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Voices: Back Story

Tax breaks on the hot seat

Patrick, lawmakers seek greater scrutiny

BY: Bruce Mohl


Tax breaks, for years a largely untouchable entitlement that Beacon Hill offered to businesses, are finally coming in for some serious scrutiny.

The Patrick administration told state lawmakers this week that within a year it should have enough data to determine whether many of the tax incentives the state is offering to businesses are working and should be continued or discontinued.

“The idea is to stop guessing about what works and what doesn’t work,” said David Sullivan, general counsel for the Executive Office of Administration and Finance.

Sullivan was testifying at what was billed as a fact-finding hearing of the Senate Post Audit and Oversight Committee but was really more of a lengthy rant against tax incentives by the committee chairman, Sen. Mark Montigny of New Bedford. Montigny made no secret of his frustration with how special interests convince the Legislature to approve tax breaks, which then automatically renew year after year outside the budget process with no review. The state’s tax incentives cost nearly $27 billion a year.

“It is mind boggling to try to explain why none of these giveaways has been scrutinized,” Montigny said during a lengthy exchange with Greg Bialecki, the governor’s secretary of Housing and Economic Development.

Montigny said he was in favor of establishing a sunset date for all of the state’s tax credits to force their backers to step up and justify their existence. He said a deadline would force the issue and clear out tax-credit deadwood. Rep. Jay Kaufman of Lexington, the House chairman of the Revenue Committee, said after the hearing that he planned to file legislation reining in tax incentives next year.

Bialecki said he opposed the sunsetting of all of the tax credits, but he and other Patrick administration officials indicated they think it is time to start scrutinizing them more closely and possibly get rid of some. Gov. Deval Patrick signaled his determination to tackle the problem earlier this month when he vetoed initiatives that would have created or expanded a series of tax breaks that would have cost the state $45 million. The governor said he wanted to evaluate their effectiveness before increasing their size.

Bialecki, in his back and forth with Montigny, said state officials need time to reach agreement on what each tax credit is supposed to accomplish and to develop metrics for evaluating their success or failure. It won’t be easy, judging from the discussion, which centered around the state’s film tax credit.

The film tax credit offers anyone shooting a movie, TV show or commercial in Massachusetts a credit equal to 25 percent of whatever they spend in the state. The credit can be easily converted into cash by selling it back to the state or a third party, which can use the credit to reduce its tax bill.

Montigny lamented the fact that the film tax credit is creating relatively few jobs in Massachusetts. Peter Enrich, a Northeastern University law school professor, testified that research shows tax incentives in general have a minor influence on business-location decisions. He said those tax incentives that do influence location decisions have to be so big that they end up being money losers for the states that offer them. Enrich said the Massachusetts film tax credit is a good example. Every Massachusetts job created between 2006 and 2009 cost taxpayers an average of $147,512, according to the state Department of Revenue. “This is a classic inefficient credit,” Enrich said.

Yet Bialecki, who conceded that a cost per job of $25,000 to $30,000 should be the target, said there are extenuating circumstances with the film tax credit. He said it’s not unexpected that Hollywood productions would initially bring in many of their own employees to shoot films in Massachusetts. But he said the number of Massachusetts jobs will grow as the state’s film industry expands. “The first studio is being built right now,” he said, referring to a movie production facility under construction in Devens.

Bialecki said he was in favor of clawbacks, provisions that require recipients of tax credits to return the money if they don’t produce the promised jobs, but he said clawbacks don’t work in all cases. With manufacturing, for example, Bialecki said the goal is not necessarily to increase employment but to retain the jobs the state has now. Bialecki and Montigny both agreed that tax incentives should generally be steered to companies that agree to do business in areas of the state with high unemployment.

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meterman
Says on 09.09.2012
at 8:28 AM
Montigny said “It is mind boggling to try to explain why none of these giveaways has been scrutinized”. Really? Well, it is not too mind boggling to me folks.

It is all about influence brought about by campaign contributions. Aside from a possible short period (blip on the screen) of tighter scutiny, they'll (tax break giveaways) be back as strong as ever.

