Ohio Officials Calling for Stricter Regulation of Tax Breaks

This article was produced in partnership with The Business Journal, based in Youngstown, Ohio, which is a member of the ProPublica Local Reporting Network. ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

YOUNGSTOWN, Ohio — State and local elected officials are reassessing one of the state’s marquee economic development programs and calling for tougher regulation of corporate tax breaks after a Business Journal and ProPublica investigation raised questions about the effectiveness of so-called enterprise zones.

Under the program, struggling communities like Youngstown are empowered to award property tax breaks to companies that agree to invest a certain amount of money and create a targeted number of new jobs.
 
But in a report published last month, the news organizations found that half of the 94 projects that have received millions of dollars in tax abatements from the city since 1991 have failed to deliver on their job promises. One in four didn’t create a single position. All of the tax breaks, however, remained intact.

Now, City Council members are urging the administration of Mayor Jamael Tito Brown to stiffen its approach to the enterprise zone program and to crack down on companies that violated their tax break agreements.

“It would seem as the city is running on autopilot,” said 1st Ward Councilman Julius Oliver, who has been critical of firms that underdeliver on jobs. “We have to get these numbers up. We have to hold these companies accountable.”

Separately, the councilman is pushing for firms to increase the number of city residents they hire. Current law only requires companies to undertake their “best efforts” to hire city residents. According to a city report, in 2018, 1,046 employees worked at businesses receiving tax breaks; just about a fifth lived in Youngstown.

Brown did not respond to requests for comment, but his aides have defended the administration’s handling of the enterprise zone program. “It’s not something we’re sleeping on. We’re aware of it,” Nikki Posterli, Brown’s chief of staff and director of planning and economic development, said this year. “I think we need to just figure out ways to work within what we’ve offered to make it work for both sides. The last thing you want is for a business to pack up and go when we could have built that relationship.”

Some City Council members, however, disagree. The current system has led to an environment where companies “use you, use you and use you,” said Samantha Turner, the city’s 3rd Ward councilwoman. As an example, she cited the stalled Chill-Can development on the city’s long-suffering East Side. The project, which was featured in the Business Journal-ProPublica investigation, touts itself as the world’s first self-chilling beverage can.

In exchange for its promise of jobs, developer Joseph Co. International received a 75% abatement on real estate taxes over 10 years, as well as a $1.5 million grant from the city’s water and wastewater funds. The city also spent more than $360,000 to relocate residents who once lived at the site. But more than three years after breaking ground, the company has yet to create any of the positions it pledged in its enterprise zone agreement, according to its most recent report to the city in 2019.

Company chairman Mitchell Joseph said on Wednesday that the firm has since hired three security guards and is now interviewing candidates for engineering positions. Under the terms of the tax deal, the company has until August 2021 to create at least 237 jobs. Infrastructure problems, such as aging utility lines, and the coronavirus have delayed the project, Joseph has said. Site work on a third building is underway. “Announcements will be made by the beverage industry in the next several months on our technologies as well as our plans to produce in Youngstown in spite of this pandemic,” he said in an email.

Still, the developer now faces a bill for $15,111.65 in delinquent property taxes, according to records from the Mahoning County auditor’s office. The company has filed an appeal, challenging the valuation of improvements on the site.

Meanwhile, some state lawmakers are pressing legislation that they say would increase transparency around the enterprise zone program, which is subject to little oversight from the state. 

Under Ohio law, local governments award the tax breaks and simply report the results to a state clearinghouse. But The Business Journal and ProPublica found that reporting can be spotty, obscuring the total cost of tax incentives to local communities.

In Youngstown, for example, city officials maintained that they could not say how much was forgiven under the enterprise zone program there. In response to public records requests, they provided cost projections for just a third of the agreements they granted over the past three decades, saying they could not locate many of the earlier contracts. The estimate of forgiven taxes for the pacts with documentation: $15.3 million.

State Rep. Jim Hoops, a Republican representing northwest Ohio, is advocating for a bill that would expand the power of the state’s Tax Expenditure Review Commission to examine local enterprise zone agreements and other property tax exemptions. Currently, the advisory commission limits its biennial reviews to state tax breaks, he said.
 
“It will show people how much is exempted on a local level,” Hoops said of the proposed analysis of local abatements. “It puts more information out there.”

Some advocates, however, are calling on lawmakers to go further by tightening the rules around the enterprise zone agreements themselves. Today, local officials have the power to terminate tax breaks and seek back taxes from companies that fail to deliver on their job pledges. But in Youngstown, they rarely use it. 

During its most recent session in December, the city’s Tax Incentive Review Council voted to allow all 20 active enterprise zone agreements to continue, including five with firms that substantially missed their job targets.

To boost compliance, Hannah Halbert, executive director of Policy Matters Ohio, a Cleveland-based think tank, said the state could eliminate that discretion and mandate a “trigger” provision that would suspend tax incentives for companies that fail to fulfill job commitments after a certain amount of time. “There would be automatic consequences,” she said. “The state could place different guardrails” in the program.

State Sen. Sean O’Brien, a Democrat who represents nearby Trumbull County, said he would be wary of legislation that could erode the authority of local officials. But he added that tax incentives should come with stricter rules on new investment and job creation.

“We want to help certain businesses, because they need help getting started. It’s like fertilizer in the ground,” he said. “But, if it doesn’t grow, you can’t keep putting fertilizer on it.”

Pictured at top: Construction material and equipment arrives at the Chill Can site.

Dan O’Brien is a reporter and associate editor of The Business Journal, based in Youngstown, Ohio. He has covered business in the Mahoning Valley for more than 20 years. ProPublica’s Agnel Philip contributed reporting.

The Business Journal in Youngstown, Ohio, and ProPublica are investigating economic development incentives in the Mahoning Valley. If you know something about how these programs were used – or abused, we would like to hear from you. We’d particularly like to hear from:

• Past or present employees of companies that received development incentives.
• Government and economic development officials, providing additional information and insights on how incentives can be better deployed and monitored for compliance.
• Business leaders with suggestions on the types of incentives that small businesses need.

If you have something to share with us, here’s how to do it:

• Via email: [email protected]
• Via phone call or text message: 330-406-9132
• Via our online form: https://businessjournaldaily.com/submit-your-story/

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