Economic Development at the Heart of Ohio’s Biennial Operating Budget

Dave Robinson
The Montrose Group, LLC

As the state of Ohio looks to adopt its biennial operating budget (HB 110) by June 30, 2021, economic development policy and programming remains a critical element of the Legislature’s budget priorities. In addition to the Legislature’s proposed uses of federal American Rescue Plan Act (ARPA) funds, several key Ohio programs will be modified which will impact how Ohio communities access and utilize economic and community development tools to advance local priorities.

Ohio & Federal Allocations of ARPA Funding

The federal government has given broad definition and latitude to how states and local communities spend ARPA dollars, with more than $350 billion in recovery funds being dispersed in two tranches – 50% in early Summer 2021 and the remaining 50% delivered approximately twelve months after. ARPA funds at state level must be spent by 2023-2024, which is a relatively long timeframe for spending federal stimulus dollars and funding objectives offer wide latitude for how dollars are utilized, primarily addressing:

• Supporting COVID-19 response efforts;
• Replacing lost public sector revenue;
• Supporting economic stabilization of households and businesses; and
• Addressing systemic public health and economic challenges.

Allowable uses include COVID 19 mitigation efforts; assistance to households for food, rent, mortgage payments or utilities; unemployment trust fund deposits; loans or grants to help small businesses and non-profits; behavioral health care services; water, broadband and sewer infrastructure investments; premium pay for essential workers, and more. Long-term asset investments such as broadband, water and sewer infrastructure, and establishing or seeding Revolving Loan Fund programs that support small businesses/non-profits impacted by the pandemic are all investments that will reap returns for years to come.

With more than 1 million Ohioans lacking access to reliable broadband, the use of ARPA funds to deliver broadband infrastructure is an evident priority for the state that presents opportunities for underserved communities to gain access to critical infrastructure that supports private sector capital investment; gives communities access to infrastructure to attract the growing remote workforce; and delivers much needed infrastructure to local schools, which are the foundation of building a pipeline of skilled workers and talent throughout the state of Ohio.

Senate President Matt Huffman (R-Lima) introduced the idea of utilizing a portion of ARPA funds to build an inventory of brownfield sites throughout the state and examine pathways to properly demo and remediate brownfield sites that will likely never again be utilized.

State of Ohio Economic Development Modifications

The state’s Opportunity Zone Program also stands to see changes to the existing income tax credit for investments occurring in federally authorized Ohio opportunity zones (O.R.C. § 122.84). Changes to the Opportunity Zone program would include:

• An increases, from $1 million to $2 million, the limit on the amount of credits that may be awarded to an individual during a fiscal biennium; and
• Expands the eligibility to receive a credit allocation (i.e., tax credit certificate) to all investors in Ohio opportunity zones, not just investors subject to the personal income tax. As the program currently operates, a nontaxpayer investor that cannot claim the credit may sell or transfer the credit to a taxpayer.)

Under the Ohio Development Services Agency (ODSA), the Ohio Rural Business Growth Program is designed to increase capital investment in businesses located in rural areas. The program provides an incentive to investors that capitalize companies with principal business in a county with less than 200,000 people. The program awards tax credit allocations to Rural Business Investment Companies or Small Business Investment Companies, or their affiliates, that serve as an intermediary between investors and projects. The investor then provides cash to the authorized investment companies in exchange for the tax credit. Investment companies typically deposit those investments into a rural business growth fund which uses the fund to finance future projects in rural areas. Benefits of the Ohio Rural Business Growth Program include:

• Increased investment in rural areas;
• Increased business development or expansion; and
• Investors reduce their tax liability and receive a positive return on their investment.

HB 110 includes a $45 million increase to the amount of tax credits that may be awarded by ODSA under the program and relaxes the eligibility criteria and investment requirements associated with those tax credits as detailed in O.R.C. § 122.15.

Noteworthy changes are also being proposed to the way Joint Economic Development Districts (JEDDs) are established or amended and JEDD administrators or local practitioners would be required to issue new notices and employ new JEDD agreement terms as a result of the Senate’s changes. Of particular importance to these changes, JEDDs would have to exclude land that is in close proximity to, or subject to water/sanitary sewer service agreements by, a municipality which is not party to the JEDD agreement. Specifically, new subdivisions (E)(1)(d) and (J)(2) in Ohio Revised Code § 715.72 would require excluding from a JEDD any land within one half mile of a municipality (which is not currently part of the JEDD agreement), or is subject to a water/sanitary sewer agreement under which such non-party municipality will be the future provider of water or sewer services to all or part of the proposed JEDD. An exception is included in the Senate language if the land’s property owner has or will sign the JEDD petition.

These changes tee up a potentially complicated determination of JEDD formations when excluding land in proximity to a non-party municipality, or a JEDD that is served by a non-party municipality’s water/sewer service. Carefully forming the footprint of land within a JEDD becomes a critical element to confirming which parcels of a proposed JEDD lie within a measured distance to a neighboring city. Essentially, the means of creating a new JEDD, or amending an existing JEDD to add area, will be changed to insert new notices, new JEDD Agreement terms, and rules for exclusions of land from JEDDs that are in close proximity to, or subject to water / sanitary sewer service agreements by, a municipality which is not party to the JEDD Agreement.

Ohio’s Tax Increment Finance (TIF) Fund has become a successful and well-utilized tool for Ohio’s economic development practitioners. In HB 110, specific changes to TIFs surround the expanded definition of “Public Infrastructure Improvements” will particularly impact language found in O.R.C. § 5709.40(A)(8). The expanded definition of eligible TIF funding of Public Infrastructure Improvements would include off-street parking facilities, including those with reserved spaces (i.e., nonpublic). HB 110 also proposes modifications related to Urban Redevelopment TIFs (O.R.C. § 5709.41) to specify that exemptions commence after the effective date of the municipality’s enabling ordinance, as well as to make explicit that TIF exemptions commence upon a certain value being created or on a parcel-by-parcel basis, once improvements are made versus an entire urban redevelopment TIF’s exemption commencing based on improvements to a singular parcel.

Finally, an amendment to change the Ohio Development Services Agency name back to the Ohio Department of Development is likely to be included in HB 110, harkening back to one of the economic development acronyms many Ohio practitioners still use today – welcome back “ODOD.”

The Ohio Legislature’s thoughtful consideration to changes in economic development programming and funding is creating buzz amongst practitioners, developers, and companies. How will these changes impact your economic development efforts? The Montrose team can help analyze the impacts of these changes at the local level and determine financing structures and programs to build a creative and attractive capital stack. Contact Dave Robinson at (614) 738-2109 or drobinson@montrosegroupllc.com to discuss how we can assist.