Any time a business is looking to undertake an economic development or capital improvement project, a litany of questions must be asked. Do we need new
equipment or new facilities? Are we going to
stay where we are? Will we be creating new
jobs and/or retaining them?
But in today’s uncertain economic times,
perhaps the most important question concerns the availability of funding. Often, private funding isn’t enough.
“Credit is tight, and it’s hard to get financing,” says Kip Wahlers, head of the Columbus
public finance group at Calfee, Halter &
Griswold LLP. “Transactions that were routine a year ago are nearly impossible today.”
Because of this, it makes sense to reach out
to the public sector to assist in financing projects. In many cases, public sector assistance
can lower costs and enable your business to
make more efficient use of its resources.
Smart Business spoke with Wahlers about
economic development and how to create
productive public/private partnerships.
Where is assistance available?
In Ohio, if one is undertaking a project, the
place to start for low interest loans and job
training assistance is generally the regional
office of the Department of Development.
The drawback of this assistance is that in
accepting it, a business may be required to
pay prevailing wages for capital improvements constructed as part of the project. In
addition, for those businesses with retail
projects, the Department of Development’s
ability to help is limited by statute. In the case
of projects involving capital improvements,
local jurisdictions (cities, counties and port
authorities) may be able to provide meaningful assistance in the form of tax abatements
or tax increment financing (TIF).
What is TIF and what are the benefits?
TIF uses revenue coming from future
increases in real property values to pay costs
of public or, sometimes, private improvements. Usually, a new capital project will
result in an increase in assessed valuation.
TIF can be thought of as taking the property
taxes (in the form of payments in lieu of
taxes) resulting from the new development,
and using those payments to pay costs of new capital facilities. In most cases, the cost
to the business is minimal, since it would
have had to pay property taxes anyway.
If structured properly, bonds that are issued
that are paid from TIF revenues can be tax-exempt, often resulting in cost savings when
compared to bank financing. In some cases,
it may be possible for a business to transfer
land in its possession to a local government
for public improvements benefiting a project,
and for the local government to finance the
cost of that acquisition with TIF revenues.
How does a business obtain TIF?
TIF is always done through local governments. And, since it often requires the consent of other affected subdivisions, including
school districts, it is important to understand
the ins and outs of school financing, and
appreciate how school compensation needs
to be structured. TIF often takes a few
months to put in place, so the process of
building support should begin early.
What about prevailing wage?
Ohio’s prevailing wage law applies to construction projects undertaken by public
authorities and requires that the public authorities pay the locally prevailing rate of
wages to workers on the project. In general,
this rate is equal to union scale wages. The
majority of projects triggering prevailing
wage are traditional public construction
works projects, but, if a public entity contributes funding or other direct support (e.g.
public land) to a private project, it is possible
that prevailing wages must be paid to the
workers on that project. This can increase
the cost of a project by up to 20 percent.
The Department of Commerce is responsible for enforcing the prevailing wage law.
Recently, there has been confusion regarding
the determination of whether publicly funded construction activity is intertwined with
private construction activity. The issue is
whether the activity constitutes a single project, or if the projects are considered to be sufficiently separate and unrelated, so one is
publicly supported (thus triggering prevailing
wage) and the other is privately financed
(which does not trigger prevailing wage).
Because of this confusion, the Department
of Commerce has issued new guidelines
explaining how it will interpret and apply the
law in various sets of circumstances.
Therefore, businesses need to know these
laws and the Department of Commerce’s
views in order to make informed choices
about their decisions regarding public assistance and, if possible, to avoid the application
of prevailing wages to their project.
What other considerations should businesses be aware of?
Don’t try to move ahead with a project and
hope to get incentives after the fact. It’s not
going to happen. Plan ahead with your counsel to see if you’ll be eligible for any government assistance, including job training, loans,
grants and tax exempt financing.
It’s also important be mindful that governments are public bodies whose records are
often available to the public upon request. A
business applying for assistance with a government needs to make sure that its vital
information, like customer lists or business
plans, are protected. Designating confidential
information that is provided to a government
as a trade secret is a very good idea.
KIP WAHLERS is the head of the Columbus public finance group at Calfee, Halter & Griswold LLP. Reach him at [email protected]
or (614) 621-7009.
