Arizona Gov. Doug Ducey on Tuesday signed into law H.B. 2321, a bill to increase the current cap on the Qualified Facilities Tax Credit program from $70 million annually to $125 million annually.
The bill passed the state Legislature on Monday with broad, bipartisan support.
In testimony before the state Senate Appropriations Committee last week, the head of the Arizona Commerce Authority called for the expansion of the tax credit program that she says has been central to the state’s ability to attract employers and create jobs over the past decade.
Sandra Watson, the president and CEO of the ACA, told committee members that an amendment to H.B. 2321 would enhance the state’s competitiveness.
“Our goal is to ensure that we continue to increase Arizona’s [economic] momentum,” Watson said. “These changes to the Arizona qualified facilities program will help us do that.”
The Qualified Facilities Tax Credit
Under the Qualified Facilities Tax Credit, which was first implemented in 2012, qualifying companies must make significant investment in the construction of a new facility or an existing one and generate new high-quality jobs for manufacturing, research or the company’s headquarter operations.
To qualify for the tax credit, a majority of the full-time jobs created must pay above-average wages and all new full-time employees must receive health insurance covering at least 65% of the premium.
In 2019, the program’s tax credits represented 1.7% of qualifying investments in Arizona, which totaled more than $3.5 billion.
Jim Rounds, president of the Rounds Consulting Group, said that for every dollar invested into the program, there has been $2.30 in manufacturing investment, providing Arizona taxpayers with a return-on-investment of $1.30 to state tax revenue.
Increased manufacturing investments in Arizona
Since the 2008 financial crisis, Arizona’s manufacturing sector has grown considerably, with the state establishing itself as an attractive location for manufacturers.
In the 2010s, manufacturing output in Arizona increased by 39.6% to $31 billion and the state’s exports increased by 51.5%. In 2019, the number of manufacturing jobs surpassed the number of construction jobs in Arizona, for the first time.
Despite the global pandemic, over the past year Arizona has attracted massive investments from Taiwan Semiconductor Manufacturing Company, CP Technologies, UACJ Whitehall, and many other manufacturers for new plants in the state.
Earlier this month, ElectraMeccanica announced that after a year-long review of potential sites, it would establish its American base in Mesa, creating up to 500 new research and manufacturing jobs.
The ACA has already reached the program’s $70 million cap for this year due to increased manufacturing investments in the state, according to Watson.
Watson stated that the ACA is currently speaking with additional manufacturers who are ready to invest in the state, contingent on the program’s cap being increased to $125 million this year.
Citing a study produced by the Rounds Consulting Group, Watson said “If Arizona is unable to extend the [current] qualified facilities cap, there is an estimated opportunity cost of 20,000 jobs and $187 million in tax revenue in just one year.”
The bill also will extend by 10 years an existing law that aids manufacturers investing more than $500 million in either Maricopa County or Pima County or $50 million elsewhere in the state in offsetting the costs of public infrastructure improvements.
The amendment to H.B. 2321, was introduced by Sen. Sine Kerr, R-Buckeye, onto a bill sponsored by Rep. Ben Toma, R-Peoria.
On Monday, the bill passed the Senate with a vote of 22-6 and the House with a vote of 40-19.
Business community advocates the Arizona Chamber of Commerce & Industry and the Arizona Manufacturers Council support the bill. They argue that the tax credit and the infrastructure improvement law have been essential parts of the state’s overall economic development strategy.
Also registering in support of the bill were major manufacturing companies as well as the Greater Phoenix Economic Council, Greater Phoenix Chamber of Commerce and representatives from cities, including Glendale, Phoenix and Chandler.
“We applaud the Arizona Legislature and members from both parties for their swift action to raise the cap of the Qualified Facilities Tax Credit and extend a program that helps manufacturers offset the costs of public infrastructure improvements. These programs have allowed Arizona to quickly become a top destination for business relocation, expansion and job-creating investments,” Arizona Chamber Interim President and CEO Garrick Taylor said.
“We thank Representative Ben Toma and Senator Sine Kerr for their leadership on this important issue, and we commend Gov. Ducey for quickly signing the bill into law and solidifying Arizona’s globally competitive position,” Taylor said.