Akron;
  • Earmarks $150,000 in each fiscal year for The Washington Center Internship Program;
  • Earmarks $10,000 in each fiscal year for the Ohio Student Education Policy Institute;
  • Increases funding for the Appalachian New Economy Partnership to $1.5M
  • Raises funding for the Hayes Presidential Library to $500,000;
  • Earmarks $1,000,000 in each fiscal year for the STEM Public Private Partnership Program.

Tourism Support Key for House Republicans: Tourism Development Districts Created

House Republicans also made several substantial targeted economic development oriented changes. The House Republicans adopted an amendment to create Tourism Development Districts that authorizes municipal corporations and townships to designate a special district of not more than 100 contiguous acres within which a sales and use tax of up to 2%, a development fee, or an admissions tax of up to 2% may be levied to fund tourism promotion and development in that district. Bonds backed by tourism development district revenue to fund tourism promotion and development in the district can then be used to gain further revenue. Other tourism based amendments to HB 64 include:

  • Earmarks 2% of beer excise tax revenue, up to $1 million annually, for grants to be made under an existing program authorizing grants for local organizing committees or local governments for a sporting event site selection group;
  • Earmarks $70,000 in each fiscal year for the Ohio World War I Centennial Working Group;
  • Earmarks $500,000 in each fiscal year for Lake View Cemetery to us se for maintenance of the James A. Garfield Monument;
  • Earmarks $250,000 in each fiscal year for the Cincinnati Museum Center, and $250,000 in each fiscal year for the Western Reserve Historical Society;
  • Earmarks $500,000 in each fiscal year for preservation of the Murphy Theatre; and
  • $10M million capital appropriation to begin work on the rehabilitation of the Buckeye Lake dam plus funds a tourism campaign for Buckeye Lake.

Agriculture Industry Benefits from House Republican Changes: State Fairgrounds, Ag Society, Stark County and Warren County All Benefit from Budget Amendments

Also, House Republicans amended the bill to authorize a county with a county or independent agricultural society hosting an annual harness horse race with at least 40,000 per-day attendees to levy, subject to the approval of county voters, a lodging tax of up to 3% for up to 5 years and issue anticipation bonds and notes to pay for permanent improvements at sites where an agricultural society conducts fairs or exhibits. Also, a Stark County Regional Arts District amendment authorizes the Board of County Commissioners of a county with a population of not less than 375,000 and not greater than 390,000 to create a regional arts and culture district to promote arts, culture, and excellence within the community with an emphasis on outreach to children. Authorizes such a county, upon voter approval, to levy a cigarette tax and an alcoholic beverage tax in support of the regional arts and culture district. The rules governing such a cigarette tax or alcoholic beverage tax would be identical to those that apply to Cuyahoga County for taxes levied in support of its regional arts and culture district and sports facilities. Another amendment directed to Warren County authorizes a county with a population between 175,000 and 225,000, that has an amusement park with an average annual attendance over two million, and that levied a 3% lodging tax on December 31, 2014, to levy an additional 1% lodging tax for the purpose of constructing and maintaining county-owned sports facilities and financing efforts by the convention and visitors bureau to promote travel and tourism with respect to the sports facilities. Under continuing law, lodging tax rates are generally capped at 6% with up to 3% levied by the county and up to an additional 3% levied by the municipalities and townships located within the county. Other earmarks relevant for the ag and fairgrounds project include:

  • Creation of a grant program for capital improvements for county and independent fairgrounds with 2:1 state match;
  • $4.7M for the Agricultural Society Facilities Grant Program to provide grants to county agricultural societies and independent agricultural societies to support capital projects;
  • A 5% increase in funding for the OARDC, Cooperative Extension and Sea Grant Programs;
  • Earmarks $750,000 in fiscal year 2016 for the purchase and upgrade of infrastructure and equipment at the OSU Agricultural Technical Institute to provide distance education courses for College Credit Plus students.

Passage of the House Republican budget is expected on April 22, 2015 and additional amendments to the bill are likely to be adopted prior to its passage out of the House. Do not hesitate to contact The Montrose Group at drobinson@montrosegroupllc.com if you need assistance in addressing your economic development and government relations issues.

