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Kentucky Faces Obstacle Ohio Doesn't
BY TOM MITSOFF
FLORENCE - The recent $800-million deal between the city and Fifth Third Bank served to illustrate one disadvantage Kentucky communities face when competing for business with neighboring Ohio.
"Ohio exempts financial institutions from personal property taxes, and Kentucky does not," said Daniel Tobergte, president and CEO of Northern Kentucky Tri-County Economic Development Corp. (Tri-ED).
Florence City Council, anxious to lure Fifth Third to establish a data center in a vacant structure in the Northern Kentucky Industrial Park, passed an inducement resolution that serves to abate Kentucky taxes of the type that Ohio would not collect. The agreement guarantees that over the next 30 years, Florence will issue industrial revenue bonds (IRBs) totaling the staggering amount of up to $800 million.
"It's a bit scary to even say that (number)," Mayor Diane Whalen commented before the council's unanimous vote approving the resolution.
But Florence will incur no financial risk in issuing the bonds, Tobergte said.
"Fifth Third would have all of the credit risk in paying off the bonds," he said.
Fifth Third is still considering multiple sites for its third data center, but "Florence is obviously the number one choice," said Fifth Third spokesperson Stacie Haas. She said no final decision had been made as of midweek.
IRBs are tax-exempt debt obligations, or loans.
"It's a mechanism occasionally used in economic development projects," said Tobergte, whose Tri-ED Corp. has been active in helping Fifth Third find a Northern Kentucky site for the past two to three months.
What's $800 Million Between Friends?
Fifth Third will purchase the bonds for the data center project. In effect, Florence will loan Fifth Third the funds it needs to start up the center and then finance future capital needs at the site for the next 30 years, and the city will have Fifth Third-which claimed $94.5 billion in assets as of Dec. 31-as the guarantor on the loan.
"The $800 million is an estimate of potential equipment costs over the 30 years," said Tobergte.
"Think of it in terms of what will be needed for continued expansion over that time," Haas said.
Tobergte said the bond issue agreement will allow the city to actually own the physical property at the proposed Fifth-Third site, and then lease it back to Fifth-Third. Since Fifth-Third would not own the property, it would not pay personal property tax-the same effect as would occur in Ohio under that state's personal property tax exemption for financial institutions.
Florence Community Development Director Richard Lunnemann said that without the bond issue deal, Fifth Third would face more than $1 million in annual personal property taxes in Kentucky that it would not pay if located in Ohio.
Gov. Ernie Fletcher's tax modernization plan, which he promoted during his State of the Commonwealth speech this week, includes a provision for repealing taxes on intangible personal property, which are financial assets (bank accounts, bonds, life insurance proceeds, etc.), but does not include an exemption for tangible property taxes for financial institutions.
"Ohio exempts the personal property taxes for financial institutions only, so it's not a broad blanket issue," Tobergte said. "But we have had discussions with the governor's office about the (Fifth Third) project."
He would not elaborate on the discussions, other than to say it relates to the issue of how that particular tax inequity, compared to Ohio, affects Kentucky.
This article was published February 6, 2005, in The Sunday Challenger, serving Northern Kentucky, and on ChallengerNKY.com.
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