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Business Observer Friday, Feb. 12, 2010 10 years ago

A Big Wish List

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Economic development gets a boost in an optimistic fiscal 2011 state budget proposal. But a revenue reality check and other legislative priorities may shift the focus.
by: Jay Brady Government Editor

REVIEW SUMMARY
What.
Economic development programs get recommended budget boost.
Issue. Uncertain revenues, other priorities may short circuit new funding.
Impact. Jobs and economic growth depend on political stomach for short-term expense vs. long-term economic gain.

Gov. Charlie Crist's proposed $69.2 billion budget sure looks like a pro-jobs, pro-business budget at first glance.

But once legislators get done with their onceover, it may appear the governor was only giving business “the business.”

For instance, the governor's additional $2.7 billion in new spending for fiscal 2010-11 appears to be proof that state leaders are finally getting serious about jobs.
With the number of Florida's unemployed hitting 1.1 million, that would seem to be an obvious move.

Yet the budget could get cut several billion dollars by a more fiscally conservative Legislature mandated to come up with a balanced budget. Legislators also have concerns over a budget that cuts into reserves, which would leave the state's savings account at a fraction of what is needed to maintain top bond ratings. Lower ratings mean higher borrowing costs.

So, with the potential for a $5 billion funding gap, the looming question is this: Will the proposed economic development budget stick, or, if anticipated revenues don't materialize or other priorities take precedence, will it be the first program slashed?

The added $2.7 billion in the budget is allocated in part to increase spending for economic development and transportation projects. And even though it's just 2% more than last year, Crist's budget for his office of tourism, trade and economic development increases by two-and-a-half times to $307.5 million in the new proposed budget. That's where much of the grant fund programs reside to attract new businesses and help existing ones grow.

Senate President Pro Tempore Mike Fasano, R-New Port Richey, shares Crist's optimism on the proposed budget, while nonetheless standing on a shaky foundation of revenue assumptions.

“I'm supporting the governor in what he wants to do with the economy,” says Fasano, who notes the economic development programs budget represents “significant increases.”

As the No. 2 senator and a Crist for U.S. Senate campaign backer, Fasano plays a starring role in this year's budget drama — not only as president pro tem, but also as chairman of the transportation and economic development appropriations committee and as a member of both the Senate budget committee and the joint legislative budget commission.

As such, Fasano is keenly aware of revenue issues. He also continues to be a tax cut hawk and pushes to keep insurance rates artificially low.

Still, Fasano says while he's hopeful the Legislature can meet economic development goals of the budget, he recognizes not all of them may be met. Asked about where any cuts might come from, Fasano says: “It's much too early. I don't even know what my allocation will be.”

Key programs
A look at 14 key economic development programs in Crist's proposed budget shows a 223% increase, from $83.9 million to $270.7 million.

And numerous firms across the state have taken advantage of taxpayers' largesse, including many from the Gulf Coast — a recent example is Oettinger Davidoff Group, the Swiss cigar company that announced plans to move into a 100,000-square-foot headquarters and warehouse in Pinellas Park.

Oettinger Davidoff was lured by the state's Quick Action Closing Fund, which contributed $240,000 in state funds. There was also $20,000 from Pinellas County and at least $64,000 from Pinellas Park in fee and tax concessions. Oettinger Davidoff's move from Stamford, Conn. is expected to create 90 jobs that pay 150% of the area's annual average wage.

The Quick Action Closing Fund would see $25 million in Crist's proposed budget, up from $13.5 million in the previous budget.

Kathy Baylis, president and CEO of the Economic Development Corporation of Sarasota County, says an increase in the Quick Action Closing Fund will be a boost for all EDCs and related organizations. “That's encouraging for us,” she says, although that portion of the budget had been as high as $45 million in fiscal 2007 and 2008.

In addition to the Quick Action Closing Fund, Crist's budget proposal brings back the Innovation Incentive Fund program, which accounts for $100 million of the increase in the governor's economic development budget. The fund had a $250 million budget in fiscal 2008, but it was zeroed out of the last two budgets.

“The Innovation Fund is really what created the opportunities with the Burnhams, Scripps and Max Plancks,” says Baylis, referring to the three big biotechs recruited to the state with the fund.

In fact, private nonprofit research firm SRI International located its marine technology program at the Port of St. Petersburg with the help of the Qualified Target Industry Tax Refund program (QTI) and a $20 million Innovation Incentive Fund grant. The move created more than 100 jobs.

