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Job incentives could be in peril

If the Supreme Court upholds an Ohio ruling, it could mean the end of tax-based incentives and more jobs leaving the country.

By SCOTT BARANCIK
Published September 29, 2005

A case to be argued before the U.S. Supreme Court could bar state and local governments from using certain incentives to lure business jobs, Florida's solicitor general warned Wednesday.

Chris Kise, author of a friend-of-the-court brief signed last month by Florida Attorney General Charlie Crist and 29 other state attorneys general, said a federal appeals court was wrong to rule unconstitutional an Ohio tax incentive that persuaded DaimlerChrysler Inc. to build a Jeep factory in Toledo. The U.S. Court of Appeals for the Sixth Circuit held last year that the incentive hindered free trade among the states by rewarding only companies that created jobs in Ohio.

If that decision were upheld, Kise said, Florida and other states would no longer be allowed to use tax-based incentives to lure or retain employers. Such a ruling would not only contradict prior Supreme Court decisions but hasten the stream of U.S. companies moving overseas.

The Supreme Court said Tuesday it had agreed to hear the state of Ohio's appeal in its upcoming term, which begins next week.

"States have always generally been free to structure their tax system to promote investment within their borders," Kise said in an interview. "If Vietnam gives them a better deal, that's where (companies) are going."

"What happens when we start losing the competitive battle on an international scale, and the states' hands are tied?" added Bruce Register, an economic development official with Hillsborough County government. "This is the state's way of controlling its destiny."

How far-reaching an effect the DaimlerChrysler case might have on Florida is not clear, even among state officials.

Scott Openshaw, spokesman for Gov. Jeb Bush's Office of Tourism, Trade and Economic Development, said a decision by the Supreme Court to uphold the lower court ruling would have no effect on the state's seven-year, $310-million deal with the Scripps Research Institute of La Jolla, Calif., because it did not involve tax-based incentives. Under that 2003 contract, the nonprofit biotech outfit agreed to create a Florida affiliate in exchange for the lion's share of a federal grant Florida received after the Sept. 11 attacks.

Openshaw also downplayed the value of tax-based incentives to Florida's economic success. "There are thousands of businesses that locate here and expand here every day that aren't necessarily doing it for business incentives," he said, citing the state's "sensible" tax structure and quality of life.

Kise painted a more dire picture.

He said a Supreme Court decision to uphold the DaimlerChrysler ruling, however broadly or narrowly drawn, would inspire opponents of economic incentives to seek legal redress of the Scripps package and other deals immediately.

"The next week, if not the next day, you would see cases filed all over the country challenging all manner of economic incentives programs," said Kise, who was a partner at the Tampa office of the Gray Harris law firm before Florida Attorney General Charlie Crist appointed him solicitor general in 2002.

Jay Biggins, a Princeton, N.J., lawyer who helped JPMorgan Chase & Co. get millions of dollars in state incentives in exchange for bringing high-wage jobs to Tampa this decade, said the DaimlerChrysler decision has tainted corporate America's taste for economic development.

"Some of our clients already have decided to eliminate jurisdictions from the "short list' because their incentives could be at risk," Biggins, executive managing director of Stadtmauer Bailkin Biggins LLC, wrote in the May issue of Site Selection magazine. "Companies should conduct a site-by-site and incentive-by-incentive inventory and analyze the level of potential exposure." (The appeals court that invalidated Ohio's tax-credit program has jurisdiction over Kentucky, Michigan, Ohio and Tennessee.)

Also in May, U.S. House and Senate lawmakers introduced legislation to cure the DaimlerChrysler ruling by explicitly authorizing state and local governments to issue many types of tax incentives to employers. Rep. Allen Boyd, D-Monticello, is the only Florida lawmaker to co-sponsor the Economic Development Act of 2005.

Not everyone is in favor of the incentives - some call it corporate welfare - that state and local governments dangle in front of large companies, sports teams and other employers.

In June, the nonprofit Center on Budget and Policy Priorities urged lawmakers to oppose the Economic Development Act because it said tax incentives reduce the amount of money available for education, infrastructure and other ingredients of productivity.

Many small businesses consider incentives unfair because they typically go to larger companies that can create many jobs at once.

--Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

[Last modified September 29, 2005, 01:19:16]