New Arizona Business Incentives for Cleantech Boom

Arizona Republican state legislators have proposed a new job creation and business tax-relief bill to aid the state's economic recovery.

The new Arizona Economic and Job Recovery bill focuses on attracting and retaining "base industries" such as manufacturing, high-tech and R&D oriented companies already located in the state including Boeing, Intel Corp. and Raytheon Missile Systems that offer high-paying jobs, attract out of state capital, and generate three or four indirect jobs for others, per position. The bill would supply companies with tax rebates after they begin new operations in the state or add to their existing operations; thus, it is lean on up-front incentives, which often lead to only short-term investments for the sake of the initial tax break for companies and then eventual outsourcing or relocation of facilities out-of-state. Official details on the bill are expected to be released by legislators on Monday.

House Speaker Kirk Adams (R-Mesa) emphasized that the tax-cut portions of the plan would be phased in over a four year period, starting in July 2011, which would be after the current recession is officially over. Cutting business taxes would improve the state’s competitiveness with other states in attracting companies, as Arizona is continually losing out on bids for green energy supply chain manufacturing and other industries to places with lower corporate tax rates. What’s more, the state lacks significant corporate high-tech investment, and nearly 80 percent of its economy is derived from small businesses, many of which have not been in a position to hire substantial numbers of new workers during the last couple years and been neglected by many federal economic recovery initiatives approved by Congress.

The Arizona Economic Recovery bill projects more than $600 million in tax savings by June 2016 via:

1. $200 million in individual income-tax relief by reducing rates by 10 percent.
2. $200 million in corporate income-tax relief by reducing the rate to 4.5 percent from 6.97 percent.
3. $250 million in business property-tax reductions by eliminating the state equalization rate.

The proposed legislation primarily addresses job creation through several key provisions. First, it would give cash rebates to qualifying employers that add $2 million to their payrolls, equivalent to approximately 50 jobs, while maintaining those new positions for five years. Furthermore, the rebates would be funded through withholding taxes, with 50 percent returning to the employer and the remaining balance being acquired by the state. If the job provisions are not met, the employer would have to repay the rebates, unlike the case in many other states, which have been burned by poorly designed policies. The state of Oklahoma has used this rebate program to build a robust wind-energy industry; thus, Arizona could entice many clean energy manufacturing companies, as the country moves more in that direction.

In addition, the Job Recovery Bill would create a "deal-closing fund" that would allow the state to offer out-of-state employers last-minute incentives such as tax breaks and infrastructure construction benefits. About 20 states have similar funds, according to the Lexington, Ky.-based Council of State Governments. The structure of the fund is similar to the incentives in the renewable energy Arizona Senate bill 1403 passed last year. Moreover, this bill proposes eliminating the job-training tax and instead, funding the program using participating companies' withholding taxes. Most state employers pay a job-training tax, which collected $15 million in 2009. The fund helps companies pay for new employee training when the properly skilled workforce is not immediately available, which would be the case if new unfamiliar industries enter the state.

If this legislation is passed, Arizona may be in a position to capitalize on the forecast that the U.S. is on track to dominate the global solar photovoltaic market, according to a recent report by GTM Research. The report, entitled “The United States PV Market Through 2013: Project Economics, Policy, Demand and Strategy,” predicts that the U.S. will challenge Germany as the industry's largest solar energy market over the next four years. GTM Research estimates that demand forsolar photovoltaic installations will grow by roughly 50 percent annually to the range of 1.5 GW - 2 GW in 2012. As a result, the report indicates that about 50,000 green jobs and over $6.1 billion in annual investment would be created in the process, greening 1.5 million homes with solar power by 2012. In order to supply these necessary solar panels, there is an opportunity to increase the country’s supply chain for this sector. If Congress approves nationwide legislation supporting clean energy R&D and manufacturing, companies may be interested in placing facilities in the U.S to benefit from both federal and state business incentives.

California remains the country's leader in solar installations, but other states are gaining ground. By 2012, combined base-level demand from Arizona, New Jersey, New Mexico, New York, Nevada and Massachusetts is expected to reach 376 MW, according to GTM Research. Utility-scale installations should be the fastest growing market segment, reaching 466 MW in the 2012 base-level estimate. The renewable portfolio standard (RPS) requirements of certain states and an influx of new solar-specific proposals in states with aggressive deadlines, has already begun to initiate the projected trends. Utility ownership of large-scale solar projects has been an increasing trend over the last few years due to numerous economic and operational benefits for these companies, allowing greater control over cost and energy supply to meet demand shifts in a timely manner. 

Arizona is aiming to capitalize on America’s potential rebirth in manufacturing and the green revolution sweeping the country and the globe for that matter, to diversify its economy and generate sustainable long-term growth, which has been highly reliant on cyclical construction, real estate, retail and tourism for many years; subsequently stalling its recovery from the two-year recession and elongating its severe budget crisis.

Original Article on Phoenix Green Business Examiner