In the world of real estate, the key to success is “location, location, location”. In the world of economic development incentives, including grants, the key to success is “job creation/capital investment, job creation/capital investment, job creation/capital investment”. Admittedly, this is more of a mouthful than the real estate equivalent, but it speaks to the importance of job creation to those who fund manufacturing grant programs.
Why is job creation so important to government funders?
In order to understand why the government provides incentives for job creation, it is good to know why job creation is such an important metric for economic development.
Job creation is a key metric important to the economic development departments for a few reasons, including:
- Company sustained success – In order for companies to create jobs, they usually have to have sustained success with current and new customers. The economic development people like to view this sustained success as an assurance that the company will be a longtime employer in the state.
- Increased tax revenue – The more jobs that are created, the more both the company and the employees pay in state taxes. The company will pay unemployment and payroll state taxes (in most states) and the employee will pay payroll taxes (in most states).
- Increased local spending – There is a direct link between job creation and increased local and regional spending. After all, when people get a job, they have income that they can then spend at local stores, which boosts the local economy.
In short, when jobs are created, there is much good news that economic developers can share on both state and local levels.
What kinds of state and/or local government funding incentives support job creation?
There are a few ways states support projects that include job creation through grant funding:
- Job Creation/Capital Investment Grants – Some states offer grants for projects that meet a certain threshold of job creation, typically paired with significant capital investment. These tend to be discretionary grants, which are defined as grants that are negotiated between the state and the company. These tend to be large grants that can support a very large investment project and are typically paired with tax credits (think Foxconn in Wisconsin, which received a $3 billion incentive package to build a plant).
- Grants Based on Payroll/Withholding Tax Paid to New Employees – Some states offer grants that are based on the payroll/withholding tax paid to new employees. Kansas’ PEAK program offers grants of up to 95% of the payroll/withholding tax for new jobs at a company.
- Grants Based on Gross Payroll For New Employees – Another slant taken by states is to provide grants based on gross payroll paid to new employees. This (and the previous one) provide the added benefit of encouraging companies to pay higher wages to new employees. One such program is Louisiana’s Quality Jobs Program, which provides up to a 6 percent cash rebate of annual gross payroll for new, direct jobs for up to 10 years.
Is there a catch with job creation grant funding?
Sometimes states place restrictions on job creation grants in addition to a minimum threshold for jobs created (which differ by state and program). Economic development entities typically do this to encourage companies to hire people from a distressed or rural area. The state of Ohio offers an Inclusion Grant that provides support for jobs created in designated distressed communities and/or for businesses that are owned by underrepresented populations across the state.
One other catch is that the company receiving the funding MUST provide proof that they hired the people and, if designated by the funder as necessary, that they retained the people they hired.
The final catch is that job creation grants typically only fund net new jobs. Net new jobs are defined as a net increase in the number of employees and/or positions. For example, if you had 100 employees and 10 left but you hired 11, only one would count as a net new hire. This provides evidence of growth to government funders.
While many states incentivize job creation through tax credits, I encourage you to research whether your state offers grants as well. This is easy to do using the Manufacturing Grants Database, so subscribe today! Manufacturers get a free month subscription during the month of October to celebrate Manufacturing Month!