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Retention Incentives Lure Companies to Stay Put

Is the decision to relocate an operation from a community realistic - or just an attempt to receive benefits or incentives to remain?

Jonathan L. Sangster, Senior Managing Director, CB Richard Ellis (Feb/Mar 10)
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Exhibit 1: Exisiting Company Operations; Ongoing Economic and Fiscal Impact Exhibit 1: Exisiting Company Operations; Ongoing Economic and Fiscal Impact
Indiana EDGE
The retention incentive program in Indiana is also called EDGE. It rewards job creation and recognizes retention. The EDGE Program is a discretionary incentive program that awards corporate income tax credits equal to up to 100 percent of withholding taxes for up to 10 years. The percentage of withholding taxes and term of the incentive are dependent on the number of jobs and average wage compared to the county average wage.

Retention incentive offers are tied to manufacturing, business services, and R&D only. An eligible company must retain at least 35 jobs and pay an average wage equal to at least 105 percent of the county average. Companies receiving EDGE tax credits will be required to maintain operations and retain a pre-determined number of jobs for two years beyond the term of the EDGE award.

Kentucky Reinvestment Act
The retention incentive program in Kentucky is called the Kentucky Reinvestment Act (KRA). The KRA program is a discretionary incentive program that awards corporate income tax credits up to 10 years and equal to (a) not more than 50 percent of approved capital costs and (b) not more than 100 percent of training costs to upgrade the skills of existing employees. The approved tax credit benefits are dependent on the number of jobs and average wage compared to the county average wage.

Retention incentive offers are tied to manufacturing and related operations. An eligible company must retain at least 85 percent of the employment level in the previous year and incur at least $2.5 million in new capital investment. Companies receiving KRA tax credits will be required to maintain operations and retain a pre-determined number of jobs for a negotiated retention period. Clawbacks are negotiable.

Michigan MEGA Retention Tax Credit Program
The Michigan Economic Growth Authority (MEGA) program is a discretionary incentive program of corporate income tax credits equal to up to 100 percent of withholding taxes for up to 20 years. This program is dependent on the number of jobs and average wages as well as the economic impact of the company on the state and community. Offers are tied to key industry sectors including manufacturing, mining, film and digital media, and office operations. Projects must maintain 50 jobs and pay 150 percent of federal minimum wage with an investment of at least $50,000 per retained jobs. Clawbacks are negotiable.

New Jersey BRRAG
Business Retention and Relocation Assistance Grant (BRRAG) is a discretionary incentive program with corporate income tax credits equal up to $1,500 per retained job. Eligible companies must maintain 50 jobs and pay at least county average wages. Companies receiving tax credits must maintain operations and retain a predetermined number of jobs for five years. Clawbacks include 100 percent recapture of tax credits if job retention is not met.

Ohio Job Retention Tax Credit Program
The Ohio JRTC (Job Retention Tax Credit) program is a discretionary tax credit program equal to up to 75 percent of withholding taxes for up to 10 years. The percentage is dependent on the number of jobs and average wages.

Retention is tied to jobs in key clusters and projects must retain at least 500 jobs with an investment of $50 million for manufacturing facilities and $20 million for headquarters/ administration operations.
Clawbacks are negotiable.

Show Me the Money.Maybe
The 2007-2009 recession has revealed structural problems with state and regional economies and, thus, tax revenue stability. Strategically maintaining existing industries and attracting high-quality prospects should be given equal attention. Economic conditions of a state or community are not static and require re-evaluation of economic development strategy including incentive programs.

Incentives and economic development policy should provide long-term benefits to a community and state's residents through new job creation and retention, enhancement of the overall tax base, expansion and diversification of the state's economic base, and increase in tax revenue to the state. Incentives and economic development policy should increase the economic competitiveness of a state in attracting and retaining industries and jobs relative to other states that have historically defined and carried out business assistance more aggressively. 

Each state and community approaches the retention incentive discussion and decision based upon their circumstances and economic environment. In doing so, the following best practices should be considered and recognized by companies considering those locations:

• Retention incentives should be connected with specific industries and projects that align with the state and community's economic development policies.

• Incentives should be performance-based with penalties/clawbacks negotiated to protect the stakeholders and taxpayers.

• Retention incentives should be discretionary - funded by programs like withholding taxes, with governing agencies having flexibility to reward amounts based upon the strength of the project and its economic impact on the state and community

• If tax credits are utilized, programs that can be monetized or converted to cash should be created.

The decision to withdraw an operation from a community and state is not an easy one for companies. Creating a business case and solution to retain the jobs and investment should be a collaborative effort between the company and the economic development community.

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