h&a us legislative and incentive update spring 2015

US LEGISLATIVE & INCENTIVE UPDATESPRING 2015

H I C K E Y & A S S O C I AT E SSITE SELECTION, INCENTIVES AND WORKFORCE SOLUTIONS

© 2015 Hickey & Associates. All Rights Reserved. 2

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Hickey & Associates is a global site selection, public incentive advisory and labor analytics company with active projects in the Americas, Asia, Europe, Australia and Africa. Utilizing state-of-the-art tools and techniques, H&A assists businesses in determining the best location to expand, relocate or consolidate anywhere in the world.

Over the past three decades, H&A’s incentive advisory team has identified, negotiated, captured and administered over $2 billion in economic incentives for our corporate clients. Offering experience in every major sector, Hickey & Associates has developed proprietary models, innovative tools, high-tech resources that streamline the process of incentive identification, negotiation and delivery, ultimately ensuring clients receive the most value with limited risk.

Our site selection and public incentives experts are based in key strategic markets to maximize your business goals with enhanced local knowledge and client service. With fifteen offices across the U.S., H&A ensures our service is always aligned with each unique local environment. Internationally, our locations in Mexico City, São Paulo, London, Berlin, Shanghai, Hong Kong, and Sydney ensure global site considerations are well covered.

ABOUT HICKEY & ASSOCIATES


CONTENTS

4 Introduction

5 State Legislative & Incentive Summary

9 2016 US State Budget Status

10 Incentive Compliance Changes

11 Sales Tax Credit Guide


The H&A team tracks all major state legislative activities related to business incentives and economic development policies around the United States. The H&A US Legislative and Incentive Update - Spring 2015 summarizes this information, showing how states are embracing the competitive economic climate by introducing and promoting incentives to attract the highest value industries to their communities. The following report covers the changes directly affecting state incentive programs. With all fifty states having a legislative session this year, there has been significant activity seen around the country dealing specifically with incentives and economic development policies. Several states, including Arizona, Georgia, Idaho, Maryland, Mississippi, New Mexico, South Dakota, Utah, Virginia, Wyoming, and West Virginia have all already adjourned for the 2015 regular session. Understanding the details of these changes will help businesses capture increased incentive values and avoid potential hurdles and challenges in the future.

INTRODUCTION

STATELEGISLATIVE &INCENTIVESUMMARY

US LEGISLATIVE & INCENTIVE UPDATE SPRING 2015


This map highlights the states with pending or recently completed legislative actions on business incentives and economic development policies during the first quarter of 2015. The legislative actions include, but not limited to, new tax incentives, expired legislation, changes to current incentives, and many others.

Independent

STATES WITH UPDATES

STATES WITH LEGISLATIVE UPDATES



ALABAMAGovernor Robert Bentley signed into law three incentive bills earlier this year to overhaul Alabama’s economic development tools. The Alabama Jobs Act will credit eligible companies 3% of the previous year’s wages paid to new employees for a period of 10 years. Companies would also be eligible for an investment credit of 1.5% of investment into an eligible project that creates at least 50 new jobs in qualifying industries. A portion of the tax credit may be transferred to allow for additional capital. Another bill was the Alabama Veterans and Rural Jobs Act which identifies 55 of the 67 counties in Alabama as rural areas. Companies who invest in these rural areas and create at least 25 jobs could qualify for tax breaks of 4% of the wages paid. Additionally, if the company’s new hires are comprised of at least 12% veterans, they could qualify to receive an extra 0.5% of wages paid. The Alabama Reinvestment and Abatements Act, the third bill, encourages existing companies to reinvest in their facilities. It offers abatements of state ad valorem taxes and local non-educational property taxes for up to 20 years. Companies must invest $2 million or more to qualify.

ARIZONA Through the budget and appropriations process, the Arizona legislature took direct aim at the state’s incentive programs. With budget concerns at hand, the legislature reallocated $100 million in carry over funds from the Arizona Commerce Authority (ACA) to different state programs, and reduced the Arizona Competes Fund

budget to $20 million in 2016, and further to $15 million in 2017. The deal-closing fund formerly had $25 million in annual funding. The legislature also eliminated the 0.1% Job Training Tax, and subsequently terminated funding for the Arizona Job Training Grant Program as of December 31, 2015. Since the passing of the legislation, the program is not currently accepting any new applications.