Nate Green Joins The Montrose Group, LLC as Director of Economic Development

NateGreenPodiumNate Green is joining the Montrose Group, LLC as Director of Economic Development. Nate Green provides economic development services, site selection, economic incentive, financial advisory, infrastructure finance, and association services to communities, companies, developers, organizations and associations based upon over 15 years of public and private sector economic development service. Prior to joining the Montrose Group, LLC, Nate was a Vice President, Public Finance for Piper Jaffray, was a manager at JobsOhio where he implemented and oversaw the JobsOhio Network and large projects across Ohio, served as Director of the Strategic Business Investment Division at the Ohio Department of Development (ODOD) where he oversaw the offices of business development, grants and tax incentives, financial incentives, and loans and servicing. Mr. Green also served as Economic Development Director for the Pickaway Progress Partnership, an economic development corporation for Pickaway County, served as Corporate Finance Manager at the Cleveland-Cuyahoga County Port Authority and began his career at the ODOD. The Montrose Group, LLC brings a multi-disciplinary team to business consulting by providing association management, business development, capital access, economic development, financial advisory, infrastructure finance, site selection, tech commercialization, and public affairs services that has gained $100M in government funding for range of clients.

Site Development Needed to Capture Economic Growth

It is a fundamental rule of economic development that no jobs are created with the availability of a site. The recent economic rebound is creating a large demand for sites in rural, suburban, exurban, and urban areas. This demand is actually a challenge for economic development leaders. This problem can most likely be traced to the bottoming out of our economy in 2009. The housing crisis caused banks and the Federal Reserve to tighten money policy which halted credit and lending to a near standstill. Developers who had before this time been able to find banks willing to lend were not only unable to get new loans but in many instances the banks called their existing loans. Fast-forward to today and what many communities find is that land has not been developed and new buildings have not been built to handle increased demand as the economy has recovered.

The numbers further tell the story. The 2015 CBRE Columbus industrial market outlook shows vacancy rates are down 8% while the net absorption was 4.6MM sq. ft. in 2014 and over 6MM sq. ft. in 2013. The story in Cincinnati is similar from the CBRE industrial market outlook 2015; vacancy rates were 5.3% at the end of 2014, down from 9.6% 5 years prior. In both of these markets, and others, there has been new construction in the speculative building space in 2014 and there will be more in 2015, but it is typically in the larger warehouse space, 250,000 sq. ft. and up leaving small-to-medium sized businesses without adequate space. The Cincinnati and Columbus market reports tell that story; developers are making investments in large buildings that will have a quick ROI. That is great for big-box distributors but leaves out the small-to-medium size companies without many alternatives.

Regions and states with sites prepared for development will capture jobs and capital investment in 2015. Site development happens in five critical steps:

Site Dev Graphic

  1. Control of Land. Legal control of land, through options or purchase, is the first step to developing a site. Public or private parties may take the lead in this real estate transaction as third parties are often engaged to collect real estate for larger developments.
  2. Zoning. Once control is established, sites need to be properly zoned for the intended use by the relevant local government. No development can happen without proper local land use approval.
  3. Land Use/Economic Development Plan. A land use and economic development plan is then essential to ensure critical infrastructure and construction costs are understood and a target list of industries and ultimately companies are created based upon an economic cluster analysis of the region. Key infrastructure items range from water, sewer, road, highway access, rail, and power access needed for company development. For select industries such as Data Centers, sites need to be certified as capable of handling the special infrastructure needs of a targeted industry.
  4. Infrastructure Funding. Next, funding from public and private sources is identified and gained to develop a job ready site that has the infrastructure in place ready for a company to locate. The high demand for job ready sites positions well communities that actually build out the infrastructure in anticipation of development occurring. The infrastructure funding comes through the local government with Tax Increment Financing, Capital Improvement Program funds, and Transportation Improvement Districts. State resources are provided through the Ohio Department of Transportation, JobsOhio, Ohio Development Services Agency, Ohio Public Works Commission, Public Utilities Commission of Ohio, and the Ohio Rail Development Commission. Federal infrastructure sources are found at the Economic Development Administration within the U.S. Department of Commerce, Department of Housing and Urban Development and targeted grants from the U.S. Department of Transportation.
  5. Site Marketing. Last but certainly not least, sites are developed by actually marketing a job ready site to potential companies. America is littered with empty industrial parks that were prepared for development but not properly marketed. Modern marketing tactics focus on creating a quality product through the site, tax policy and workforce development programs geared toward a particular industry, reduction of site development prices through up front infrastructure investments, development of the place through regional quality of life efforts and finally through promotion of the site. Promotional efforts involve the traditional business retention and expansion visits to existing companies, briefings with companies and site selectors at national trade shows and conferences, site visits with companies and site selectors,

Communities and regional organizations can benefit their companies greatly by developing long-term strategies to fill this gap in new land and buildings. Private sector partners, developers, are willing to step the table but need help in allaying the risk that can come with smaller projects. Programs exist at state and federal levels to help fund these efforts. Unique financial structures can be employed to use existing and new economic incentives to fund such initiatives. Communities and regions that step up to the plate now, that develop plans for new land and buildings, that form strong partnerships, will win big in the long run by providing economic growth and opportunities for the public they serve.

