Growing and prosperous companies in the middle market, defined as those companies with annual revenue between $100 million and $1 billion, face numerous challenges as they decide to expand their business and market. The two most often sited challenges to growth by these companies is:
- Financing their expansions
- Recruiting and retaining talent
JobsOhio, the private sector economic development corporation for the state of Ohio, has helped many middle market companies solve the first challenge, and grow in Ohio through its JobsOhio Growth Fund Loan. From June 2016 through May 2017, JobsOhio invested $37,700,000 of loan proceeds into 12 projects that leveraged $453,551,994 of private capital investment. Because of these investments 1,632 jobs will be created with a cumulative payroll of $59,204,836 and the retention of 814 jobs. The average loan size was $3,140,000.
Through the JobsOhio Growth Fund Loan Program, middle market companies can utilize other sources of capital, from both internal (cash) and external (banks) sources to generate more jobs and capital investment than would otherwise be possible without funding from JobsOhio. Through this program JobsOhio is helping to solve one of the main issues that middle market companies have experienced since the Great Recession, access to capital.
Ohio House Bill 49, Governor John Kasich’s last state operating budget and was signed into law just fifteen minutes before the new fiscal year began in July 1, 2017. This was one ugly budget that started with tight revenues, saw a billion dollar revenue collapse in the middle of the legislative process, then had a Kasich record for line item vetoes and is ending with the first override of a Governor’s veto since 1979.
Ohio House Bill 49 started as a typical Kasich budget. Kasich’s budget agenda was aggressive—continue the Medicaid Expansion fueled by federal funding, enact tax reform, align K-12 education funding with student needs, and address the critical issue of workforce development facing the Ohio economy. In fact, the funding of the Medicaid Expansion under the federal government’s Affordable Care Act again gave the majority of state funding to Ohio’s healthcare program for the poor.
House Bill 49 hit early roadblocks in the Ohio House with Kasich’s tax reform plan scrapped and labeled again as shifting not reducing taxes. The House instead opted to keep what was in essence the same tax plan they had adopted in the last budget. Impacting the House’s budget plans was a joint announcement by the Governor, Speaker of the House and President of the Senate with just a couple weeks left in the House budget process that state revenue collections were continuing to decline and the budget now being debated would have to include $800M in less in spending. As tax increases were off the table from the start with the conservative Republican General Assembly, this put substantial spending cuts on the table.
The House enacted spending reductions without project major impacts to the Big Three of state government spending: Medicaid, K-12 education, and higher education. The House even added some tuition flexibility provisions for higher education and addresses at least some of the funding losses for many of the traditional K-12 school districts. The Ohio Senate, with nearly three weeks cut from their typical budget debate timeframe, worked in hyper-drive to address many of the additional funding cuts needed to meet what had now become a $1 B revenue shortfall. They also attempted to support higher ed and K-12 with policy and budget changes, but the Senate took a more aggressive line against the expansion of Medicaid by including a freeze on the expansion in 2018.
As the General Assembly reached a consensus on House Bill 49 through the Conference Committee, Governor Kasich illustrated the ultimate power the Ohio Constitution gives a Governor on a spending bill. Kasich used his line-item veto power over 40 times, double the number from the last budget. In particular, Kasich’s line item veto hit the interests of higher education, charter schools and opponents of the Medicaid expansion hard. In a highly unusually move, the Ohio House voted to override 11 of the Governor’s veto—10 were Medicaid related and one was oil and gas. The Ohio Senate will consider on July 12th to override the Governor’s vetoes next. Kasich’s last operating budget was not pretty, left many unhappy with line item vetoes and may create tension with the General Assembly as Kasich winds up his term as Governor.
Ohio House Bill 49, the state of Ohio operating budget, has a major impact in the operation of economic development programs in the state of Ohio. Below is a list of changes included in House Bill 49 that economic development leaders and counsel should be aware of.
