On June 12, 2008, Ohio Governor Ted Strickland signed into law Substitute House Bill 554, the state’s economic stimulus package. According to the Governor, the bill creates “investments in job-creating industries and in the state’s communities, infrastructure and workforce to stimulate job creation and lay a foundation for long-term economic growth.”

To achieve this goal, the stimulus package attempts to strengthen and expand key areas of the state’s economy, while creating an environment in which businesses will want to locate. Specifically, the stimulus package permits the investment of state money to support the following:

  • Advanced and renewable energy projects
  • Logistics and distribution expansion
  • Research and development projects
  • Expansion of air pollution control facilities
  • Local government infrastructure and transportation improvements
  • Biomedical and bioproduct development
  • Ohio coal projects
  • Historic preservation
  • Access to internships and cooperative learning for higher-education students

HB 554 was introduced with the goal of jumpstarting the state’s economy in less than ideal conditions. State Representative Jay Hottinger, the bill’s sponsor in the House said that the bill “will help to establish a long-term strategy for our state and will benefit our economy today, tomorrow and for decades to come.” The bill, itself, states that the measure is in response to the reality that “many local areas throughout the state are experiencing economic stagnation or decline…” O.R.C. Section 166.02.

New Money for Expansion of Economic Development

The law authorizes the issuance of state obligations for the purpose of enhancing economic development by funding advanced energy projects, logistics and distribution projects, research and development projects, and expanded air pollution control facilities. State obligations authorized under the law will be repaid by the net profits from the sales of spirituous liquor and by revenue generated from the economic development projects.

Advanced Energy Projects

HB 554 is a significant effort by the State of Ohio to stimulate advanced energy projects. The bill authorizes the Ohio Air Quality Development Authority (OAQDA) to request the state to issue bonds to provide loans and grants to business and industry in Ohio, to state and local government entities, to educational institutions, and to research organizations for the purpose of acquiring, manufacturing, constructing, reconstructing, expanding, improving, or equipping facilities or components for energy production, delivery, storage, conservation, and efficiency through advanced energy projects. “Advanced energy projects” are defined to include any projects that use electricity and that reduce or support the reduction of energy consumption or support the production of clean, renewable energy for industrial, distribution, commercial, institutional, governmental, research, not-for-profit, or residential energy users. O.R.C. Section 3706.25(A).

OAQDA may make loans and provide grants for advanced energy projects with the approval of the Controlling Board, the OAQDA Executive Director, and the affirmative vote of a majority of the OAQDA’s members. The bill creates the Advanced Energy Research and Development Fund for grants and the Advanced Energy Research and Development Taxable Fund for loans.

The law caps the amount of loan and grant money available for advanced energy projects at $84 million. HB 554 allocates $19 million in fiscal year 2009 for advanced energy loans, and allocates $9 million in fiscal year 2009 for advanced energy grants.

Logistics and Distribution Projects

One critical component to the stimulus package is investment in Ohio’s already growing transportation, logistics, and distribution sector. The bill not only invests dollars directly into the industry, but it focuses on improving the infrastructure network throughout the state as a way of encouraging business relocation and growth.

The bill defines an “eligible logistics and distribution project” as projects, including facilities, that will be “acquired, established, expanded, remodeled, rehabilitated or modernized for transportation logistics and distribution infrastructure purposes.” O.R.C. Section 166.01(Y). That section goes on to define “transportation logistics and distribution infrastructure purposes” as anything affecting the air, land, and water that is utilized as part of the state’s transportation infrastructure and all related facilities.

The law permits the state to use its bonding capacity to issue loans for transportation logistics and distribution infrastructure projects. O.R.C. Section 166.11. HB 554 creates a new Transportation Logistics and Distribution Infrastructure Fund in the state treasury consisting of donations, gifts, and the proceeds of state-issued transportation logistics and distribution infrastructure obligations. O.R.C. Section 166.26. The Development Financing Advisory Council has ultimate authority in deciding which projects are suitable to receive assistance proposed by the Director of Development.

The Development Financing Advisory Council is described in O.R.C. Section 122.40 and consists of the following members:

  • Seven members appointed by the governor, selected for their knowledge of and experience in economic development financing;
  • One member of the Senate appointed by the President of the Senate;
  • One member of the House of Representatives appointed by the Speaker of the House of Representatives; and
  • The Director of Development or the Director’s designee.

It is important to note that the new law allows the state only to lend money for applicable transportation logistics and distribution projects. The Director of Development will establish rules for the distribution and repayment of those loans. The law caps the amount to be lent for logistics and distribution projects at $100 million. HB 554 allocates $50 million in the 2009-2010 biennium and establishes the legislature’s intent to allocate an additional $50 million in the next biennium.

Research and Development Projects

Article VIII, Section 13 of the Ohio Constitution authorizes the Ohio Department of Development to administer economic development programs funded with special obligations of the State of Ohio and of local governments. HB 554 expands the ability of state and local governments to issue obligations by allowing such obligations to fund advanced energy projects. The bill also encourages intergovernmental cooperation for the purposes of issuing state and local obligations for (i) local public infrastructure capital improvements, (ii) research and development projects, and (iii) site facility development.

