Prosperity Summit: A Dialogue on Business-Friendly Tax Policies, Regional Tax Sharing

After introductions from Columbus Mayor Michael Coleman, Greater Ohio Co-Director Lavea Brachman and Director Bruce Katz of the Brookings Institution’s Metropolitan Policy Program opened the summit by arguing that the assets most important to the emerging global economy are innovation, human capital, infrastructure and “quality of place,” and that these assets are found primary in Ohio’s metropolitan areas and core communities. Katz defined the latter as not merely the “Big Eight” urban centers but also the smaller cities such as Lima, Mansfield, Chillicothe and Marietta – a total of 32 core communities found in all regions of the state.

“Ohio’s policies stack the deck against core communities at the very moment these places have a critical role to play in helping the state compete,” said Katz. “The Ohio way – in which resources get spread across the state like peanut butter and local jurisdictions proliferate – is a luxury that Ohio taxpayers can no longer afford.”

He called for a “competitive community strategy” that focuses resources in key geographic areas and leverages the assets “that matter” in a 21^st century economy, an argument that blends well with the governor’s newly unveiled roadmap for economic development and its key goal of “hubs of innovation and opportunity.” (See The Hannah Report, 9/3/08.)

Brookings and Greater Ohio’s draft report, which bears the same name as Wednesday’s conference, says the reality is that some core areas will remain or become “critical hubs” in larger metropolitan areas while others may have to reengineer as smaller communities built around strategic services rather than the industries that once dominated their regions.

Lt. Gov. Lee Fisher would revisit that argument in a follow-up response panel that included Senate President Bill Harris (R-Ashland), Chancellor Eric Fingerhut, Youngstown Mayor Jay Williams and Vice President for Commercialization Alex Fischer of Battelle Memorial Institute. Fisher appended the peanut butter metaphor with a reference to “chewing gum fixes” that do not create sustainable economies. Instead, he said, the state must embrace the “creative destructive” that experts speak of in transforming Ohio’s marketplace with new industries and new regional strengths.

“For the first time in the history of this state, you have an administration which is introducing policies that are effective not only in the short term but that are thoughtful and strategic in the long term,” said Fisher, pointing to regional economic hubs.

Harris agreed with Fisher that, despite current economic realities, the policies currently being put in place mean Ohio’s glass is half full, not half empty, and extended the lieutenant governor’s optimism into a regional context.

“There is not another state in the Midwest that can say they don’t have a tangible personal property tax on business,” he said, noting the franchise tax will also phase out in the next two years.

Mayor Williams advocated for a clear urban agenda that he said is lacking at the national level and in the current presidential race, saying Ohio can set the tone at both the state and national level in reversing urban divestment.

“Ohio is one of the most urbanized states in the country, and can take the lead in that discussion,” he said.

Fingerhut suggested public divestment had affected not only urban infrastructure but also higher education, and pointed to the funding growth in research activities at Ohio’s leading institutions, an investment designed to spin off new regional economies.

“We all realize it’s not just money, it’s planning,” he observed.

Fischer, a native Appalachian, urged the panel and the audience not to overlook the “conductivity” of the urban core and rural Ohio, arguing for agriculture’s role in increasingly regional economies.

The lieutenant governor brought the conversation back around to the report’s call for revenue sharing on a regional level, saying the right approach would not necessarily produce “winners and losers.”

Outside the panel discussion, Fisher told Hannah News that the state has struggled to track the real impact of “peanut butter” that is spread around Ohio’s regions and communities in the form of tax abatements and development grants, ruing the government’s “antiquated” information system. He said the Strickland administration is working to introduce a “unified economic development budget” comprising the Ohio Department of Development and the University System that Fingerhut leads, the investments of which will be much easier to track for future dividends to the state budget and economy.

Harris also spoke with Hannah News, echoing Fisher’s earlier reference to a win-win solution for all parties in any kind of regional revenue sharing.

“It certainly is an issue that is subject to continued conversation. Cities have to demonstrate to outlying areas that smaller communities will also benefit,” he said, suggesting the effort to convince local leaders and state policymakers of that fact would be “very difficult.”

During the lunchtime keynote address, Gov. Ted Strickland expanded Fisher’s comments on urban reinvestment, saying cities are a vital part of life in all of Ohio. He said even the smallest town is influenced by metropolitan areas, and that the economic vital signs of cities can define an entire economic look of a region, especially in a global economy. To illustrate, he noted that when foreign companies move into Ohio, they often refer to their new homes by the closest city.

Strickland also discussed how clusters can energize an entire region. “A city agenda is a regional agenda,” he said. “And a regional agenda is the state agenda.”

The governor outlined a number of recent policies and bills passed to ensure the state’s economic future, including the Ohio Department of Development’s strategic plan, the freeze on tuition hikes, and the energy bill. Strickland said when all are taken together, it can be seen what is possible for the state, despite current budget realities.

Near the end of the summit, a panel including House Speaker Jon Husted (R-Kettering) took on the topic “Implementing Ohio’s Revitalization.”

Gene Krebs, a former state legislator who now co-chairs Greater Ohio, introduced the panel by saying a storm is coming toward Ohio, and the actions the state takes will determine whether it is like Hurricane Gustav, in which preparations are made and the levees hold, or Hurricane Katrina, with widespread destruction left in its wake.

Husted said that if Ohio could grow to the point where its population merely matches the national median income, the state would benefit to the tune of $39 billion in additional economic activity and more than $1 billion in state revenue.

To get to that point, Husted suggested a few policy proposals. First, to increase the number of college graduates in Ohio, freeze tuition for an additional six years, which is how long it would take for Ohio’s tuition to match the national average. He also suggested reducing the capital gains tax and funding business incubators to encourage startup companies to grow. Along those lines, he noted that the corporate giants which once made his home city of Dayton thrive – General Motors, NCR, Mead – weren’t recruited to the city but rather grew there.

He also urged a “mindset change” on state and local governments’ interactions with business.

“We need to treat businesses like customers, not like they’re hostages, not like they owe us something for being in our cities,” Husted said.

He also supported the Clean Ohio site redevelopment program but took a potshot at Strickland on the recent guidelines the governor introduced for prevailing wage laws.

Also on the panel was Nancy Zimpher, president of the University of Cincinnati. She said that while Ohio needs to build up its regional economies, it also needs to tear down “regional parochialism” so that “the whole is greater than the sum of its parts.”

Al Ratner, co-chairman of Forest City Enterprises, questioned the oft-mentioned ideal of trying to recruit educated college graduates to the state, instead urging a drive to increase total population, period. He read Emily Dickinson’s famous poem about “the huddled masses yearning to breathe free” and said that, if his ancestors’ entry into America had been contingent on their being prosperous, they never would have come here.

“They didn’t have anything, they didn’t know anything, they couldn’t do anything, and look what happened,” Ratner said.

Lima Mayor David Berger said the state needs to create legal pathways and mechanisms for regional cooperation and consolidation, or the current antagonistic, competitive relationship between cities, townships and suburbs will not be supplanted by cooperation.

“Right now we must compete because it’s built into the system,” he said. “If we don’t compete, we lose.”

The draft report, “Restoring Our Prosperity,” may be found at the Greater Ohio webpage www.greaterohio.org/restoring_prosperity/rp_08.htm. A final report, including feedback from summit participants, is due for release in January 2009.