COLUMBUS, OHIO (Jan. 20, 10 a.m. EST) — To entice Crane Plastics Co. to build a vinyl siding plant in Columbus in 1999, local officials chopped Crane's local property tax bill for the new factory in half for 10 years, saving the firm about $400,000 a year. In return, the company agreed to invest $18 million and create 95 new jobs by 2001.
But then the economy turned sour, and Crane never met those job targets.
In fact, its employment in Columbus actually dropped in that time, from 675 to just fewer than 600. While the company has invested almost twice the money it said it would, the shortfall in jobs has prompted some local officials to take a second look at the arrangement.
Call it the potentially ugly underbelly of economic development. Companies want incentives to locate new factories, but what happens when business suffers or plans change and firms can't meet their end of the deal?
In some cases, governments revoke tax breaks or come asking for the money back, a move known in economic development circles as a clawback. That hasn't happened to Crane, but it has happened to some plastics companies, making it a potential pitfall to consider when negotiating incentive packages.
In Crane's case, government officials in Columbus and Franklin County, where the factory is located, have not decided what they'll do.
Franklin County Auditor Joe Testa, who chairs a panel of local officials that annually reviews all tax incentive packages, said his panel does ask city officials to revoke tax incentives if a company shows no progress during several years. That happened in 2002 with an office complex and an electronics firm.
But Testa said that because this is the first year Crane has been reviewed, the panel will consider the company's response and take up the issue in the summer, when it meets again.
“There are lots of businesses and companies in Columbus and Ohio who create jobs without abatements, [and] some companies get incentives and create jobs,” Testa said. “In all fairness to them, the elected officials have an obligation to see to it that those who are falling short are addressed.”
But, he said, local officials need to consider whether the company is making a good-faith effort: “I think you should be reasonable about it.”
Crane officials said they should be able to keep the incentives, even if they don't make the job targets. The company couldn't predict the recession when it started building the plant in 1999, said Tanny Crane, president of the Columbus-based firm.
The company had a very strong 2002, and employment in Columbus now is up to about 630, she said. That is below the 675 when the abatements started and well below the target of 770, but the company over time expects to create “far more” than the 95 jobs called for, she said.
Plus, the company's $36 million investment in the vinyl siding plant is more than double the dollars it said it would spend, and no city official has raised any concerns with the company, she said.
The Crane family is prominent in other local arenas: In 2000, they purchased a minority stake in the city's National Hockey League franchise, the Columbus Blue Jackets.
“We're a good corporate citizen,” she added.
Even with the tax break, the company's new investment still generates about $400,000 a year in new taxes for the city, she noted. The tax break applies only to one of Crane's two plants in Columbus. The company also has two other Ohio plants.
Without the abatements, the company may have built the plant elsewhere, Crane said. The company had looked at lower-wage areas in southern Ohio or West Virginia, but has been in Columbus for 50 years and is committed to the city, she said.
“The tax abatements clearly helped,” Crane said. “If we didn't get them, it would have been a much tougher decision.”
In neighboring Pennsylvania, state economic development officials are taking a hard line with a plastics company that didn't meet the job-creation goals it set as a condition for getting state money.
High Tech Plastics International Inc. got $30,000 from the state's Opportunity Grant Program in 2000, with the promise that it would create 30 new jobs during three years in Luzerne County, said Emily White, deputy secretary for business development in the state's Department of Community and Economic Development.
But the jobs never materialized, and the company since has been sold to extruder and compression molder Westlake Plastics Co., based in Lenni, Pa.
“We've told them we want them to pay back the $30,000,” White said. “None of the new jobs were created. You had a sale of the assets. The whole purpose for the original grant disappeared.”
Westlake officials did not respond to an interview request.
Another Pennsylvania firm that made only partial progress on meeting its targets, however, got to keep its grant money.
Rose Plastic USA Inc. got $300,000 from the state in 1998, with the promise that it would create 125 jobs at a new blow molding plant in California, Pa., White said. The firm delivered only about half that number, but the state did not ask for the money back.
“They demonstrated to us that they had lost orders to customers that they had anticipated having,” White said. “They were able to show that spending in their industry was in a downturn. Plus they had created about half of the jobs, and they put the facility in.”
Rose President Ken Donahue said the firm's main market, packaging for drills and metal-cutting tools, dropped 30 percent in 2001 and another 30 percent in 2002.
Growth never met the 1998 projections, but the company, a subsidiary of Rose Plastic GmbH in Germany, continued to invest in the plant, he said. It added injection molding and plans to expand the facility this year, from 45,000 square feet to about 65,000 square feet. The firm has exceeded its investment targets, he said.
“We're doing a lot of things to increase our activity and make a good-faith effort,” Donahue said. “Because the economy wasn't good, we weren't able to comply with all of our agreements.”
Case by case
White said Pennsylvania officials decide whether to seek a clawback on a case-by-case basis.
“It is a difficult decision,” she said. “You have some forces that want you to impose the penalty no matter what. Others say no, they are still a good company.”
White said overall, companies that receive grants meet their targets. Last year, for example, companies getting state money exceeded their job targets by 15 percent, she said.
Jim Snodgrass, a senior consultant with site selection firm Wad-ley Donovan Group in Edison, N.J., said the tightening financial picture for many states probably will mean more clawbacks.
“My sense, and this is just opinion, [is that] as state budgets get tighter and deficits get larger and the funds available may shrink, clawbacks could increasingly become an issue,” he said. He said communities should look at incentives to companies as a mutual investment, and not as a community handout to companies.
In Pennsylvania's case, the money the state has to support economic development has been cut. The total available for grants, for example, shrank to $28 million this year, from $40 million, White said.
Another site selection consultant said some communities might be reluctant to go after a noncomplying company because they don't want to appear unfriendly to business.
“The community runs the risk of not looking pro-business,” said William Linchwalla with Plante & Moran Cresa LLC in Southfield, Mich. “All that would get reported in the local press is that 'XYZ city sues for $3 million.' ”
Snodgrass said he advises clients to be cautious in their commitments for getting government aid, and he said it's not uncommon for communities to offer tiered incentives that grant certain tax benefits only when specific job goals are met.
Linchwalla said the problem of clawbacks is making refundable tax credits more popular with state governments.
Under that system, a company's benefits are tied directly to payroll created.
“The company that grows and creates the jobs it said it would, it gets the incentives. If a company doesn't deliver, it doesn't cost [the state] any money,” he said.