Commentary: Tax credit cuts will spurn economic development
Joel A. Smiley, M.P.A., Principal
Our state and national economy are still in a very fragile environment. Gov. Eric Greitens and President Donald Trump are targeting tax credits as deficit reduction measures. The impact these cuts could have on manufacturers and other new developments could be substantial. All things being equal, manufacturers look at economic conditions, as well as market conditions, in determining site selection and growth strategies.
Tax incentives, especially on the state and local level, target under performing areas as well as key industry clusters, job creation and infrastructure. While a massive infrastructure investment on the federal side will stimulate job creation, it may have little impact in urban core areas, rural development, poverty reduction and primary sector job creation.
State and local programs target these areas on a micro level and use tax incentive programs to level the playing field as well as reduce market condition costs enabling the employer to create more jobs and opportunities.
A prime example is the Brownfield Tax Credit program. Brownfields are declared on environmentally challenged areas and are used to assess the site, create an action plan for clean-up and assist with the actual clean-up. Additional credits may be applied for a job creation component. By cleaning up a blighted property and creating jobs, you are not only improving economic opportunities for the site, but also for the surrounding area as property values improve.
New Market Tax Credits allow for investment in primary and secondary blighted census tracts. This program has job creation and investment criteria and helps revitalize high poverty areas with development. Community Development Entities assure the projects are tax credit worthy as well as shovel ready. The investor of the tax credits is investing in high poverty areas that would normally not attract economic opportunity in high risk areas.
Job training programs, including on-the-job training, offset training wages for high risk individuals as well as development projects in targeted area. OJT programs assess the training requirement for a position and offset training wages to an employer. Work Opportunity Tax Credits offer federal tax credits to employers who hire high risk individuals. These credits also reduce employer training costs.
State opportunities, especially primary sector positions that target key industries, are in tight competition on a national level. Corporate headquarters, manufacturers and high tech companies look at access to a highly educated workforce, lower taxes, available property with infrastructure, and lease office space availability. Tax credits are used by other states to offset some of these costs during the first few years of operation to offset infrastructure, training and investment costs. These savings can make the difference in the first few years of operation.
When elected officials talk about eliminating tax credits, are they eliminating new investment and job creation as well? Are they thinking about targeted areas in key industries? From an economic development perspective I hope they take these criteria into consideration.
For more information, contact Joel Smiley, Principal Attracting Resources, LLC (314) 827-9623.
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Joel A. Smiley, M.P.A., Principal.
Office: 314.827.9623 Fax: 314.469.1114
Joel A. Smiley, M.P.A., Principal