News and Analysis
Attorney General Finds Some Employers Not in Compliance with Economic Development Incentives
Among his concluding acts as Attorney General, Richard Cordray yesterday released a report on employers’ compliance with economic development contracts. The first annual report highlights incentives granted to companies by the Ohio Department of Development (Department) between 2004 and 2009 and finds that just over 9% of recipient businesses failed to create or retain the jobs required by their award contracts. OMA member companies that received economic development awards in the reporting period were among the Ohio employers surveyed/audited in the year and whose data are complied in this report.
The report and the Attorney General’s authority to audit such incentive packages were mandated by the General Assembly in late 2008. Incoming Governor John Kasich will grapple with the issue as he pursues his “JobsOhio” plan to revamp the state’s economic development efforts. The OMA Tax Policy Committee will assess the issue at its March 17 meeting.
No Surprise, Unemployment Costs to Employers Growing
In an email from Douglas J. Holmes, President, UWC – Strategic Services on Unemployment & Workers’ Compensation, Washington, D.C., we learned this: According to estimates from the U..S Department of Labor for 2010 as compared to 2009 actual contribution rates, the average increase in state Unemployment Insurance (UI) rates is estimated at 34% as a percent of total wages.
The average percent jumped from 0.62% of total wages to 0.83% of total wages, beginning to show the significant increases in rates due to high claims loads and long claims durations in 2008 and 2009. Tax rate increases for individual employers may be significantly higher. This increase is the beginning of a trend that will push state UI contribution rates even higher in 2011 and 2012.
The majority of states showed increases as estimated for 2010 over 2009; here is the actual data by state.
Complicating the math is the fact that states like Ohio are required to begin repaying the federal government starting in September, 2011. Ohio is expected to owe more than $250 million in 2011 and 2012 in interest alone. Employers beware! The OMA Tax Policy Committee will assess the situation at the March 17 meeting.
State Budget Commission Ends Work Without Agreement
The Budget Planning and Management Commission that got off to a rocky partisan start this summer ended the same way. Republicans and Democrats filed separate reports this week in what is a foreshadowing of next year’s budget debate.
Republicans call for a 2012/13 budget built within “available resources” and without any tax increases or reliance on one-time resources. They propose, among other things, a review of “tax expenditures,” privatization of services, collective bargaining reform, and an examination of “securitization of assets/lease back arrangements.”
Democrats disagree with the Republican approach generally. There appears to be some modest agreement, however, on a few Medicaid issues, procurement reforms, prison sentencing reforms, and information technology sharing.
Tax Relief Act Summarized
OMA Connections Partner, GBQ, has prepared a bullet point summary of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 about to be signed into law, probably today.
Outgoing Tax Commissioner Lambasts Tax Foundation Analysis
As Governor-elect Kasich announced the appointment of Joe Testa to lead the Department of Taxation, the outgoing tax commissioner lashed out at a D.C.-based organization for mischaracterizing Ohio’s tax environment. Commissioner Richard Levin’s op ed was published in Business First. Levin said “junk science” was too generous a term for the foundation’s study.
Also this week on the tax front, Governor-elect Kasich was quoted by Gongwer News Service as considering changes to the Commercial Activity Tax. And, the leader of the group pushing for a ballot repeal of the Ohio estate tax was quoted as saying the it would not happen in 2011.
Governor-elect Kasich Picks Testa as Tax Commissioner
Governor-elect Kasich announced this week that Joe Testa will serve as Tax Commissioner in his administration. Mr. Testa previously served 17 years as Franklin County auditor.
Governor-elect Kasich and Mr. Testa have reaffirmed their commitment no tax increases.
Federal Tax Extenders Saddled to Unemployment Extension
Extended unemployment benefits began to expire this week for Ohioans who had been out of work for 99 weeks. The state pegs the unemployment rate at 9.9% down from 10% in September and reports 282,936 active unemployment claims as of November 29. Meanwhile in Congress another extension has been proposed. There is growing talk of a deal to combine the unemployment extension with several tax breaks.
Employers note — off ledger from traditional state budget planning is the repayment the state might owe the federal government for borrowing to cover the unemployment compensation trust fund. Estimates for the interest alone equate to $100 million in 2011, and $183 million in 2012 ($36 billion nationally). Those are dollars that historically are repaid soley by employers. Several manufacturing leaders are part of a coalition urging the federal government to waive or postpone repayment requirements.
Sponsors of Nonqualified Deferred Compensation Plans: Check Your Plan Documents
OMA Connections Partner, Plante Moran, advises employers that sponsor nonqualified deferred compensation plans (including certain severance agreements, employment agreements, and other arrangements that defer the receipt of compensation) to review their plan documents. The IRS is giving until December 31, 2010 for plan document failures to be corrected with reduced, and in some cases, no penalties.
Measurable Improvement – Ohio’s Business Climate
Site Selection Magazine recently released its rankings of most favorable state business climates. Ohio tied Georgia for 6th place. Regionally southern states scored highest.
Earlier in the year, Site Selection awarded Ohio the Governor’s Cup for new and expanded facilities. The ranking methodology includes executives’ perceptions about the states. Surveyed executives identified the top 10 factors that matter most in site locations; work force skills, state and local tax schemes, transportation infrastructure, incentives, and utility infrastructure top among them.