Ohio Industrial Recovery Credit (HB 135) Goes Before Economic Development & Regulatory Reform Committee – May 30, 2013 by Dave Sobochan

As president of the National Association of Industrial and Office Properties (NAIOP) Ohio Chapter, I was honored to be part of a small group on Tuesday, May 28th to testify before the Economic Development & Regulatory Reform Committee of the Ohio Legislature in support of House Bill (HB) 135 on Industrial Recovery Credits. Others testifying in favor of the bill included Michael Hartley of the Columbus Chamber of Commerce, Mark Wagenbrenner of Wagenbrenner Development and Zachary Price of Triad Architects.

HB 135, sponsored by Ohio Representative Dorothy Pelanda (R), would authorize a nonrefundable credit of up to 25% against the income tax and certain business taxes for the rehabilitation of a vacant industrial site. The credit is designed to spur manufacturing as well as commercial and retail activity on sites that have lost their economic vitality.

There are approximately 32,801 industrial buildings in Ohio, of which 2,101 are 100% vacant and 3,108 are at least 25% vacant. The total current inventory of vacant industrial properties accounts for approximately 60,484,000 square feet of property. This amount of vacant land significantly impacts real estate and payroll taxes, as well as the overall viability of a community.

The NAIOP team that assisted in drafting language for this bill (which I am proud to be a part of) views the Industrial Recovery Credit as a conversion credit. The intention is to create a credit that developers and owners can use to transform vacant industrial sites into properties for other purposes that support new manufacturing and technology frontiers in our Ohio urban areas.

While the bill was created with insight from similar credits in other states, there are some unique aspects to the proposed Ohio credit that will make it particularly attractive:

Promotes public/private partnerships

The bill requires evidence of financial commitment and strong local support. A county or municipal corporation with a vacant facility site first must apply for designation as an “industrial recovery site.” The application must include a detailed plan for the development; an indication of the level of distress cause by job losses in the community surrounding the vacant industrial site; evidence that the residents, businesses and other private organizations support the designation as an industrial recovery site; and a indication of how the plan will improve economic and employment conditions in the surrounding community. This application process will require close cooperation between the public and private sectors.

Encourages private investment in Ohio

NAIOP included language in the bill that allows the owner or developer to assign the credit to a third party, which could entice outside investors and help reduce the risks inherent in rehabilitating an industrial site. This becomes particularly important when developers take on properties with environmental issues, which many of these vacant industrial sites will likely have.

Allows for flexibility

In addition to having the ability to assign the credit to third parties, it can be used on buildings of varying ages and locations, with the amount of the credit increasing with the age of the building, or for demolition. NAIOP believes this flexibility will provide many options to help convert a property into a site that could help create jobs and provide Ohio with increased real estate, employment and income taxes.

In this first round of testimony, the Committee brought up some initial concerns:

  • The credit will offset the Commercial Activity Tax (CAT). NAIOP has made a recommendation to lift this, since developers will most likely syndicate the credit to maximize its value to the project.
  • The credit will become a subsidy for demolition, and not for rehabilitation. Proponents of the tax credit suggested that the ultimate goal of this program is to convert vacant industrial property, which is often difficult to redevelop, into a site that is fully occupied and is creating jobs. Providing the development team, which includes the municipal corporation and the property owner, with several options is critical to the success of the project. Restricting the application of the credit to include only rehabilitation expenses may result in the unintended consequence of buildings being rehabilitated that should not be. Sometimes the right decision is to demolish a building due to structural integrity or environmental issues.

The next Committee hearing is scheduled for Tuesday, June 4th. It’s possible that additional hearings will be held. Once the Committee is satisfied with the testimonies, it will vote the bill to the House floor for further debate.

How soon could the credit become a reality? As with any bill, HB 135 could be bantered around for months or even years. But being a budget year for Ohio, there is also a real possibility that the bill could follow in the footsteps of Invest Ohio — an income tax credit that appeared as a late, uncontested addition to Ohio’s FY 2012-2013 budget. NAIOP and Cohen & Company will stay connected with hearing and legislative activities as well as budget talks early this summer.

Read Dave Sobochan’s formal testimony or contact him to learn more at dsobochan@cohencpa.com.

 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

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