The Sarasota EDC also puts a big emphasis on the Qualified Target Industry program, which would receive $20.2 million in funding in the new budget, same as the previous budget. QTI provides a tax refund of $3,000 for each new job created through the expansion of existing Florida businesses or locating new ones.

Baylis is also excited about $3 million proposed for the next phase of the “Economic Gardening” program started last year. Sarasota's EDC is one of six hubs statewide that is part of a pilot program designed to assist established companies get through a second phase of growth.

Finally, Baylis is supportive of expected changes to the film and entertainment industry incentives program. On that front, Crist is recommending $15 million for next year, up from $10.8 million.

A care package
While Baylis and others in the economic development community laud parts of Crist's proposed budget, there are hurdles. One potential big one: A Senate select committee on Florida's economy recently proposed a competing 115-page economic development bill.

That bill, for one, would require film funds be provided like a credit against corporate income tax and sales taxes rather than depend on uncertain annual legislative appropriations.

The committee calls its proposal the “Jobs for Florida” bill. It's essentially a comprehensive care package. It includes tax incentives for machinery, manufacturing and spaceports; a $1,000 per job corporate income tax credit for businesses to hire unemployed Floridians; and an expansion of the corporate investment tax credit for high paying jobs that allows “qualified target industry” businesses to apply for the incentive. The proposed bill also reduces the job creation requirement from 100 to 50.

Perhaps the biggest proposal in the committee's bill is the expansion of the Qualified Target Industry and Qualified Defense and Space Contractor Refund programs.

It remains to be seen what the full effect will be of that specific proposal, however, because the bill only increases the annual appropriation cap for the two programs from $35 million to $100 million. The actual spending is still set by the Legislature in the budget.

Still, those issues pale in comparison to the challenges Crist faces in his overall budget proposal.

The governor's budget already counts on $4 billion of federal assistance, including an uncertain billion for Medicaid. Another $433 million of gambling revenues are dependent on a previously rejected Seminole Indian Tribe compact.

Crist's budget also assumes $350 million in savings if voters approve ratcheting back the constitutional amendment to lower class sizes.

And finally, there's this: To help pay for the $2.7 billion in added spending, Crist dips into reserves, which leaves only $250 million — far below a 5% savings-to-spending ratio that bond rating agencies want to see. That's a $3.2 billion gap.

Lots of Incentives
The Florida office of tourism, trade and economic development (OTTED) is projected to get $307.5 million in Gov. Charlie Crist's proposed 2011 state budget — an increase of two-and-a-half times what it was in the last budget.

Here are some of the financial incentive programs administered by OTTED:

• Qualified Target Industry Tax Refund Program (QTI): Program encourages the creation of high-skill jobs and encourages the growth of corporate headquarters and other targeted industries. QTI provides a tax refund of $3,000 for each job created;

• Economic Development Transportation Fund (Road Fund): Provides local governments with funding for transportation-related projects required to induce companies to locate, remain or expand within the local government's jurisdiction;

• Rural Community Development Revolving Loan Fund: Promotes the economic viability of rural communities and creates jobs for residents of rural areas by leveraging the use of existing federal, state, and local financial resources;

• Florida First Business Bond Pool: Reserves 20% of Florida's total annual private activity bond allocation for large industrial projects that make a significant contributions to Florida's economy;

• Florida Enterprise Zone Program: Provides various tax credits to induce private investments in economically distressed areas. The office is responsible for the designation of enterprise zones and provides technical assistance to communities and businesses regarding the program;

• High Impact Performance Incentive Grants: Program is a negotiated incentive used to attract and grow major high impact facilities. Grants are provided to pre-approved applicants in certain high impact sectors of the state's economy.

• Rural and Urban Job Tax Credits: Provides tax credits to eligible businesses for creating new jobs in one of 15 rural areas or 13 urban areas. Tax credits range from $500 to $2,000 per qualified employee and can be taken against either the Florida corporate income tax or the Florida sales and use tax;

• Semiconductor, Space, and Defense Sales and Use Tax Exemption: This exemption is used to attract and grow businesses in these sectors by providing an exemption for all sales and use taxes on investments in machinery and equipment used in manufacturing and research.

• Capital Investment Tax Credit: A tax credit used to attract and grow capital-intensive industries. It's an annual credit against the corporate income tax. Businesses must make an investment of at least $100 million to receive the full tax credit.

To view "Key Economic Development Programs Get Boost in Governor's Proposed Budget" by the numbers, download it here. BytheNumbers21210.pdf

Jay Brady covers state and local government issues. He can be reached at [email protected], or at 941-362-4848.

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