- Lakes in Economic Distress Program- relaxes an existing criterion used to determine eligibility for the Lakes in Economic Distress Loan Program by requiring a loan applicant to have incurred a year-to-year reduction in gross revenue of 10%, instead of 40% as under current administrative guidelines, as measured between 2014 and 2015, 2015 and 2016, or 2014 and 2016. States that any materials a loan applicant submits are confidential and not a public record.
- Microbusiness Definition- defines a “microbusiness” in statute as an independently owned and operated for-profit business entity, including affiliates with fewer than 20 full-time employees or fulltime equivalent (FTE) employees and is located in Ohio.
- Housing Trust Fund- eliminated the $50M Ohio Housing Trust Fund.
- CRA Tax Abatement Deadlines- extends the deadline by which a municipal corporation or county must petition DSA to approve the local government’s designation of a Community Reinvestment Area (CRA), from 15 to 60 days after the subdivision’s adoption of the designating resolution as under continuing law, property in a CRA may be eligible for property tax exemptions on new construction or remodeling projects, but a CRA is not established until DSA determines that a resolution designating a CRA contains valid findings and comports with applicable zoning regulations.
- Ohio Incumbent Workforce Training Program- funding for this program was reduced to $2.5 million over the biennium. (Editor’s Note: This information was updated on 7/7/2017.)
- Local Government Innovation Fund Program- funding for this program was eliminated.
- Motion Picture Tax Credit- requires that, to be eligible for the motion picture tax credit, a motion picture company must show that it has already secured funding equal to at least 50% of the motion picture’s total production budget; requires the Director of the Development Services Agency to give priority to tax-credit eligible productions that are television series or miniseries; provides that, if the amount of credits allowed in any fiscal year is less than the annual $40 million credit cap, the difference may be carried forward and added to the cap in the following fiscal year; and requires the Director of Development Services to charge a tax credit application fee equal to 1% of the estimated value of the credit or $10,000, whichever is less.
- Enterprise Zone Program- extends indefinitely the authority of a county or municipal corporation to enter into an enterprise zone agreement with a business (that authority is currently set to expire on October 15, 2017).
- Job Creation Tax Credit Work from Home Provisions- allows employers that apply for a job creation tax credit (JCTC) to count compensation paid to certain “work-from home” employees for the purposes of qualifying and complying with the terms of the JCTC agreement as current law allows employers to receive a JCTC based on “home-based employees,” but special conditions and reporting requirements apply. Home-based employees must be paid at least 131% of the federal minimum wage, and the JCTC agreement must not include any employees who work at the project location and must expire before 2019, and specifies that “work-from-home” employees are treated the same as employees who work at the project location as long as the work-from-home employees reside in Ohio and are supervised from the project location, and that the movement of a work-from home employee to another residence or the migration of their work duties to the project location does not trigger a provision under continuing law that requires employers subject to a JCTC agreement to notify the impacted political subdivisions before relocating a substantial number of employment positions.
- Data Center Sales Tax Exemption- increases from five to six, the number of years that the operator of a 2013 computer data center project has to meet the capital investment requirement associated with an existing sales and use tax exemption as continuing law authorizes the Tax Credit Authority to fully or partially exempt from taxation the purchase of certain computer data center equipment if the operator of the data center agrees to make a $100 million capital investment at a site in this state within a specified number of years.
- New Market Tax Credits- modifies how the annual “cap” on New Markets Tax Credits is determined, while generally retaining the current law amount of the “cap” on credits issued, $10 million. Changes the basis for the Director of Development Services’ determination of the cap, from an amount based on qualified investment credits claimed by a taxpayer in a year to the amount of tax credits the Director of Development Services may approve in a year.
Ohio’s workforce development initiative focused on a lofty goal- have 65% of its residents with a university or college degree or a certificate. The demands of Ohio employers require this level of skilled worker. The core of any state’s workforce development program centers on the development of workers starting with a quality K-12 education and moving onto a system of higher education that prepares them for the workplace of tomorrow. The state of Ohio provides $10B to K-12 education and it continues to be a hot political topic in the state of Ohio’s operating budget—House Bill 49. A billion dollar revenue gap create substantial pressure on funding for Ohio’s K-12 education and higher education systems. However, traditional and charter public schools both worked aggressively to secure funding in Houses Bill 49. Higher education fought hard for increased funding and flexibility to set their own tuition rates. The results were mixed.
