By Larry Jones
May 23, 2005

At a May 18 press conference in Washington, Senator George Voinovich (OH) announced that he has introduced the Economic Development Act of 2005, a proposal that would override a 2004 court ruling that declared tax incentives, widely used by state and local governments to promote economic development, as unconstitutional.

In a May 17 letter expressing support for the bill, Conference President Akron Mayor Donald Plusquellic said the Court's ruling has cast a cloud of uncertainty over the legitimacy of such tax incentives in Ohio, Michigan, Kentucky and Tennessee. He also pointed out that because this case is expected to be appealed to the Supreme Court, it has the potential of establishing a legal precedent that could jeopardize similar tax incentives in most other states.

In Cuno v. Daimler Chrysler, the Sixth Circuit Court of Appeals ruled that a package of tax incentives provided to Daimler Chrysler by the state of Ohio, the city of Toledo, and the local school board violated the dormant commerce clause of the U.S. Constitution, which forbids state taxes that discriminate against interstate commerce. The Court ruled that these tax incentives, which influenced Daimler Chrysler's decision to expand its Toledo Jeep manufacturing plant by investing $1.2 billion and creating 5,000 new jobs, unlawfully interfered with interstate commerce.

Under the dormant commerce clause principle, Congress must expressly grant states authority to provide tax incentives to promote economic development in order for such tax incentives to be considered lawful. The Sixth Circuit held that since Congress had not authorized states to use an investment tax credit computed by only considering how much an in'state company invests in the state versus how much it invests everywhere, the tax incentive discriminated against out-of'state investments.

Voinovich told those attending the press conference that his bill would affirm the authority of state and local governments to provide tax incentives to promote economic growth. He said "This bill would override the Cuno case by authorizing states to grant tax incentives that otherwise would impermissibly interfere with interstate commerce."

The bill enjoys bipartisan support in both houses of Congress and it is co'sponsored by all Senators from the four states in the Sixth Circuit: Senate Majority Leader Bill Frist (TN) and Senators Lamar Alexander (TN), Debbie Stabenow (MI), Carl Levin (MI), Mitch McConnell (KY), Jim Bunning (KY) and Mike DeWine (OH). It also has the support of Representatives Patrick J. Tiberi (OH) and Ben Chandler (KY).

Furthermore, in addition to the Conference of Mayors, the bill is supported by the National Governors' Association, the National League of Cities, the National Association of Counties as well as business ad labor organizations. Plusquellic commended Voinovich for his strong leadership in sponsoring legislation addressing the concerns of state and local governments, and pledged that mayors would work to help generate the support to ensure the bill's enactment.