Air Pollution Control Facilities

Ohio Department of Development can administer economic development programs funded with special obligations of the State of Ohio and of local governments. Projects eligible for funding with state and local obligations include “public capital improvements.” The bill expands the definition of “public capital improvements” to include “air pollution control facilities,” which are defined to include “solar, geothermal, biofuel, biomass, wind, hydro, wave, and other advanced energy projects defined in Section 3706.25 of the Revised Code.”

Expanded Role for Director of Development

In concert with the expanded authority to administer economic development programs using state and local obligations, the new law expands the existing powers of the Ohio Director of Development. The law allows the director to lend the state’s money with Controlling Board approval and to enter into any and all agreements necessary to enhance certain economic sectors, including advanced energy and transportation logistics and distribution. The Director of Development may:

  • Enter into agreements with private entities
  • Provide loans as allowed by law
  • Contract for labor and materials
  • Acquire or utilize property
  • Employ financial consultants
  • Accept gifts and contributions
  • Enter into appropriate and necessary arrangements with other governmental entities
  • Adopt rules to implement the new law
  • Engage in any other activity necessary to carry out the economic stimulus plan

New Money for Local Infrastructure

The state treasury will create a “local infrastructure development fund” with money from the jobs fund already existing in the treasury’s coffers. The money in the new fund will provide grants for local infrastructure development and capital improvement projects. The State has allocated an additional $200 million in total for infrastructure and transportation improvements in HB 554. The state has added these funds to the Public Works Commission’s budget and they are to be spent in accordance with existing Ohio Revised Code Sections 164.01-.12.

Biomedical and Bioproduct Development

The law establishes the Ohio Bioproducts Development Program and the Ohio Biomedical Development Program, each administered by the Third Frontier Commission. Under the Ohio Bioproducts Development Program, the Third Frontier Commission must provide loans, loan guarantees, and grants to for-profit and not-for-profit entities to promote innovation, development, and commercialization of bioproducts, including biopolymers, chemicals, and advanced materials that use biomaterials and renewable agricultural resources. Efforts of the Ohio Bioproducts Development Program should utilize Ohio agribusiness and agricultural industry, state and local governments, educational institutions, and research organizations. Under the Ohio Biomedical Development Program, the Third Frontier Commission must provide loans, loan guarantees, and grants to for-profit and not-for-profit entities to promote innovation, development, and commercialization of biomedical and biotechnological products, processes and applications, including medical devices, diagnostics, informatics, therapies, and drugs. Efforts of the Ohio Biomedical Development Program should utilize Ohio business and industry, state and local governments, educational institutions, and research organizations. The law also establishes the Third Frontier Bioproducts Advisory Board and the Third Frontier Biomedical Advisory Board, each to provide the Third Frontier Commission with general advice regarding bioproduct and biomedical issues.

New Money for Coal Research and Development

The law authorizes the issuance of up to $66 million in Ohio Public Facilities Commission coal research and development obligations. The bond proceeds may be used to make loans, loan guarantees, and grants to individuals, businesses, and educational and scientific institutions to encourage the use of Ohio coal. The bill also allows a portion of the income from arising from the developments resulting from loans or grants to be used for additional loans or grants.

Historic Preservation

The new economic stimulus package includes a modification to the existing historic preservation tax credit currently in Ohio law. Specifically, HB 554 changes the limit on the tax credit from the number of projects to the total amount available for historic preservation. The new limit is $60 million in tax credits for the biennium.

At the same time, the bill gives the Director of Development discretion in the award of tax credits. Under current law, applications are granted based on the order in which they are received. According to HB 554, the Director may issue the tax credit if he or she determines:

  • The building in question is a historic building and owned by the applicant
  • The building qualifies for a tax credit under federal law
  • The tax credit is a major factor in the applicant’s decision to rehabilitate a historic building or to increase the amount of investment in a rehabilitation project.

Under HB 554, the Director of Development now has the discretion to consider the “potential economic impact and the regional distributive balance of the credits,” when deciding which applications are granted.

Finally, the bill places a moratorium on applications between June 2008 and July 2009. After that period, the state will provide the tax credit in fiscal years 2009 and 2010.

Internships and Cooperative Education

HB 554 also establishes the Ohio First Co-op/Internship Program to award competitive grants to promote cooperative education and internship programs at public and at private, nonprofit Ohio institutions of higher education. The program will be established and implemented by the Chancellor of the Ohio Board of Regents, and will operate from fiscal years 2010 through 2014.

The bill establishes a list of nineteen criteria on which the Chancellor must base his determination of which proposals to recommend to the Controlling Board for approval. To be eligible to receive a grant, a program must recruit Ohio residents who have remained instate as well as those who have left Ohio to attend out-of-state institutions. In addition, a program must either (i) support academic programs that foster cooperative education or significant internship experience, or (ii) assign a number of scholarships to institutions to recruit Ohio residents as students in an academic program.

Conclusion

The state’s economic stimulus package was introduced in an attempt to spur economic growth through infrastructure improvement and direct investment. Now that the bill has been signed by the Governor, it must go through the rulemaking process to determine specifically how funds will be allocated. This process could take several weeks and will ultimately face the approval of the state legislature’s Joint Committee on Agency Rule Review. Bricker & Eckler LLP will continue to provide updates on the progression of the stimulus package and the implementation of its many components.