Companies creating jobs in Indiana can get extra cash if their employees reside in the right place.

Economic development groups are starting to offer a new tax incentive that’s tied to local hiring. Develop Indy, for example, this month offered the not-for-profit Project Lead the Way $134,000 in rebates over 10 years, assuming the majority of its hires reside in Marion County.

The money will be a cash rebate of the local income tax those employees pay to Marion County. The rebate, which must be approved by the City-County Council, became possible July 1 with a new law called the “local option hiring incentive.”

“This has potentially far-reaching ramifications,” said John Ketzenberger, president of the Indiana Fiscal Policy Institute. “It’s a sign that the Legislature is looking at ways to give local governments flexibility.”

Ketzenberger noted that this is the first time local governments have been allowed to divert income-tax revenue from its designated purposes, such as police and fire protection. Traditional economic-development tools, tax-increment financing districts and tax abatements, come from property-tax revenue.

The new law doesn't allow cities and counties to use the incentive when it lures companies from elsewhere in Indiana.

Develop Indy won’t offer the cash rebate in every case, Vice President of Operations Melissa Todd said. “This will be a very selective tool in our tool box,” she said.

The rebate was appropriate for Project Lead the Way, which announced Sept. 16 that it will move its headquarters to Indianapolis from New York. The not-for-profit doesn’t have to buy capital equipment or real estate, but it does have moving expenses, Todd said. The company is still negotiating a lease for its office space, probably on the north side, she said.

Project Lead the Way creates project-based math and science curriculum used in middle and high schools across the country. It expects to have 30 employees this year and grow to 44 by 2014.

Develop Indy figures 60 percent of those positions, which pay an average of $30 per hour, will be filled by Indianapolis residents. Some of Project Lead the Way’s current employees will move here, and if they reside in Marion County, their local income taxes will go toward the rebate.

Project Lead the Way’s rebate won’t reflect the full local income tax, which is 1.66 percent. The portion that covers public safety, about 28 percent of the tax, will continue to flow to Marion County coffers, Todd said.

The Greenwood Redevelopment Commission recently struck a deal that was inspired by the new law. Avram Worldwide, a small logistics firm that's moving from Bargersville to Greenwood, doesn't qualify under the new law, but its incentives are nevertheless tied to hiring local. The company must fill six of its next 10 positions with residents of Greenwood, or Clark or Pleasant townships, or repay some of the $45,000 in TIF money it will receive.

Avram, which currently has 21 employees, plans to lease a small warehouse and office space at 800 Commerce Parkway. Avram is in the process of acquiring a small trucking company, and any positions it picks up through that deal will be counted as new hires.

Avram Chief Financial Officer Anthony Iacobucci said he had no problem with the local hiring requirement. “The pool of people in the area is wide enough, we should be able to attract good people,” he said.

The redevelopment commission will provide TIF money for equipment in Avram’s new space. The company will have to repay $5,000 for each position that it fails to fill with local residents.

State Rep. Mark Messmer, R-Jasper, authored the bill that included the local-option hiring incentive. He sees it as a local version of the state income-tax credits offered by the Indiana Economic Development Corp. He hopes small communities will use it to attract engineering and IT firms, which might not benefit from traditional property-tax incentives. "It gives local folks a tool to be aggressive on the job-creation front," he said.