Anti-Job Poaching Pacts in Ohio: What Do They Mean for Growing Ohio Businesses Seeking Public Tax Incentives? Ohio Tax Attorney, Dan Borsky, of EAG, LLC Explains

    COLUMBUS, OH, March 19, 2013 /24-7PressRelease/ -- In 2012, Anti-Job Poaching Pacts in Ohio garnered much attention. As of January 2013, 58 communities in Cleveland's Cuyahoga County signed a "no job poaching" pact. In the Columbus metro area, 14 communities did the same. However, some communities such as Upper Arlington and Dublin in Central Ohio and Middleburg Heights around Cleveland rejected or have held out signing an agreement. Some challenged whether they are legally binding. Does this mean an unraveling of anti-job poaching pacts? Unfortunately, whether formal agreements proliferate or not, the new reality is that due to the challenging economic environment which Ohio communities are facing, each community is forced to cooperate with its neighbors. For instance, service sharing arrangements are becoming more common in the face of depressed revenues. Consequently, whether communities sign a pact or not, there is growing pressure for each community to conform in "spirit" to Anti-Job Poaching Pacts due to fear of reprisal when it comes to the possibility of cooperative service arrangements. Understandably, business executives are left wondering how these recent events will impact the likelihood of receiving tax abatements and tax credits. The encouraging news is that there are still opportunities for businesses operating in Ohio businesses to secure the public incentives they need to help fund growth. However, it will take more sophisticated approaches and increased efforts to realize these incentives.

The Big Picture: Countervailing Forces on Communities

Ohio communities are feeling pressure to both offer incentives to improve their local economy while simultaneously feeling pressure to abide by the growing anti-job poaching sentiment among neighboring communities. Paradoxically, it is the same external reality creating these countervailing forces -Ohio's sluggish, albeit improving, economy.

Ohio's Economy

Overall, most communities in Ohio have experienced significantly reduced local revenues while simultaneously experiencing higher demands for local services such as police, fire, community health, and other local services. This leaves Ohio cities struggling financially and dictates that they search for ways to reduce their expenditures. One strategy growing in popularity is shared services with neighboring communities. However, communities cannot "save" their way out of their fiscal short-falls, but must also increase their tax base through job growth. Consequently, communities are both feeling pressure to increase efforts to cooperate with neighboring communities to control expenses while simultaneously experiencing pressure to compete with them to attract and retain jobs. These pressures have led to anti-job poaching pacts. Further, even when no pact exists, communities feel pressure to conform to the spirit of the pacts out of fear of reprisal: they cannot afford to jeopardize potentially financially beneficial shared services arrangements with neighbors.

Businesses Under Pressure to Secure Incentives

In today's economy, most U.S. businesses are benefiting from public incentives. For Ohio's companies to remain competitive they, as well, must secure public incentives. Further, our Ohio businesses require the ability to take advantage of communities that offer the best strategic benefits for their companies such as appropriate transportation access, workforce characteristics, synergistic area businesses, and appropriate building structures. Still further, businesses seek communities that offer amenities which will help them retain and attract the right kind of employees. The unfortunate reality is that relocations are disruptive to businesses. Consequently, businesses seek public incentives to overcome the burdens of relocation. When well executed, strong public incentives enable job growth for recipient companies. However, in an anti-job poaching environment during a time of widespread municipal fiscal distress, securing public incentives is more challenging than ever.

Securing Ohio Public Incentives: New Approaches

Businesses that are succeeding in this anti-job poaching environment are doing so by formulating innovative deal structures and putting extra effort towards helping communities effectively articulate how the destination community gives the company the best chance for job growth.

Deal Structure

Traditionally, tax abatements and tax credits were based on the number of jobs moved to the destination community. In this age of regionalism, agreements are focusing on placing incentives on net new jobs. These new incentive arrangements based on "net new jobs" can be negotiated to equal the value of the traditional packages and thereby make relocation economically feasible for companies. Also, these "net new jobs" agreements are more palatable to the offering municipality because it helps them avoid the stigma of job poaching. As a result, businesses secure needed incentives while communities can demonstrate to their neighbors that they are not stealing jobs, but contributing to regional job growth.

Deal Negotiation

Historically, most negotiations focused only on making the numbers work. In this new environment of anti-job poaching regionalism, the business and the destination community have to be able to clearly articulate how the relocation gives the business the best opportunity to add jobs. As a result, successful negotiations not only work out the numbers, but also align on how the community is the best fit for the company. This ensures that both the business and the community have a compelling message to the region in terms of explaining how the decision helps drive regional job growth.

Compliance Complexity

Increased compliance complexity is one of the new challenges that the new agreement frameworks create. Compliance, already, is a risk for some businesses. Difficulties arise out of the fact that incentives are paid out over a number of years. Each year, appropriate documentation must be provided to municipalities in order to actually receive the funds. Adherence to these new incentive agreements can make the documentation more complex. As a result, businesses are increasingly turning to experts to ensure the appropriate steps are followed by their accounting and legal departments. Encouragingly, even with increased compliance complexity, these new incentive agreements can still be equally advantageous to the business: but it does require additional effort and oversight.

About the Author:
Dan Borsky, an Ohio tax attorney, is the founder and principal of Enterprise Advisory Group, LLC. EAG is a leading Ohio specialty tax firm that focuses on securing non-dilutive capital (e.g., state and local incentives) for its clients. They enjoy vast experience not only securing funds for clients, but also overseeing yearly compliance to ensure incentives are realized over the life of each agreement. Enterprise Advisory Group has offices in Columbus, Cleveland, & Cincinnati. The main office for Enterprise Advisory Group, LLC is located at 2130 Arlington Avenue, Upper Arlington, Ohio 43221. The website address is www.eagohio.com. Mr. Borsky can be reach at [email protected] or by phone at 614-402-0799.

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