Incentives Watch: Creation or Retention, How Should States Incentivize Their Jobs?

The old saying, “a bird in the hand is worth two in the bush,” is just another way of saying that possessing the thing you covet is more valuable than having to look for it. Although this seems like common sense, opinions on the matter differ, especially when the conversation turns from birds to jobs.

Most people can agree that job creation and job retention are both important objectives for state governments. The disagreement arises when discussing how best to achieve these goals. Highlighting this division is a recent lawsuit, Jenner v. Ill. Dept. of Commerce and Econ. Opportunity, challenging a regulation regarding Illinois’ Economic Development for a Growing Economy (EDGE) program.

The EDGE program is a tax credit for businesses that relocate or expand their operations in Illinois while increasing the state’s export potential and creating new jobs. However, Ill. Admin. Code tit. 14, § 527.20, allows the department to issue a credit for both retained and new employees. Currently, 300 companies in Illinois have been awarded close to $1 billion in incentives through the program, the bulk of which have been for job retention, as reported by the Chicago Tribune.

The plaintiff in Jenner claims that the regulation violates the EDGE statute, and is an unlawful expansion of the powers of the department. Essentially, this case asks if a job creation tax credit can be expanded to include job retention.

The vast majority of states have some form of job creation tax credit, such as the California competes credit or the North Carolina jobs creation credit. This makes sense as states are constantly competing to attract business and bolster their economies.

However, only a few states, such as Ohio, have a tax credit specifically for the purpose of job retention. Sometimes, states may use specific industry credits to entice businesses to stay, in effect retaining the jobs already available in the state. A recent example of this tactic is the Maryland film credit, where productions have threatened to leave the state, taking all of the production-related jobs with them, should the credit be allowed to expire. Even so, these credits don’t do much to encourage businesses that are not part of the targeted industry from relocating to another state.

Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Is a job currently held in a state worth two jobs that might relocate there in the future?   

For more information about job creation tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.