Posted on www.defensecommunities.org

The cost to Ohio’s treasury of the full tax exemption it offers for military pensions has climbed steadily since the state began offering the benefit eight years ago, but advocates of the initiative say it will reap long-term dividends.

After retiring as a colonel at Wright-Patterson Air Force Base in 2004, Jose Rodriguez and his family settled in a suburb of Dayton even though the tax exemption did not yet exist. For Rodriguez, the incentive is important for retaining educated professionals who retire at the installation and consider moving out of state.

“The quality of the military retiring here at Wright-Patt — it’s humongous because of the level of education that they have,” he told the Dayton Daily News. “If the people retiring were to go someplace else, to me, I look at that as seasoned brain drain that I don’t know this region or the base would be able to retain otherwise,” Rodriguez said.

In 2007, Ohio officials estimated the incentive would cost up to $21.9 million in foregone taxes. The actual cost was $29.3 million in fiscal 2014 and $31.3 million in FY 2015, according to the state Department of Taxation. The agency forecasts the exemption will cost $36.3 million in FY 2017.

State Rep. Rick Perales (R) cites the extra revenue generated through sales and income taxes when retirees stay in Ohio to justify the exemption. “All of that money that they get to keep, they’re going to spend in Ohio,” said Perales, who retired from Wright-Patterson after 15 years in the Air Force.

“In terms of taxes, we’ll recover a lot of that when they go out and buy a new car, refrigerator or whatever. If they’re not here, that doesn’t happen,” he said.

“Those people retire, but they have 20 years left and that second job is fully taxable,” Perales said.