Meanwhile, the Arizona legislature is considering a bill to extend the renewable energy tax credits and exceptions for data centers. It would expand the $5 million sales tax credit to include international operations centers that invest $1.25 billion or more. The House approved the bill, and it is now awaiting Senate approval.

CALIFORNIA

The California Film Commission unanimously passed its first draft regulations on the distribution of $330 million in film tax credits. While the current system allocates the tax credits in a lottery, the new regulations would allocate tax credits based on a jobs ratio. The credit would be set at 20%, with a 5% bonus if the filming is done outside of the Los Angeles area, if visual effects are done in the state, or if music scoring is done in California. For the California Competes Tax Credit Program, the final round of funding for fiscal year 2014-15 was closed on April 6th, with a total of $151.1 million allocated to businesses through the three rounds of the current fiscal year.



COLORADOThe maximum award under the Advanced Industry Investment Tax Credit has doubled to $750,000, and the program began accepting applications for 2015 consideration.

FLORIDAThe Enterprise Zones Tax Incentives Program is being criticized by lawmakers in Florida, and may not be renewed by the end of this year. In the last fiscal year, businesses received $15.8M of incentives in 65 enterprise zones across Florida resulting in the creation of 13,000 jobs. ILLINOISThe Illinois State Senate is considering a new bill in which interactive digital media companies can be eligible for an income tax credit worth 30% of eligible expenses associated with a production in any given year.

LOUISIANA The Louisiana legislature is looking to cap the total amount of film tax credits issued each year to $300 million and is examining a dozen different bills that take aim at stricter compliance for the film tax credit incentive. The Department of Economic Development released a critical study estimating that the State only received a benefit of 23 cents on the dollar for each dollar in incentive awarded.

MICHIGAN The Michigan House of Representatives voted 58 to 51 to pass legislation that would end the state’s film incentive program. The bill is expected to face some resistance in the Senate, but if passed, would put a stop to the film incentive program on October 1, 2015. Democrats in the Senate introduced the Hire Heroes Act in February for businesses to be eligible for up to $4,000 per worker in tax credits if they hire unemployed veterans. Governor Rick Snyder announced the creation of the Department of Talent and Economic Development with an Executive Order in December 2014. The new agency is a combination of the Michigan Economic Development Corporation and the Michigan State Housing Development Authority, and will officially launch December 2015.

MISSOURIMissouri State Representatives reintroduced a bill to bring back Missouri’s film tax credit after it expired in November 2013. The bill, in its current form, would provide a 20% tax credit on expenditures with a 5% bonus available if a majority of the filming is done in the State of Missouri.

Additionally, both the House and Senate passed a bill to provide tax incentives for data centers and is now awaiting Governor Jay Nixon’s signature. Nixon vetoed a similar bill last year after he said it did not guarantee the state a return on its investment. The new bill puts a $25 million investment and 10 job floor to qualify for the incentive for new data centers and $5 million and 5 new jobs floor for expanding data centers.

MARYLANDMaryland’s newly elected Governor Larry Hogan created the Maryland Economic Development and Business Climate Commission. The Governor made a commitment to open up the state for business and create new jobs. Bills have been introduced that will improve customer service training for employees and create programs to prepare students to enter the workforce. NEW JERSEYNew Jersey’s legislature is considering a bill that would make Atlantic City the State’s 33rd Urban Enterprise Zone (UEZ), generating property tax relief for city residents. The bill also offers incentives for participating businesses, which include tax credits and exemptions. A plan to introduce a bill is also in motion that would prevent companies from receiving incentives from the state if they are behind on their payments to the government.

Another bill sitting in on the desk of Governor Chris Christie would update a 2007 law by implementing detailed performance indicators as a way to determine if each tax expenditure for economic development purposes has been effective in reaching specific goals. Additionally, the bill would ensure stricter confidentiality in the reporting process for businesses and mandate the expiration of new tax incentives after 10 years.

