States often attract new companies to their borders or try to keep the companies within their state by offering millions in tax breaks. These tax incentives can be controversial, especially if the perks aren’t tied to a financial investment or job requirements. As Boeing recently found out in Washington, both the state and company can experience a backlash after a company receives tax breaks, but still cuts jobs. However, states and companies are getting smarter about crafting incentive deals, explicitly tying the financial rewards to job growth.
On May 10, Maryland Gov. Larry Hogan approved S.B. 1112, creating a tax credit for aerospace, electronics or defense contract projects. The fiscal note mentions that the credit is primarily meant to benefit a Northrop Grumman facility in Linthicum. The credit is available for up to three projects per year, according to Kathy Lundy Springuel in the Weekly State Tax Report. For each project, the credit equals $250 for each job created or retained, up to a maximum of $2.5 million, equaling a total annual incentive of $7.5 million if Northrop Grumman maximizes its incentives by claiming the credit for three different projects.
One of the more interesting aspects of the credit is the job requirement. In order to receive the credit, a project must create or retain 10,000 jobs in Maryland at an annual salary of at least $85,000. In addition to the jobs requirement, the credit requires at least $25 million in qualifying expenditures, for each project. Northrop Grumman already employs about 10,000 people in the Baltimore area.
In February, Mississippi approved H.B. 1, a deal for Continental Tire to create a tire manufacturing plant as well as a maritime facility, according to The Clarion-Ledger. The bill requires Continental Tire to invest $1.4 billion in the tire plant and $68 million in the maritime facility. The bill also requires the creation of 2,500 and 1,000 jobs, respectively, each with a minimum salary of $40,000. Although the deal was initially announced to be worth $274 million in tax incentives, the Associated Press calculated that the value that Continental Tire is receiving is closer to $600 million.
Though job creation is not a zero-sum game, companies sometimes fulfill job requirements by shifting jobs from other states. In January, General Electric received $120 million in grants and incentives from Massachusetts and $25 million in property tax incentives from Boston to relocate their headquarters to Boston, according to Martha W. Kessler in the Weekly State Tax Report. Although it is unclear whether GE was required to create jobs in Massachusetts, the new headquarters will have a workforce of approximately 800. Earlier this month, however, GE announced that some of those Massachusetts jobs would be shifted from Connecticut, according to the Hartford Courant.
Continue the discussion on LinkedIn: Should tax incentives for big companies always be tied to job creation?
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