Economy and Government and Economic Development and Technology

Biz-incentive plan may be beefed up: Legislators seek to strengthen EDGE program by doubling retention tax credit to $10 million

January 16, 2006

Indiana's showcase business incentive program is about to go through another tweaking. At the request of the Indiana Economic Development Corp., legislators are considering changing the EDGE tax credit program to give it more teeth to retain existing jobs.

Since 1994, Indiana has used the Economic Development for a Growing Economy, or EDGE credit, to spur private-sector job growth. The program allows budding companies to abate state payroll taxes for new employees. Over the last 12 years, Indiana has authorized $667 million in credits for 241 projects.

Although the program usually is applied to expanding companies, the state also occasionally uses it for business retention. The IEDC is allowed to authorize a hypothetically infinite number of EDGE credits to spur job creation, but EDGE for Retention credits are capped at $5 million a year. IEDC wants the Legislature to double that figure to $10 million.

"There are situations where we really need to have a tool, and this is the one that's on the books," IEDC Vice President Nathan Feltman said. "We're likely to face more of those situations down the path where we're competing with other states for existing facilities."

EDGE has been fine-tuned before. In 2002, the General Assembly removed a long-controversial requirement for EDGE applicants to seek competing bids from other states. Detractors worried the measure sent local companies shopping around. And sometimes, the effort spurred attractive relocation offers Indiana wasn't prepared to match.

Since the state ditched that requirement, it has applied EDGE more frequently. During EDGE's first decade, state records show Indiana never approved more than 18 projects annually. In 2004, that figure jumped to 42. And in 2005, it reached 76 projects, the most in the program's history.

But those figures don't tell the whole story. Feltman said IEDC actually worked on 142 projects last year-nearly all of them involving EDGE. Formal state approvals lag the offers IEDC makes companies.

Even as they work with more companies, economic development officials have become stingier with the size of the EDGE credits they award. In 1999, state records show the state granted companies credits worth an average of $11 million. Last year, that figure had dropped to $1.2 million.

IEDC recently used $750,000 in EDGE for Retention Credits to persuade Novi, Mich.-based Cooper Standard Automotive to keep its 650-employee Auburn plant open. Feltman said the incentive persuaded Cooper Standard to shutter a similar plant in El Dorado, Ark., instead.

Legislators have traditionally been happy to abate payroll taxes if doing so creates jobs. The idea is those workers will generate more than enough other taxes to make up the loss.

Abating taxes for existing jobs is another question. The state counts on that tax revenue when it builds its budget. And economic developers are reluctant to create an incentive that encourages companies to blackmail the government by threatening job cuts.

Even so, Rep. John Smith, R-Kokomo, expects the Legislature to gladly increase the EDGE for Retention cap. A co-sponsor of the legislation, Smith is considering adding requirements to the retention credits. For example, to encourage entrepreneurship, they might apply only to companies with $10 million or less in annual revenue.

"Anything we can do to kick-start the economy a little bit is worth doing," Smith said. "Economic legislation is always a work in progress. But I think we're doing better."

It's impossible to tell exactly how successful the EDGE program has been. The state says it tracks only the beginning of the job-creation process and doesn't follow up to tally actual job creation. Companies forgo credits they were granted if hoped-for job growth fails to materialize.

The program has had some high-profile successes. Fort Wayne-based Steel Dynamics Inc. was one of the first applicants to the EDGE program. Back in 1994, it was just getting started. Today, it employs nearly 1,800.

Over the years, state records show it was allotted EDGE credits worth $23.3 million. Steel Dynamics Director of Tax and Benefits Mary Fink said the incentive was crucial in helping her company grow.

"It was one of a combination of incentives that the state was willing to share to assist us and make [our] facilities profitable as quickly as possible," she said. "That success helped us start additional facilities. I absolutely think it helped us generate jobs."

Indianapolis-based Eli Lilly and Co. has been the biggest recipient of EDGE grants. In 1999, Indiana authorized Lilly to claim $101.7 million in EDGE credits over 10 years.

Lilly Chief Tax Executive David P. Lewis said his company has added 5,400 jobs since then in Indianapolis. Even so, the expansion hasn't been enough for Lilly to claim all the EDGE credits on the table. Lewis, who declined to disclose how much Lilly actually has claimed, lauds the program.

"EDGE credits, property tax abatements, they all contribute to lowering the cost of business so people see Indiana as a place they want to invest and thrive in," he said.

But headline-grabbing economic development projects don't always live up to the hype. Consider locally based RealMed Corp., a maker of medical transaction software awarded $27 million in EDGE credits in 2000.

The expected expansion never materialized, and the company hasn't been able to use any credits. Today, it employs 113, seven fewer than it did four years ago.

CEO Chet Burrell, who wasn't with the company back then, said technology has fueled improvements in productivity that have allowed RealMed to grow without adding workers.

RealMed has boosted its roster of customers from 10 to 500, and it now processes 150,000 medical claims every day. Last year, it handled medical claims worth $7.5 billion, Burrell said.

"When RealMed first started, there was the thought that if this grows really quickly, we'll need a lot of people," he said. "It turns out that wasn't the case."
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