NEW MEXICOThe New Mexico Agricultural Development and Promotional Funds Program was introduced by the New Mexico Department of Agriculture to fund agricultural-product projects that are completed within one year. Grants range from $500 to $10,000 for each applicant, and up to $30,000 for groups. Another program is the Specialty Crop Block Grant for projects built around specialty crops. The grant ranges from $20,000 to $75,000 per project, and the deadline is April 20th, 2015. New Mexico is introducing a new grant program to encourage startup companies and increase job creation. Applications will be accepted through May 1, 2015.



NEW YORKGovernor Andrew Cuomo’s office released the much anticipated annual report for the first year of the Start-Up NY Program. A total of 62 colleges and universities were approved to participate in 2014 creating 356 Tax-free areas, consisting of 4,167,162 sq. ft., and new or expanded businesses, consisting of 1847 acres. In 2014, 54 businesses were approved for the program and committing to create 2,085 jobs and invest $91M within five years. Thirty-three of the businesses are new to New York, 24 are start-up businesses, 7 relocated to the state, and 2 are foreign businesses. Thus far in 2015, four institutions have been approved in the program, and 17 applications.

NORTH CAROLINAGovernor Pat McCrory announced new laws and changes effective January 1, 2015, including the Omnibus Tax Law, the Energy Modernization Act, and the Credit for Military Training Act. The House also passed the NC Competes Act, which will double the amount of money currently going toward the Job Development Investment Grant Fund. One bill under review would lower corporate income taxes from 5% to 4% in 2016, and to 3% in 2017. This bill would also tax companies for products that they sell exclusively in North Carolina.

A second bill was filed to extend the nation’s highest renewable energy tax credit at 35% to 2020. A final bill proposes an increase in the Film Production Grant Program from a cap of $10M to $60M. The same bill would also restore the Historic Preservation Tax Credit Program and provide tax credits for cigarette exports, state port fees, motorsports and R&D.

PENNSYLVANIA Newly-elected Pennsylvania Governor Tom Wolf proposed several economic development changes in his 2015-2016 budget released in early March. These include a new Made in Pennsylvania Job Creation Program, a $5 million incentive program targeted at manufacturers and appropriation increases for Pennsylvania First Workforce Training, infrastructure projects, Keystone Opportunity Zones and others. The Governor’s budget would also halve the State corporate income tax over 3 years, decrease property tax rates and increase sales and personal income tax rates. The proposal includes a $250 million investment in the Business in Our Sites Program, which provides loans for the acquisition and development of sites for business use. Business in Our Sites is open for new applications beginning April 1.

RHODE ISLANDThe New Qualified Jobs Incentive Act bill is in front of the Rhode Island Legislature for a third year in a row, but with the backing of the Speaker of the House, and with 47 out of the 75 members of the House as co-sponsors, it is expected to pass this year. The bill would provide a tax incentive to employers that hire new full-time employees at a salary that is at least 250% of state minimum wage. The program would give an income tax reduction of 0.25% to large employers for every 50 qualifying employees, and 0.25% to small employers for every 10 qualifying employees.

TEXASNewly-elected Governor Greg Abbott announced that he will end the Emerging Technology Fund (ETF), and split the program’s $100 million funding equally between the Texas Enterprise Fund (TEF) and a new initiative focused on the public university system. The Governor also has a goal to reduce the business franchise tax by $2 billion, and property taxes by $2.2 billion across all property owners. The administration is working on several changes to the TEF program, which includes expediting the legislative process to speed up the program’s approval timeline from 90 to 30 days.

WEST VIRGINIAWest Virginia eliminated its 0.1% franchise tax on January 1, 2015. The State maintained its 6.5% corporate income tax rate, following a decrease between 2013 and 2014. Governor Earl Ray Tomblin also signed legislation that streamlines the process to receive well work permits on newly purchased land.

National Council of State Legislatures

SITE TRENDSJob Growth by the Numbers (Feb 2015)

CALIFORNIA

GEORGIA

NEW YORK

29,400

25,40020,200



States tend to finalize budgets in the outset of a new year for the beginning of their fiscal period on July 1st. As of March 31, 2015, seven states have enacted budgets for 2016. Three of these states enacted a biennial budget during the 2014 legislative session.