House Bill 49 on the education front will provide a funding increase to 77% of the traditional public school districts and provide a $10 dollar per student and then a $20 per student increase for charter schools. Ohio’s higher education institutions received no funding increase for their prime state operations subsidy and no changes for the tuition flexibility following a number of line item vetoes by Governor Kasich. 100,000 children attend charter schools in Ohio. With the Ohio Department of Education and Ohio’s largest on-line charter school in a massive legal and political battle and a billion dollar revenue gap arising at halftime in the budget process, it is not a surprise that the state of Ohio operating budget left most in the Ohio charter school community less than fulfilled. The slight increase in funding for Ohio’s charter schools does not address the funding disparity between traditional public schools and brick and mortar charter schools that both serve the same urban students in the 39 struggling school districts in which brick and mortar charters are permitted to locate.
Ohio Charter School Funding Compared to
Traditional Urban Public Schools
The Ohio General Assembly missed a chance to take a major step forward in addressing this funding disparity between brick and mortar charter schools and their traditional urban school counterparts when they failed to shift Targeted Assistance funding for charter schools. In HB 49, the School Foundation Formula includes Targeted Assistance funding for students in low property wealth communities to all public school districts including community schools. In HB 49, brick and mortar community schools are limited to 25% of Targeted Assistance funding for eligible students even though they serve the same low property wealth communities while traditional urban public school districts receive 100% of Targeted Assistance funding. However, with a tight budget year, the General Assembly did not amend HB 49 to allocate 100% of the state’s Targeted Assistance funding to brick and mortar charter schools. Charter schools were also disappointed in Governor Kasich’s veto of a number of policy issues in the state operating budget that included a clarification of the sponsor evaluation system, reinstatement of the teacher residency program, and elimination of an amendment that would have permitted schools to use a paper or on-line achievement test.
Education policy is sure to remain on the Statehouse agenda following a challenging state budget debate in which many policy and funding issues were not resolved through the budget process.
As usually happens, the Ohio General Assembly passed an avalanche of bills on their way out the door for their summer recess that traditionally follows passage of the state operating budget by the July 1 fiscal year deadline. However, the Ohio General Assembly is not done with its work in 2017 and will likely focus on a number of major topics including distracted driving.
Automobile accidents caused by distracted driving is not only a public safety problem but is also an economic development challenge as it impacts lost time at work, insurance rates and a range of other economic issues. Nationally, according to the Governor’s Highway Safety Association, cell phone use in automobiles is regulated in the following fashion:
- Hand-held Cell Phone Use: 14 states, D.C., Puerto Rico, Guam and the U.S. Virgin Islands prohibit all drivers from using hand-held cell phones while driving. All are primary enforcement laws—an officer may cite a driver for using a hand-held cell phone without any other traffic offense taking place.
- All Cell Phone Use: No state bans all cell phone use for all drivers, but 38 states and D.C. ban all cell phone use by novice drivers, and 20 states and D.C. prohibit it for school bus drivers.
- Text Messaging: Washington was the first state to pass a texting ban in 2007. Currently, 47 states, D.C., Puerto Rico, Guam and the U.S. Virgin Islands ban text messaging for all drivers. All but 4 have primary enforcement. Of the 4 states without an all driver texting ban:
- 3 prohibit text messaging by novice drivers.
- 1 restricts school bus drivers from texting.
