Delaware Governor Jack Markell is turning to tax incentives in an effort to create jobs in a state where M&T Bank Corp. (MTB) and HSBC Holdings PLC (HBC) together laid off more than 1,000 employees in the past year.
He pressed the state legislature to pass a bill that would provide a $1,250-per-employee tax credit to financial institutions that hire 200 or more state residents. The state Senate passed the measure on June 21 without dissent, and the House followed with a unanimous vote in the early-morning hours of July 1. Markell signed it into law later that day.
The legislation, which also lowers the franchise tax paid by banks already operating in the state, will result in an estimated $3.4 million in forgone revenue in fiscal 2012 and $8.5 million in fiscal 2013, according to the state’s controller general. Markell said the credit is an effective way to use tax policy to find jobs for Delaware’s residents.
“We want to send a very clear signal to people in this industry that we’re going to do what we can to make them successful because when they’re successful, they’re likely to employ more people,” Markell told Bloomberg Government yesterday in a telephone interview.
Desperate for jobs for residents, state legislatures are developing targeted tax incentives to encourage companies to move to their state or to discourage them from leaving. Panasonic Corp. (6752), the world’s largest maker of plasma televisions, received a $102 million tax credit from New Jersey to stay there. The company said in April it plans to use the credit to move from Secaucus to Newark, less than 10 miles away.
Financial Services Hub
Delaware’s 8 percent unemployment rate is below the 9.1 percent national average. It has been a hub for the financial services industry since the early 1980s when the state passed legislation allowing banks to charge higher interest rates. That law eliminated barriers for out-of-state banks to enter Delaware.
The industry diversified over the years and student lender SLM Corp. (SLM) is now the state’s second largest company by revenue, according to Bloomberg Government data.
The number of bank employees in Delaware peaked in 1999 when 30,100 residents were employed by a financial institution, according to the state bank commissioner. The financial crisis took a toll and 1,000 jobs were lost between 2008 and 2009.
Banks have continued to reduce their payrolls in Delaware. HSBC said in January that it planned to eliminate 500 jobs in a New Castle call center. Before M&T’s acquisition of Wilmington Trust Corp. was completed in May, Buffalo, New York-based M&T said it would cut 721 positions in the state. Philip Hosmer, a spokesman for M&T, said yesterday 137 employees have moved into other positions with the company, lowering the job cuts to 584.
“Delaware is very heavily into financial services and I think the fear they’re seeing is a steady erosion of jobs in that sector,” said Jim Butkiewicz, an economics professor at the University of Delaware in Newark.
Markell said he doesn’t have an estimate for how many jobs may be gained by the credit. Paul Merski, chief economist at the Independent Community Bankers of America, a Washington-based trade association for small and mid-sized banks, said the tax credit might not make up for the other costs associated with hiring, particularly on the scale envisioned by Markell.
“In financial services, the business model is to be less labor intensive and use more automation and computers,” he said. “You don’t want to hire an $80,000 employee to save $1,200. The incentive would have to be robust enough.”
Markell called the tax incentives “one component” in a company’s decision to move to a new area. Quality schools and a skilled workforce are other factors, he said.
“I cannot, in the case of the banks, say it’s going to create a certain number of jobs,” he said. “It’s just one more thing to make us competitive.”
North Carolina Example
North Carolina weathered the banking crisis in relatively good shape. Bank of America Corp. (BAC), the largest U.S. bank by assets, is based in Charlotte. The state’s banking commissioner said 47,469 residents were employed by financial institutions in 2010, a 4.2 percent increase from 2006.
Paul Stock, an executive vice president and counsel at the North Carolina Bankers Association in Raleigh, said he wasn’t concerned about losing employees because the state has advantages, such as its quality higher-education system, that others don’t match.
“Incentives and taxes are two pieces of the puzzle but so are the amenities for the people that live there,” he said. “There are many pieces that play into that puzzle.”
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