A recent report in Cincinnati.com did a very good job describing the inherent issues municipalities, particularly economic development officials, encounter while trying to grow their tax base. These issues are 1) job attraction vs. job retention and 2) the phenomenon of neighboring communities actively recruiting or “poaching” each others companies.
The City of Cincinnati is currently facing both of these challenges. Like any city, Cincinnati is expected to fight to retain their corporate partners and thereby hold onto existing jobs and maintain tax revenue for the community; however, in this economy, it is critical for cities to also look for ways to attract new jobs. That means actively recruiting new employers.
In fact, as Cincinnati has been working to make a deal with Chiquita to keep its headquarters in Cincinnati, the city’s economic development staff also responded to an expression of interest from Omnicare Inc. to relocate its corporate operations to the city, which resulted in that company’s decision to return to Cincinnati from neighboring Covington, Kentucky. What Cincinnati is finding, like many cities, is that the tools available to help retain good jobs in the community are different, and less enticing, than the incentives available to attract new employers. That makes achieving both goals even more challenging.
Like many cities across Ohio, Cincinnati is debating the strategic questions regarding the importance of focusing resources towards job retention over job creation in this tough economy and determining when it’s appropriate to effectively utilize incentive programs to do so. However, as the article notes, “there are more tax incentives available to lure a company than to keep one.” These incentives come in the form of tax breaks for property, payroll and other project-related costs that combine to make a deal so attractive that a company is willing to relocate.
The challenge associated with the state incentive regime making available more tools for attraction than for retention is that it only fuels the battle that is increasingly pitting cities in the same region against each other. In the case of Cincinnati and Covington, they both belong to the same MSA and economic partnership – Cincinnati USA. The partnership consists of a 15-county region that includes parts of northern Kentucky and southeast Indiana.
The relocation of Omnicare from Covington to Cincinnati may have netted the city 650 new jobs and a headquarters operation, but it may be viewed as “poaching” from a neighboring city. The ironic aspect of this entire transaction is that Omnicare was lured away from Cincinnati to Covington approximately 10 years ago thanks in large part to a variety of incentives and other attraction mechanisms. One might question whether the entire incentive regime, by placing so much emphasis on attraction as opposed to retention, simply encourages companies to relocate at the end of each incentive period.
This is a “hot-button” issue throughout Ohio, as just recently, Cuyahoga County Executive, Ed FitzGerald asked the county's mayors to sign a pact pledging that they will refrain from soliciting businesses from other communities within the county (see our DevelopOhio blog post on this article from September 16). Mr. FitzGerald created the “Cuyahoga County Business Attraction and Anti-Poaching Protocol” specifically to stop communities from making highly attractive incentive deals with employers that are not beneficial to the region's overall economic well-being.
In the case of the City of Cincinnati, officials there did not actively solicit Omnicare to return to Ohio. In fact, that company initiated the conversation. However, many cities that are struggling to retain and attract businesses are aggressively pursuing companies within their regions by offering incentives for them to relocate.
With all this said, the key question remains: How can we better recruit business to grow the tax bases of individual cities for the long haul while maintaining strategic partnerships that support an entire region, exclusive of actively or passively recruiting regional companies with the use of economic development incentives?
