Keeping Diebold in the Akron-Canton area may turn out to be a “big save,” though the company hadn’t yet reached the bottom of the ninth inning in negotiations to move to another state.
Last month, Ohio Gov. John Kasich used the “save” reference during a news conference at Diebold. The security systems provider and ATM maker will build a new headquarters in the Akron-Canton area, snubbing offers from North Carolina and Virginia.
Ohio officials, he said, wooed the company with a $56 million package of incentives. And Diebold expects even more from local governments when it selects a site for its $105 million campus.
Media outlets reported Diebold was serious about moving, that Ohio’s string of tax credits, grants and loans was a difference-maker in keeping the business and a minimum of 1,500 jobs in the state.
“It’s something you never know, and you can’t take anything for granted,” said Rob Nichols, Kasich’s press secretary, who said the governor’s goal is a business environment that attracts and keeps jobs, without such incentives.
On Monday, the five-member Ohio Tax Credit Authority approved $30 million in tax credits to Diebold over the course of 15 years. It’s the first in a three-part piece of Ohio’s offer, which total $56 million. In exchange, the company must maintain operations at the new headquarters for at least 18 years.
But how serious were Diebold officials about moving?
The company already has operations in Virginia and North Carolina.
“We were serious ... (and) the offers that we got were very compelling,” Diebold spokesman Mike Jacobsen said. “We’ve got a lot of customers who we would be closer to from either one of those states.”
However, Diebold had not advanced far in dealings with North Carolina or Virginia. And the money it is getting in Ohio is substantially more than was offered by either of those two states.
Such economic development battles are hardly new, as politicians angle to create and keep jobs in a shaky economy.
“It is really an institutionalized game,” said Ann Markusen, director of the Project on Regional and Industrial Economics at the University of Minnesota’s Humphrey Institute of Public Affairs. Four years ago, Markusen published a book on the subject, titled “Reigning in the Competition for Capital.”
The North Carolina Department of Commerce didn’t even know it was 152-year-old Diebold that inquired last year about building a corporate headquarters in Durham County. Instead, Diebold had hired Duff & Phelps, a big-time business consulting firm in New York City, to act as a go-between.
That’s common corporate strategy in potential relocation plans, so word doesn’t leak. Duff & Phelps’ code name for the company with an interest in North Carolina was “Project Odyssey.”
Page 2 of 3 - In a letter dated Oct. 19, 2010, North Carolina officials offered Diebold $35.7 million in incentives to relocate its headquarters from Ohio, the bulk of it in a job development grant. They also told Diebold they would be glad to assist the company in filling out paperwork to get the money.
That’s as far as discussions got, said Kim McCarl, a spokesman for the North Carolina Department of Commerce. She said the next step would have been a closed-door committee meeting to iron out details of the incentives, followed by a public session and a vote on the package.
Virginia’s deal would have paled beside Ohio’s offer, said Sandi McNinch, general counsel for that state’s Economic Development Partnership. When she learned of Ohio’s $56 million deal, her reaction was “Eeekkkk.”
Like North Carolina, Virginia officials didn’t know what company Duff & Phelps represented, though they figured it out in April.
McNinch wouldn’t divulge Virginia’s offer. However, a typical deal for a company such as Diebold would be $5.1 million in two grants, she said. They never got far enough to discuss tax credits or other offers, she said.
“But I can tell you we’ve never given $56 million to anyone,” she said. “Not even close.”
McNinch said Virginia aims to recoup incentives, dollar-for-dollar, through state tax collections on a company (income and business) within 2.1 years. She said there can be some wiggle room.
“If it’s the right project, but we’ll never know that about Diebold,” she said.
Jacobsen said Virginia, though, offered an existing building as part of its package. McNinch said it wasn’t part of the state’s incentives, but added that a local government could indeed have offered Diebold a building.
LOCATION, LOCATION, LOCATION
One reason Ohio may have trumped other states in incentives is its business tax climate. That’s the tax structure a corporation operates within during its day-to-day business. The nonpartisan Tax Foundation in Washington, D.C., ranks Ohio’s business tax climate 46th among states, compared to North Carolina (41st) and Virginia (12th) — the lower the number, the better. The foundation’s ranking index factors the impact of corporate, income, sales, property and unemployment insurance taxes on a business.
“We’re always behind the eight ball,” said Nichols, press secretary for Kasich.
Diebold, which posted $2.8 billion in worldwide revenue last year, has remained tight-lipped about its new location. Officials there have said they continue to examine a handful of possible area sites.
“Hopefully we’ll have ... an announcement in several weeks,” Jacobsen said.
Its new headquarters, to replace its site on Mayfair Road in Green, is to be completed by the end of 2014. It will consolidate five of its currently separated operations in Summit and Stark counties.
Page 3 of 3 - Whichever community lands the project will get an operation with a local annual payroll of $120 million, according to information supplied to North Carolina.
For cities such as Canton or Green, each with income tax rates of 2 percent, that translates to about $2.4 million a year in collections.
Markusen, the University of Minnesota expert, who has lectured on state tax incentives, said they often are egregious, handcuffing states for years into the future. A tax break by any name brings the same result, she said. If a company such as Diebold pays less taxes, someone must fill the gap.
“Households are the ones picking up the slack,” she said.
One location pitched to Diebold is north of the Akron-Canton Airport, along Greensburg Road in Green. That city recently received a $1.85 million state grant to go along with $1.32 million in city bonds to extend a road. When complete, Global Gateway will continue from Route 241, north to Greensburg Road.
The road opens 192 acres of development land, said Green Planning Director Wayne Wiethe, who acknowledged it was one of a half-dozen sites the city suggested to Diebold. That land is the third phase of an ongoing development plan for that area. Wiethe said the airport typically leases its land to a developer for 99 years.
On paper, the $3.17 million for the road looks a bit like the $3 million road that Diebold itemized in its headquarters budget. According to information from the Ohio Department of Development, the Diebold project includes a road — with the cost being split equally by state and local governments.
“If they want to go there, we’d welcome them, but that $3 million may be a coincidence,” Wiethe said.