Brownfield Redevelopment Critical for Industrial Midwest Success

Brownfield are real property, the expansion, redevelopment or reuse of which may be complicated by the presence of hazardous substances. The Ohio Environmental Protection Agency identified over 270 Brownfield sites in Ohio alone. Many of these Brownfield sites are served by highways, roads, water, sewer, rail and power service and are prime locations for new industrial, commercial, retail or residential development. Milwaukee’s effort to redevelop the 30th Street Industrial Corridor offers important lessons for regions looking to redevelop large scale, contaminated site.

Redeveloping Brownfield sites requires a patient developer willing to understand the stages of Brownfield development. First, redeveloping a Brownfield requires an understanding of what type of contamination at site has and how it can be radiated. Gaining an environmental assessment is the first step to redeveloping a Brownfield. The U.S. E.P.A. offers incentives to prospective developers undertaking Brownfield assessment, cleanup, revolving loans, and environmental job training. Assessment grants provide funding to inventory, characterize, assess, and conduct planning and community involvement related to Brownfield sites. An eligible entity may apply for $200,000 up to $700,000 to assess a site contaminated by hazardous substances, pollutants, contaminants or petroleum. Federal, state and local funding helped identify 50 Brownfield sites as contaminated and created remediation plans within Milwaukee’s 30th Street Industrial Corridor.

Brownfield Dev StepsThe second step to redevelopment of a Brownfield requires a recognition that federal law creates the potential for liability for the contamination at the site even for the new owner who had nothing to do with polluting the property. Under federal law, a property owner can establish a “bona fide prospective purchaser defense” before purchasing the property if a property owner can establish that a release or threatened release was caused by the act or omission of a contractually unrelated third party. States like Ohio offer state protection through a Memorandum of Understanding (MOU) with U.S. EPA that offers legal protection to the new property owner.

Next, it is essential that a Brownfield site develop an economic development master plan. This strategy centers not just on the zoning and land use issues of the traditional master plan but develops an industry focus. The push of Millennials back to mixed-use, urban settings are transforming former factories into apartments all across the United States. However, in some cases like Milwaukee’s 30th Street Industrial Corridor, large patches of contaminated and closed industrial sites are being primed for redevelopment with high-wage job targets. Milwaukee’s 30th Street Industrial Corridor project divided the project area into specific redevelopment zones that include: Large Business Expansion/Retention Zone: retention of key anchors and potential second phase of modern business park; Modern Business Park Zone: redevelopment of the former Tower site as the Century City Business Park; Large Scale Industrial Redevelopment Zone: rezoning and active code enforcement to address land use conflicts; potential future business park zone; Small Business Development Zone: explore adaptive reuse of larger structures for industrial, flex, and multi-tenant users; Community Facility/Residential Zone: rezone to transition away from industrial uses and eliminate land use conflicts; and Anchor Business Retention Zone: retention of key anchors. It is essential that a Brownfield redevelopment economic plan be tied to a rational strategy of what companies are likely to be recruited to specific sites. An economic cluster analysis will likely tell the developer what existing companies are in the region and what companies in their supply chain might have an interest in locating at this site. Also, a Brownfield redevelopment economic development master plan needs a workforce development strategy that will ensure the project area has the workers target companies are looking for before the company ever makes a location decision.

Based upon the environmental assessment and economic development master plan, a pro forma must be created that identifies the financial costs for the project. Costs will include the environmental remediation but also the development of new infrastructure such as roads, water, sewer, power and rail lines, building and facility costs, and community space costs. An honest pro forma is essential and it will likely tell the developer there is little chance to redevelop contaminated property without millions of dollars in government subsidies in the form of grants, loans and tax credits.

The final and most challenging piece of Brownfield redevelopment is gaining the millions in public subsidies needed to remediate and develop the site. The U.S. EPA offers Brownfield grants but they are limited to $200,000 per site. The federal government offers Brownfield job training grants with a maximum annual funding award of $300,000 for up to five years (for a total of $1,500,000), and a Brownfield Revolving Loan Fund providing up to $1,000,000 in loans over 5 years. The state of Ohio through the private sector led economic development group Jobs-Ohio offers $43M annually in Urban Redevelopment funding for Brownfield Projects. The Milwaukee 30th Street Industrial Corridor project benefits from a $100M Milwaukee public-private-partnership as well as a recent million dollar Brownfield redevelopment grant from Conservative Wisconsin Governor Scott Walker’s Wisconsin Economic Development Corporation. Other financing tools could include a Transportation Improvement District and/or Tax Increment Financing to address road and infrastructure needs, New Markets and Historic Preservation Tax Credits, U.S. Department of Commerce Economic Development Administration grants for infrastructure, U.S. Department of Housing & Urban Affairs grants, local port authority bond financing and EB-5 regional funding financing.

