Fri, Mar 31, 2023

Mega Projects Driving the Creation of Mega Incentives

Where do we start with the litany of mega projects announced in the U.S. over the past few years? From new electric vehicle battery plants announced for Georgia, Indiana, Kentucky, Michigan, North Carolina, South Carolina, Tennessee, among others, to the announcement of Micron’s USD 100 billion (bn) investment in upstate New York for a new megafab semiconductor facility announced a few months ago, there has been plenty of mega project activity to go around. Let’s look at what states are doing to help attract and secure these once-in-a-lifetime multi-billion-dollar projects.

Let’s start with Ohio and a non-electric vehicle project. On January 21, 2022, Intel announced plans for an initial investment of more than USD 20 bn to build two leading-edge chip manufacturing facilities just outside Columbus, Licking County. This is the largest single private-sector investment in Ohio history and at announcement, it was expected to create 3,000 new Intel jobs and 7,000 construction jobs. Ohio was one of 35-40 sites across the country being considered but didn’t garner serious attention until the state legislature passed megaproject incentives in June 2021. These incentives essentially extend the state’s refundable Job Creation Tax Credit (JCTC), based on new payroll withholding remitted to the state and the state’s two real property tax abatement programs from 15 years to 30 years for megaprojects. Megaproject incentives require at least one billion dollars of investment in the state or creation of USD 75 million (mn) in new annual payroll. It should be noted that Ohio already has access to a large pool of discretionary deal-closing funds due to its structure as a private economic development corporation that is funded by the state’s liquor profits. 

Heading west to Kansas, the Attracting Powerful Economic Expansion (APEX) incentive was signed into law in February 2022 to attract megaprojects investing USD 1 bn or more in the state. Companies expanding their operations in qualified industries, such as advanced manufacturing, aerospace, distribution and logistics, and food and agriculture, as well as companies relocating their headquarters to the state may be able to take advantage of APEX. The program is known to have played a key role to lure the largest economic development project in Kansas history, which was announced in July 2022.  Kansas landed Panasonic’s USD 4 bn project in the City of De Soto, a suburb of Kansas City near the state border, and will be home to one of the largest electric vehicle battery manufacturing facilities in the U.S. In addition to 4,000 new direct jobs, the project is also expected to create 4,000 indirect jobs and over 16,000 constructions jobs. APEX benefits include a 15% refundable investment tax credit, partial payroll rebate of up to 15% for 10 years, training reimbursement, relocation reimbursement of up to 50% for non-Kansas residents and 100% sales tax exemption for construction materials. As often seen in other states’ incentives requirements, APEX participation prohibits participation in other specified incentive programs. With a program sunset date of December 31, 2023, it will be interesting to see how Kansas continues its efforts to attract extraordinary mega projects.

Taking a quick look at other states, Virginia legislators are extending the state’s data center incentives’ term up to 15 years under the new Mega Data Center Incentive Program. In December 2021, Michigan legislators created the USD 1 bn Strategic Outreach and Attraction Reserve (SOAR) incentives to help Michigan compete for mega projects, resulting in a commitment from General Motors in September 2022 to spend USD 7 bn investing in the state. Lastly, in April 2022, Oklahoma passed the Large-Scale Economic Activity and Development (LEAD) Act creating an investment rebate program for projects creating 4,000 new jobs and having qualified capital expenditures of not less than USD 3.6 bn. Such cash incentives in Oklahoma equal 3.4% of capital spending for up to five years and appear to have been created with a particular mega electric vehicle project in mind.

With the recent passage of federal legislation, like the Inflation Reduction Act, encouraging domestic supply chains and energy independence, the availability of states to win mega economic development projects is likely to continue. Where mega projects are actively seeking sites, those states with mega incentives are likely to garner extra attention during the site selection process. Of course, having mega sites for development is also a key criterion, and those sites that are truly “shovel ready” are becoming scarcer with every project announcement, but that’s a topic for another day.

To further discuss your company’s eligibility for large-scale investment programs and incentive and site selection strategies, please contact Kroll Tax Services’ Site Selection and Incentives Advisory team. Kroll offers SITE Selector, the industry’s premier digital marketplace that streamlines the site selection process for corporate real estate teams.

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