The only thing that is certain for businesses in Ohio right now is that there is a lot of uncertainty in the tax arena, both at the state and local levels.
In light of the state’s budget proposal, there will likely be a reduction to the Ohio Local Government Fund of more than $100 million. That fund supplements operations for local governments across the state, and it is unknown whether that will be absorbed down to the local level, or whether local governments will seek tax increases to offset that loss of funding, says Michael Caputo, chair of the Government Affairs Practice at McDonald Hopkins LLC.
“Anything is possible,” says Caputo. “The one thing that is becoming clear is that there is this trickle-down belief where the federal government is spending less, state governments are spending less, and the question is whether or not that truly means a reduction in the tax burden, or if that just means a shift from paying taxes at the federal level or the state level and instead paying them at the local level.”
Smart Business spoke with Caputo about what businesses can do to prepare for any eventuality, and how a new state office is providing renewed hope for Ohio’s business climate.
How can businesses plan for the future with so much tax uncertainty on the horizon?
It is really difficult. For example, the businesses building casinos in Ohio are facing challenges securing financing because no one really knows what the requirements and obligations are going to be.
From a business planning perspective, the one thing that we do know is that state government does not want to increase taxes and it is unlikely, given the background and philosophy of state leadership, that tax increases will be a viable option. At the state level, there is widespread agreement among the governor, the Senate president and the Speaker of the House that Ohio’s business climate needs to improve, and one way to improve that climate is to reduce the state tax liability, state regulatory obligations and really move at the speed of business.
What is uncertain is what will happen locally. It is unclear if local taxes will increase as a result of cuts to the local government fund. Local governments will be looking to balance their budgets with far fewer resources than they have enjoyed historically.
As a result, business leaders need to increase their awareness of the health of their local entities. For example, since Mayor Jackson took office, the city of Cleveland has been able to balance the budget without seeking additional revenue, but it is unclear whether that will continue to be the case.
From a financial perspective, it will be important for business leaders to pay additional attention to the overall health of their local communities — not just their cities, but their counties and other taxing jurisdictions, as well.
What is the current business climate in Ohio?
Ohio is not viewed as a state that is friendly to business. Some may say that Ohio struggles to attract business because we are not a warm weather state. Indiana, Illinois and Minnesota seem to be doing just fine with attracting jobs, and those states do not have tropical climates.
It is the tax environment, the regulatory environment and, perhaps most significant, the local tax burdens that are placed on businesses that make Ohio less competitive.
What is the state doing to create a more business-friendly climate?
The first executive order that Gov. John Kasich signed established the Common Sense Initiative Office, chaired by the Lieutenant Governor.
If you are a business owner in the manufacturing business, you will likely interface with the Bureau of Workers’ Compensation, the Ohio Environmental Protection Agency, the Department of Taxation and possibly the Department of Natural Resources. And for years, there has been a concern in the business community that these regulatory bodies do not work to enhance the business climate but instead actually stifle economic activity.
This new office is looking at the bureaucratic red tape that exists within Ohio’s regulatory agencies, figuring out what can be eliminated and what can be streamlined, and looking at what can be done without hurting the state.
For example, there is a local company that makes specialty sauces, some of which include alcohol as an ingredient. To buy alcohol, the company had to go to the corner liquor store and pay retail prices. That made it hard to compete with companies across the country because it was paying twice as much for ingredients as its competitors.
In one of its first initiatives, the Common Sense office, working with the Department of Commerce and the Division of Liquor Control, got the law changed in April, saving this one company potentially hundreds of thousands of dollars.
It is the simple solutions like that one that this new office is looking at to begin to change the state’s business climate. It sounds easy, but historically, leaders have not paid attention to these issues that are fairly easy to solve.
What advice would you give business owners struggling in the current business climate?
Hang in there. Give this administration a chance to deliver on what it says it is going to do and give this environment an opportunity to right itself.
At the macro level, look at what happened with Bob Evans and American Greetings. Both were looking very seriously at leaving Ohio and in the last three months, both have met with the state’s new leadership, both have responded to what the new leadership is prepared to offer, and they are now staying in Ohio.
Not all companies will have that muscle, but there is a reason for cautious optimism for businesses in Ohio.
Michael Caputo is the chair of the Government Affairs Practice at McDonald Hopkins LLC. Reach him at (216) 348-5770 or email@example.com.