Ohio is one of the four states in the union in which texting and driving is not a primary offense—the police cannot give you a ticket if your only offense is texting and driving. Instead, Ohio House Bill 95, which passed the House 71-20, attempts to address the texting while driving crisis by:
- Creating an enhanced penalty, a $100 ticket, that applies to a person who commits a specified vehicular moving violation while “distracted” if the distraction was a contributing factor to the commission of the violation; and
- Defining “distracted” to include using a handheld electronic communications device except when operating a motor vehicle while wearing an earphone or earplug or conducting any activity while operating a utility service vehicle or a vehicle for or on behalf of a utility, provided that the driver of the vehicle is acting in response to an emergency, power outage, or a circumstance affecting the health or safety of individuals, that is not necessary to the operation of a vehicle and that impairs or reasonably would be expected to impair the ability of the operator to drive the vehicle safely.
House Bill 95 has the support of parents who lost children due to distracted driving, the auto and insurance industry as well as public safety organizations. All these organizations testified in support of House Bill 95. However, House Bill 95’s fatal flaw is that it does not make texting while driving a primary offense. Enacting a full fledge distracted driving law that makes it a primary offense in Ohio will be the work of the Ohio Senate when the General Assembly returns in the Fall.
The hangover from the state of Ohio operating bill has not even really started but it is too soon to begin planning regional community projects as part of next year’s state capital budget? Three reasons indicate the answer to this question is yes.
First, let’s have a primer on what is a community project in the state capital bill. Community projects must be capital in nature and connected to a state agency either in the form ownership, partnership or through a joint use agreement. Most years, community projects include initiatives built around agriculture, arts and museums, economic development, health care, infrastructure, parks, police and fire, social services, sports, telecommunications, veterans and workforce projects. Applicants for funding still range from local governments to university to community colleges and for profit and not for profit organizations.
Now, three clear facts suggest planning and lobbying should begin right away for state capital budget bill community projects.
- State Capital Bill Community Project Funding is Accessible all Over Ohio. There is no reason to plan and lobby for a state capital bill community project if your region has no chance for funding. Past state capital bills illustrate, community project funding was accessible all over the state in urban, rural and suburban counties with community projects located in 77 of the 88 Ohio counties in the last state capital bill. As with most capital budget bills, Cuyahoga received the largest amount of community project funding but Hamilton and Franklin Counties were close behind. Don’t feel too bad for rural communities as they did much better in the last capital bill for community projects than in the previous capital budget gaining a full 10% more in funding than in the previous capital bill.
- Competition is Fierce for Community Project Funding. The previous state capital bill had over $1.25 B in legislative requests submitted by members of the Ohio General Assembly to their Finance Committees. With only $200M traditionally available for community projects, demand for funding is likely to exceed the supply of funding in the upcoming capital budget bill. The competition gets so fierce many successful community project funding requests hire Statehouse lobbyist to develop project requests and community with the executive agency and legislators about the economic value of the request for the state and community. In fact, over 1000 registered lobbyist were engaged in the last state capital bill (excluding state executive agency lobbyists).
- Quality Community Projects Take Time to Plan. Finally and most importantly, work should begin now on developing a regional arts, sports, workforce, health care, parks, infrastructure, social service or other state capital bill community project because quality requests take time to develop. While funding is accessible for projects all over the state, competition is fierce for everyone. Urban community requests far exceed the regional allocation of dollars. Rural communities compete for a smaller pot of funding. While hiring a lobbyist to gain funding helps, developing a quality project with a strong business plan tied to future funding that illustrates a sustainable project is the most appealing attribute for a community project request. Developing a sustainable community project request that address an important community challenge takes time to create.
The state of Ohio capital bill offers a critical opportunity to address regional challenges but work needs to begin now if communities want to succeed in gaining this in-demand funding.
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The Montrose Group recently finalized a comprehensive economic development plan for the Athens County Economic Development Council. This comprehensive strategic economic development plan is providing an economic road map for Athens County, Ohio through a planning process following the Learn, Listen & Do model that included research into the economic makeup of the region, analysis of available workforce, development of an industry cluster analysis, community comparisons on costs of doing business, economic development and demographic makeup all leading to a SWOT analysis that defines the opportunities and challenges for Athens. The Montrose Group conducted strategic community listening sessions including public surveys and an action plan tied to land use, workforce, tax policy, infrastructure, and quality of life strategies geared toward the development of high-wage jobs.