Role of (Taxes) Incentives & Grants in Supporting Private Sector Investment A Exhaustive Review of Economic Development Tools* Dan Lloyd Governor’s Office of Economic Development May 18, 2016 *Note: no where near exhaustive

Factors in Choosing Business Location: How Can State/Local Gov’ts Incent? Market Labor Transportation Infrastructure Raw Materials Actual Site Energy Costs Regulations Today’s Focus Taxes Incentives

Oversimplified Montana Tax Regime Property Income Sales

Oversimplified Montana Tax Regime Property Income Sales

A Brief Sidetrack… Tax Basics Collections by Property Type Allocations by Taxing Jurisdiction

Property Tax: Basics 16, 14, 13? Classes of Property Valuation Cycle and Taxable Value Percentage Set in Statute Property Tax = Taxable Value x Total Millage Rate Statewide & University Mills: 101 or Local Mills: Set based on budget of each taxing jurisdiction and their tax base Elementary School High School Town75.50 County State School Equalization95.00 University6.00 Total Mills516.75

Back to My Point…Tax Incentives Tax Increment Financing 7-15-(42-43) MCA Special Property Tax Applications in (1-32) MCA Lots there, will highlight a few I’m most familiar with Some are buried elsewhere in code…highlight a few of those too

Property Tax Incentives: Tax Increment Financing A method of financing infrastructure and services (TIF) in a set district using property taxes on any increase in property value Eligible Activities: Land Acquisition, Building Demo, Relocation, Infrastucture, Bond Repayment Taxes still paid  Remitted to a special account Typically 15 Years but can be renewed University mills (6 or 7.5) not remitted

State Incentives: Personal Property Not Taxed Business Inventories Intangible Property First $100,000 of Business Equipment Certain Agricultural Property Livestock and poultry Bees and biological control insects Sprinkler irrigation systems Ammo Manufacturing, real and personal property MCA Many more in 15-6-( ) MCA (and other places)

Tax Incentive: Pollution Control Equipment Class 5: rural electric and telephone coops, “new industrial” property, ethanol production, electrolytic reduction facilities Class 5: Typically 3% Air, Water and CO2 Capture Equipment is Exempt for first 10 years Following Certification

Tax Incentives: New/Expanding Industries MCA Requires Approval of Local Governing Body Reduces Taxable Valuation by up to 50% for First 5 Years Increases an Equal Amount Each Year Until Full Valuation in Year 10 Only Applies to Mills for: Local Schools Those Assessed by Governing Body Approving Incentive

New/Expanding Industries-Eligibility Mechanical or Chemical Transfer of Materials Extraction of Harvesting of Minerals, Ore, or Forest Products Material Processing Transportation/Warehousing Earn 50% or More Gross Income from Out-of-State Sales 1 MW of Larger Renewable Energy Source New > $125,000 Investment Expanding >$50,000 Improvements in Same Jurisdiction

Tax Incentives: Remodeling Building MCA Must Increase Value by >2.5% Reduced Rate on Value of Improvements 0% during construction 20% first year 40% second year Etc. Requires public notice, local gov’t approval, public hearing

Corporate Income Tax Incentives Mostly Industry/Project Specific Alternative Energy Production Biodiesel/Biolubricant Production Certain R&D Expenses New/Expanded = 1% of wages if increase employment by >30% Recycling Activities Frequently Targets for Repeal

Financial Incentives Mostly Handled at Dept. of Commerce/Board of Investments Some at DLI (Training), DEQ (RE Loans), DNRC (Loans/Grants), Ag (Loans/Grants) Focus will be on a couple of MDOC Programs

Big Sky Trust Fund Funded through Coal Severance Tax Permanent Fund Competitive Program Primary Sector Businesses Feasibility Funding: Typically $10,000-$25,000 Job Creation: $5000/$7500 per net new job Wage Requirements Reporting Requirements Reimbursed After Job Created Wide Variety of Eligible Expenses

Workforce Training Program Value-added businesses, creates auxiliary positive economic impact, provides essential service, hospital or medical provider Funding of up to $5000 per net full-time, $2500 per part-time job Wide variety of training activities eligible Match of $1 for every $3 provided

Board of Investments Programs All funded through the Permanent Coal Tax Trust Fund Business Loan Participation: Board purchases a percentage of a conventional loan; rates lower up to 2.5% based on job creation Value-Added Business Loan: Board participates with lender; 5 year rate: 4% for jobs, 2% for 15 or more; 6% next 5 years; posted rate thereafter Infrastructure Loan: Board loans to local gov’t, must result in creation of 15 jobs, up to $16,666 per job; Business pays user fee (which is tax deductible)

Things I Skipped Natural Resource Incentives (e.g. oil and gas, renewable energy & infrastructure) Personal income incentives Board of Investment Programs (mostly) Lots of Commerce Programs (CDBG, MBRCT, Trade Show Assistance) Many, many other things—local and federal programs, private sector programs, and definitely some state programs that I just forgot/didn’t know about

Closing Thoughts Taxes generally disincentivize an activity States can abate or provide credits for activities they want to encourage Montana has a number of specific examples of this type of activity States can use a number of tools to promote job creation and economic activity Examples discussed include tax increment financing, grants for job creation, reduced cost of capital, funding for planning/feasibility Montana (IMHO) has focused less than most states on providing direct incentives