State Sharpens Incentive Tools
September 2015
By David Zaslawsky
Photography by Robert Fouts
While neighboring states were examining and retooling their incentive packages to recruit companies, Alabama stood pat, and well, that did not work out very well. Although there have been recruiting victories here and there, there have been some high-profile setbacks such as Yokohama Tire selecting Mississippi; Benteler Steel selecting Louisiana; and Hankook Tire choosing Tennessee.
Alabama officials asked site consultants why. They learned that the capital credit incentive had almost no value to companies considering Alabama. It was designed so that a company would receive 100 percent of its capital investment over a 20-year period – 5 percent a year against the state income tax liability.
“With our taxes as low as they are in this state and with the way the capital credit was designed and the restrictions in how it was applied – a 100 percent utilization and recapture never worked,” Alabama Commerce Secretary Greg Canfield said.
The incentive package did not focus on job creation, according to Canfield and worse yet, it relied on the unsustainable path of borrowed money.
Now, Alabama has its groove back with the Made In Alabama jobs incentive package – three bills passed by the Legislature and signed into law by Gov. Robert Bentley. Those three bills not only make the state competitive again, but in some instances, give the state a competitive edge, according to Canfield.
Site consultants have also taken notice. “We’ve had great feedback from consultants,” Canfield said. “Overwhelming, the support was very, very positive. Site consultants are excited about this. They are also eager to see how it’s going to be applied.”
Armed with a new incentives package, Alabama is currently competing for “some very high-quality brand, high-name-recognition companies with the types of brands you want to attract to the state,” Canfield said.
The legislative centerpiece was the Alabama Jobs Act, which according to Canfield, put Alabama “a few steps ahead” of the competition: Georgia, Florida, Tennessee, Louisiana, South Carolina and Mississippi. The Alabama Jobs Act also made Alabama “a little more innovative than the next guy,” Canfield said.
Companies can now receive a 3 percent jobs credit a year for up to 10 years, but it’s also a pay-as-you-go approach. A company receives the credit after operating for a year. That credit could increase to 4 percent a year as part of the Alabama Veterans and Targeted Counties Act.
If a company decides to build a facility in one of those targeted counties – the most challenged counties in the state and ones that are mostly rural – the jobs credit rises to 4 percent a year.
The Alabama Jobs Act features an investment credit. “We don’t need to promise a company that they can recapture 100 percent of their investment – nobody does that,” Canfield said. The investment credit enables a company to recapture 1.5 percent of its investment for 10 years. “We’ve limited our exposure and it’s a lot less than 5 percent a year, which the old capital credit was providing – theoretically, which it almost never did,” Canfield said.
If a company has not received the full 15 percent credit over 10 years, it has an additional five years to collect the remainder of the credit – a five-year, carry-forward option.
A key feature of the investment credit is that the Alabama Department of Commerce or governor can make the first three years of the credit transferrable. Companies need the credit the least during the first three years because they are ramping up to full production and “won’t necessarily have a big tax liability,” Canfield said. “You can sell the credit to another taxpayer and in return, they will have cash that they can then, in turn, apply back into a project again to make Alabama more competitive and to lower their costs of acquisition and start-up.”
Another bill that passed – the Alabama Reinvestment and Abatement Act – is for existing industry, and that’s something new. “What this allows us to do is to work to encourage companies that are here to maintain their competitiveness so that they can stay here,” Canfield said. “We’re trying to avoid companies aging out, and then closing and dislocating or laying off Alabama workers.”
The amount of reinvestment to an existing facility and equipment over a property value baseline is abated over 10 to 20 years, except the portion for education. It does require $2 million of new capital.
With the new incentive package in place, would Alabama have won the Yokohama Tire project or Hankook Tire or Benteler Steel? “We know that we don’t know what the final decision would have been had the Made In Alabama incentives been in place, but here’s what we do know,” Canfield said. “With them, we would have been in a much more competitive position relative to the states that won these projects. Without them, we weren’t (competitive).”
Incentives are only one factor in a company deciding where to build its plant. Other factors include infrastructure, workforce, quality of life and business environment. “We look at incentives as something to even the playing field,” Canfield said. “When we can do that, we have a better chance of winning those projects.”
