Thursday, May 8, 2003

Companies coming up short

30% of county's tax-abated firms fail to keep promises

By Ken Alltucker
The Cincinnati Enquirer

Cincinnati and Hamilton County are reporting a sharp increase in the number of businesses failing to meet job growth and investment targets outlined in tax break contracts established to save the companies millions.

Now city and county politicians must review each agreement and determine whether these firms should still reap tax breaks approved to create jobs and spur investment in new office buildings, factories and equipment.

A total of 30 percent of Hamilton County firms didn't meet job and investment targets in 2002, up from 19 percent in 2001. And even though no agreements were terminated a year ago, the county recommends eliminating four deals this year:

• Schulman Associates, which reviews clinical research documents, promised eight new jobs and $2.2 million in investment for a new Woodlawn headquarters. That expansion never materialized, but the firm did set up a new Blue Ash office.

• Mercury Instruments Inc., which makes measuring instruments, requested its zone deal be discontinued. The firm planned to hire 17 new jobs and keep 81 positions, but prospects for international growth dimmed because of the manufacturing slump, prompting the firm to cut nine positions.

• Midwest Mobile Technologies, a manufacturer of motor vehicle bodies, planned to add 16 jobs to its 19-person staff. Now the company is out of business.

• Xerox Corp. vowed to add two jobs and received a 50 percent abatement for a $10.5 million equipment investment at its Sharonville plant. The jobs weren't created.

Another 32 Hamilton County companies that are behind on goals will receive warning letters while 73 firms will get a "congratulatory letter" for meeting job and investment goals on time.

The city's tax incentive review council will meet later this month to determine what to do with the one dozen companies that haven't met goals. Possible remedies include terminating or changing deals.

The dozen firms are: Art Woodworking, Cincinnati Milacron, FRCH Design Worldwide, H.C. Nutting, H.R.B. Inc., Inwood Automotive Products, First Rock Masonry, Modern Machinery Co., Procter & Gamble, Riemeier Lumber, Standex and Stevenson Photo.

Combined, those dozen companies in Cincinnati exceeded investment goals by $89.6 million thanks to P&G, which alone surpassed its investment goals by that amount. Yet those companies delivered 365 fewer jobs than projected.

A Hamilton County report shows 36 of 119 agreements in 2002 with companies operating from Loveland to Fairfax fell short of job and investment projections. Of those, county staffers recommend eliminating tax-break pacts with four businesses.

In Cincinnati, 12 of 84 firms haven't created as many jobs or spent as much as promised. A special committee appointed by Mayor Charlie Luken will meet May 22 to decide whether to revoke or modify these deals.

The poor economy and unrealistic expectations are two reasons most often cited by officials charged with monitoring the program.

"Some of these agreements were signed a few years ago during a boom time when their projections may have been too rosy," said Peg Moertl, Cincinnati's director of community development and planning. "Now we have to look for the reasons that these requirements have not been met. Is there an overall downward trend in employment? Is the company still in operation?"

National experts say it's not uncommon for companies to fall short of projections, although it's difficult to gauge how Hamilton County fares compared to other counties across the nation because data is rarely available, said Greg LeRoy, executive director of Washington, D.C.-based Good Jobs First.

Many Cincinnati-area companies blame poor economic conditions for the shortfall.

For instance, the commercial construction sector was thriving three years ago when Cincinnati drafted an enterprise zone agreement for H.C. Nutting's new Lunken Park Drive headquarters in Linwood.

But a dramatic drop in new commercial construction jobs over the past couple of years has made it difficult for the engineering and soil-testing firm to make good on a promise to create 25 new jobs.

"There's no question that we're behind at this time," president Jack Scott said. "We didn't know we were about to go into a recession, Sept. 11 and a war. The economy hasn't been kind to any of us."

Despite the difficulties, Scott's company managed to avoid layoffs to its staff of 127, and his firm spent $4.9 million for a new headquarters, exceeding the city's minimum requirement of $3 million.

An upswing in new construction jobs should enable the firm to hire six more workers in coming months, Scott said.

Economic development officials champion enterprise zones as an important tool for attracting new companies or keeping major employers that are being wooed by other cities, states or counties. Indeed, Kentucky developers and government officials pursued H.C. Nutting, but the city's tax break and the long-time Cincinnati firm's community roots prompted it to stay put.

Hamilton County's enterprise zone has helped keep or create more than 14,000 jobs and spur $920 million in new offices and factories, according to the Hamilton County Development Co.

These agreements abate up to a decade's worth of taxes on real estate and equipment purchases provided that the company creates jobs and investment within a shorter time period, typically three years.

The idea is to encourage business expansion by delaying costs, said Randy Welker, director of client management for Greater Cincinnati Chamber of Commerce.

"One of the biggest detriments in expanding is the cost involved," Welker said. "What you're telling companies is that you're willing to wait on that tax while they expand. It's vitally important. If your companies are not growing, then your tax base won't grow."

Welker warns against taking a heavy-handed approach on companies that already have been crippled by a poor economy.

The most punitive option for the city and county is to pursue back taxes through so-called "claw-back" agreements that are part of the enterprise zones.

These claw-back agreements are an important option for governments, and Ohio is just one of 18 states nationwide that have this power, saidLeRoy of Good Jobs First.

"There is a fiscal crisis at state and local levels," LeRoy said. "(State and local) governments are really hurting for cash. They can't afford to waste money on deals that don't pay back."


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