Legislation filed to renew and revamp state tax incentives for Alabama businesses includes new credits for women- and minority-owned enterprises, increasing the cap on one of the state’s “backbone” incentives and giving a break to automakers who will ship vehicles out of the Port of Mobile.
House Bill 192, expected to be a high priority for passage when the 2021 legislative session begins next week, was pre-filed Thursday. Commerce Secretary Greg Canfield this week discussed some of the details with Alabama Daily News.
“The bill reestablishes and builds on the success of Alabama’s performance-driven incentive tools,” Canfield said. “And those are specifically being addressed in the Alabama Jobs Act, the Growing Alabama Credit and the Alabama Port Credit.”
The Growing Alabama Credit expired in September of 2020 and the larger Alabama Jobs Credit and Investment Credit was set to expire at the end of 2020. They were not renewed in the 2020 session before COVID-19 derailed it. In December, Gov. Kay Ivey used her emergency powers to temporarily extend the credits. But legislative action is still needed.
Rep. Bill Poole, R-Tuscaloosa, is the bill in the House. Sen. Greg Reed, expected to be elected Senate president pro tem next week, will carry the bill in that chamber. Reed on Tuesday said he viewed his work on incentive packages and tools to recruit industry to Alabama as a hallmark of his tenure in the legislature.
“Creating new, high-paying jobs and generating economic growth is the No. 1 way we can increase quality of life for Alabamians,” Reed said. “Reauthorizing these bills to provide the recruitment options and incentives needed to allow Alabama industry to grow in this competitive environment will be a top priority of the legislature this session.”
According to Commerce, the new bill will:
- Increase the annual caps on the Alabama Jobs Credit and its sister Investment Credit by $25 million in both 2021 and 2022, taking the current cap from $300 million to $350 million.
- Increase the cap on the Growing Alabama Credit from $10 million to $20 million. The Growing Alabama Credit allows local economic development organizations to leverage state funds to build industrial parks or other job-attracting sites. Alabama income tax payers can receive tax credits for donations they make to the economic development organizations. The new legislation would allow banks and insurance companies to donate and receive the credits against their financial institution excise tax and insurance premiums tax.
- Incentivize minority and women-owned businesses with a jobs credit against utility taxes. The credit would be worth 4% of the wages paid to eligible employees during the prior year.
Canfield said that is similar to what’s been offered to companies locating in rural counties.
“We’re basically taking the rural incentive strategy and we’re expanding it so that we can apply it to minority owned enterprises and women-owned enterprises,” Canfield said.
The same jobs credit would be offered to companies “reshoring” critical supply chains in pharmaceuticals, biosciences, med-tech, personal protection equipment and medical-related research and development. Production of medical equipment has moved overseas and Canfield said the state wants more of it done here.
For the Port Credit, nothing about the cap or limits will be changed except to make automotive shipping a credit-eligible activity. The current Port Credit provides shippers a tax credit against their state income tax liability for import and export cargoes.
Last year, the Alabama State Port Authority announced a $60 million automotive terminal in Mobile. It will allow for vehicles to roll on and off of ships. The 57-acre terminal will be able to handle 150,000 vehicles annually with connections to rail service and highways.
“For the first time, it will allow the Port of Mobile to service the export needs of Alabama’s automotive manufacturers,” Canfield said. The state’s biggest auto exporter is Mercedes with vehicles going to more than 130 countries.
“None of them could flow through Mobile, but now they’ll be able to,” he said.
The new legislation would expire July 31, 2023, allowing a newly elected legislature to review and extend them that year.
Poole said the Legislature in recent years has redoubled efforts to be judicious and scrutinize the incentives the state offers companies. Those in his new legislation are unique in that the incentives aren’t provided up front, as many incentives used to be, but when certain benchmarks are met.
“Those come in the form of a minimum number of jobs, minimum income thresholds to make sure that the jobs are meeting desired pay wage levels, desired investment levels,” Poole said. “That allows the state to make sure that the projects are successfully meeting the terms the state would like to see in order to be beneficial for the entire state.”
Claiming incentives retrospectively is a departure from how Alabama used to entice new companies.
“The state used to borrow money to provide these industrial incentives,” Poole said.
When the Jobs Act was created in 2015, the five year sunset allowed for review and renewal, the process happening now.
Canfield described the credits as sustainable, pay-as-you-go incentives.
Between 2015, when they went into effect, through the end of COVID-impacted 2020, 184 projects have landed in Alabama using the Alabama Jobs Act. That’s 32,043 new jobs, $15.7 billion in new and expansion investments and $15.2 billion in payroll over a 10-year period, Canfield said.
He said the state’s return on investment with the Jobs Credit is 57% over 10 years.
Canfield also notes that the incentives are attracting higher-paying jobs. Projects secured in 2020 pay an average wage before benefits of $22.52.
“I think that’s very impactful as part of our strategy is to raise the level of income for average Alabamians,” Canfield said. “I think this is proving out the types of projects that were winning using these incentives are doing just that.”
On Tuesday, Poole and other lawmakers received a report on several of the tax incentives offered by the state, many that pre-date the current Legislature. The goal of the report is to find out if incentives are working as intended.
“We have discovered through that a lot of older incentives that are on the books that are not sunsetted or otherwise expiring and that is a concern we have,” Poole said. “I think there’ll be a lot of discussion about A, not allowing any more to take that form and B, how do we essentially set those into a review timeline as we’re doing any new incentives.”
Canfield said making the 2021 legislation retroactive to 2020 when several of the credits expired isn’t a concern. But lawmakers acting quickly on this legislation will be good news for his department, and the state.
“We never want to have a sense of uncertainty in the marketplace when we’re competing for investments and jobs,” he said. “And so addressing this early in the session will eliminate any uncertainty.”