2016 US STATEBUDGET STATUS

ENACTED FY 2016 BUDGETARIZONA | SOUTH DAKOTA | UTAH | WEST VIRGINIA

BIENNIAL BUDGET ENACTED IN 2014KENTUCKY | VIRGINIA | WYOMING

AWAITING GOVERNOR’S ACTIONNEW MEXICO | NEW YORK


© 2015 Hickey & Associates. All Rights Reserved.© 2015 Hickey & Associates. All Rights Reserved. 11

2016 US STATEBUDGET STATUS With growing pressure on government to increase trans-

parency and improve the return on investment for their incentive programs, H&A has identified a trend towards increasing compliance standards for businesses. While the burdens may initially appear onerous, H&A’s dedi-cated compliance team can match operating expendi-tures, investment and job creation with incentive award covenants to ensure the full realization of award value. The strengthening of regulations can often times increase the available pool of incentives to trustworthy applicants, working for the benefit of our clients.

The vast majority of incentive programs require a true return on the state’s investment, in terms of jobs, investment, in-creased tax revenue or some combination of the three. Two states, Alabama and Oklahoma, have legislation pending that would increase legislative oversight of all economic de-velopment programs in the state. The packaging of award data in a manner suitable for review by the legislature, as suggested in these bills, may not immediately impact busi-ness operations. However, it does suggest that the regula-tory agencies may undertake actions outside of the legisla-tive process to enhance the quality of the data they provide to the legislature.

INCENTIVECOMPLIANCE CHANGES

Several other states have seen legislation that works to provide greater transparency to the general public. New Jersey passed a bill through the Assembly Appropria-tions Committee that would require the State Auditor to audit all incentives granted since 2006 with a value of greater than $1,000. The results of this audit, including promised and realized jobs and amount of the incen-tive, would be made public. Maryland also has consid-ered legislation that would require companies to provide compliance information directly, which is to be published online. Salary including benefits, C-Suite compensation, business activities, and location are additional fields that would be publicized under the legislation for businesses receiving more than $50,000 in incentives. Increasing disclosure requirements is not the only focus of pending legislation. A bill in Louisiana would require all sellers of film tax credits to be included in a Public Regis-try of Motion Picture Investor Tax Credit Brokers, with the possibility of a monetary penalty or even jail time if not followed. Finally, a bill passed the Nevada Senate that amends the qualifications for a tax abatement to include the creation of new jobs at a specified wage generating a clawback, if wages are not met.

Clawbacks may be sought after the Oregon Department of Justice’s investigation into Oregon’s Business Energy Tax Credit Program revealed that developers missed key deadlines to qualify for the tax credit program and sub-mitted fraudulent invoices to hide the fact. At the crux of this situation was the Energy Department accepting far less documentation than would normally be required. It would not be surprising if compliance procedures re-mained rigid in the light of a potential investigation.



8.88%#4

None

None

6.03#36

5.49%#43

6.68%#28

7.94%#13

8.44%#8

8.16%#12 7.30%

#16

7.41%#15

6.62%#30

5.83%#40

6.79%#26

8.19%#9

8.76%#6

8.16%#11

8.91%#3

9.24%#2

7.07%#20

7.78%#14

6.78%#27

7.19%#17

5.43%#44

6.00%#37

8.18%#10

7.00%#21

7.11%#19

6.34%#32

8.84%#7

5.50%

#42

6.07%#35 5.63%

#416.00%

#37

9.45%#1

6.90%#25

7.13%#18

6.99%#23

6.63%#29

8.85%#5

6.14%#34

None

6.25%#33

7.00%#21

6.35%#31

6.97%#24

6.00%#37

5.75%(#41)

None

States with no Sales Tax

States with Sales Tax Abatement

States with Sales Exemption

States with Manufacturing Sales Tax Exemption

4.35%#45

None

SALES TAX CREDIT GUIDEThis map highlights existing Sales Tax Credit programs in US states. As shown below, the majority of the states have a sales tax exemption or abatement program in place, with the exception of the five states which do not levy sales taxes. A number of states have a specific program targeting manufacturers, as well as, other industries, such as aerospace and the film industry.

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h&a us legislative and incentive update spring 2015

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