Brownfield redevelopment is smart business for regions, states and the nation. $17.39 is leveraged for every EPA dollar expended and 71,833 jobs nationwide created by the EPA revolving loan program. Reduced storm water runoff from Brownfields redevelopment is 43 percent to 60 percent lower than alternative Greenfields scenarios and can increase residential property values 2 percent to 3 percent when nearby Brownfields are addressed. 12,864 Brownfields were remediated in 2010 by states, municipalities and tribal agencies constituting a 10 percent increase over the previous year.[i] Brownfields Program leveraged more than $14,000,000,000 in Brownfields cleanup and redevelopment funding from the private and public sectors and created over 60,000 jobs.[i]

[i] Retrieved from http://www.epa.gov/swerosps/bf/about.htm.

[i] Jim Carlton, “Brownfields Bloom in Seattle,” Wall Street Journal, July 25, 2011.

Kasich Budget Proposes 31 percent Third Frontier Funding Increase

Governor Kasich’s operating budget also addresses technology commercialization as a prime economic development strategy. Third Frontier Research and Development Grants and Loans make up the grant and loan assistance under the Third Frontier Program, accounting for 87.4% of total biennial appropriations in the category over the FY 2016-FY 2017 period. All Third Frontier Program (TFP) research and development projects must be approved by the Third Frontier Commission and receive Controlling Board approval. From year to year, the Commission establishes TFP subprograms to support specific aspects or missions relating to the R&D industry. The purpose of each subprogram varies widely depending on the technology company being assisted and the R&D objective, from supporting young adults and technology entrepreneurs during the incubation and product commercialization phases, to subsidizing projects operated by large research institutions and privately owned R&D-affiliated companies. For example, under the Technology Commercialization Center Program, the Commission approved two grants for over $20.0 million per project, while the Technology Validation and Start-up Fund Program has funded 62 separate grant projects that average not quite $70,000 each.

Third Frontier FY 2014-2015 Awards (in millions)

Third Frontier Program Title Program Description FY 2014-15 Awards
Technology Commercialization Center Invest significantly and strategically in targeted technology areas, helping to spur company formation, capital attraction, and job creation. $46.1 (2 awards)
Entrepreneurial Signature Provide a coordinated regional network across the state of entrepreneurial assistance services and providers that is visible and accessible throughout each region. $45.2 (5 awards)
Pre-Seed Fund Capitalization Provide professionally managed capital and associated services to accelerate the growth of early-stage technology companies. $34.8 (13 awards)
Innovation Platform Link the research capabilities and capacities of an established technology platform at an Ohio institution of higher education or nonprofit research institution to specific late-stage research, product development, and innovation needs of for-profit companies in the state. $28.3 (11 awards)
Commercial Acceleration Loan Fund Support the movement of products and services into market entry in various manners, including scale demonstrations and scale-up operations, customer validation, product and regulatory certification, acquisition of intellectual property, and engineering or packaging design. $25.7 (19 awards)
Industrial Research and Development Center Attract and expand large, nationally designated and highly visible corporate, nonprofit, or federal research and development centers or laboratory facilities. $13.9 (4 awards)
Technology Asset Grant Support the creation of specialized facilities and technical equipment determined to be critical for realizing the commercial or government usage of new technologies or tech-based products. $5.0 (1 award)
Technology Incubators Assist technology-oriented start-ups during their concept definition and development stages. $4.9 (11 awards)
Technology Validation and Start-up Fund Commercialize technologies developed by Ohio institutions of higher education and other not-for-profit research institutions in the state. $4.3 (62 awards)
Internship Contribute to the expansion of a technologically proficient workforce, and retain technology and R&D students in Ohio through employment in for-profit companies upon graduation. $3.4 (2 awards)
Ohio’s New Entrepreneurs Fund Recruit young entrepreneurs to foster the young entrepreneurs’ professional development. $0.9 (4 awards)
Targeted Industry Attraction Pursue business attraction opportunities in technology focus areas. $0.6 (2 awards)

All totaled, the Ohio Third Frontier Program Awarded $213.1M in FY 2014-FY 2015 through 136 awards. The Governor’s operating budget proposes combined appropriations of $169.8M to the two line items in each fiscal year of the upcoming FY 2016-FY 2017 biennium. This is $40.6M (31.4%) more than annual appropriations of $129.2 million for TFP in the current biennium. With this increased funding, the Third Frontier Commission can award additional grants and loans, or award more funding per eligible project.

The Montrose Group, LLC Releases Historic County Courthouse Rehab White Paper

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Something as simple as a re-facing a local county courthouse can pay huge dividends for struggling small towns. The economic development machine is at its best when it turns something old into a vibrant, bustling small-town hub for job and cultural growth.

Download the firm’s latest white paper, “Addressing Economic Development Through Historic Preservation and Civic Infrastructure.