As long as the deep pockets of corporations exist, our trusted legislators will be waiting in line to give the farm away.

Btw, nice post Shirley!
shirley kressel
Says on 09.06.2012
at 10:07 AM
Thanks for this and past stories bringing tax incentives (aka corporate welfare) to the public's attention.

I'd like to point out three facts:

1. Patrick and Bialecki don't have to live in suspense for another year. There is already a huge body of literature proving that public subsidies do nothing to "create jobs" or "retain jobs" or any of the miracles that are claimed by their advocates. Everyone knows this, or should.

2.Patrick knows this, perfectly well. When he was first campaigning, I asked him if he believe that tax incentives really work, and mentioned some of the whoppers Gov. Romney had put in place. Patrick rolled his eyes and said no, he knows that subsidies don't really sway business decisions. Around that time, a Globe story wrote this:

http://www.boston.com/news/local/politics/candidates/articles/2006/10/22/for_growth_look_beyond_tax_incentives/

THE RACE FOR GOVERNOR | DEVAL PATRICK
For growth, look beyond tax incentives

By Peter J. Howe, Globe Staff | October 22, 2006

Massachusetts gubernatorial candidate Deval L. Patrick said he would take a dim view of using state tax incentives as a major tool for attracting business expansion in the state, saying companies whose plans turn on tax breaks probably aren't worth attracting.

In an appearance on the New England Cable News "This Week in Business" program being broadcast this afternoon, the Democratic nominee said he learned from past top executive positions at Texaco Inc. and Coca-Cola Co. that "business creates jobs, not government. Governments create a climate where businesses can thrive."

But in terms of what governors and legislatures should do to promote business, Patrick said,

"This notion that it takes a tax break, a tax concession, to attract a business -- you want that in your box as a closer. But a business that makes a decision on the basis of a tax break alone, that's a business that's on its way out of business."

Yet, the Patrick gravy train has rolled on full strength, just as if here were a Republican. Even when Fidelity told him that no tax breaks would stop their plans to move jobs out of state, he sent his henchman, Ranch Kimball (a Romney hold-over) to try to negotiate a "package." http://www.boston.com/business/articles/2006/01/06/fidelity_to_shift_jobs_from_state/ And remember, Fidelity has already enjoyed a nice fat package since 1997, from which they still get $150 million a year for nothing. So the Gov's wide-eyed "let's wait for the data" is a cynical and disingenuous stance to take six years and over a hundred billion dollars later. He can't find $160 million to save public transit, the lifeblood of the economy, but every year he can find $150 million each for Fidelity and the film industry and countless other businesses that can have whatever they want just for the asking. Recently, Liberty Mutual, one of the richest corporations in the world (with a CEO who pays himself $50 million a year), asked for $50 million, and Patrick teamed up with Mayor Menino to give Liberty $46.5 million. Bialecki, hewing to his highly principled stand that subsidies should not exceed $30,000 per job (a meaningless number he made up out of nowhere), actually falsified Liberty's application, inflating the company's already phony 600-hire "job-creation" number (this was far less than Liberty had been hiring without a tax break) to 750 (Liberty's spokesmen weren't aware of this change and, when asked about it, denied the extra job creation but happily accepted the money) in order to give the corporation $4.5 million more than his criterion would allow. http://www.boston.com/business/taxes/articles/2010/04/01/tax_incentives_hit_45m

Which brings us to 3. Greg Bialecki is a lawyer for real estate developers. Is this the best person Patrick could have brought into his administration to oversee state Housing and Economic Development? Aside from his direct financial conflict of interest on the casino issue (http://en.wikipedia.org/wiki/Greg_Bialecki), Bialecki has driven "streamlining" of permitting for development, especially on protected Commonwealth Tidelands where his (former, at least temporarily) clients stood to profit. http://www.southcoasttoday.com/apps/pbcs.dll/article?AID=/20070302/NEWS/703020373&template=printart I once asked Greg why he was supporting the film tax credit when the state Dept. of Revenue had reported that it was a huge loser for state economic development; he said, "Oh, the film tax credit, that's just for fun!"

Are we having fun yet? Go ask the people who's transit services, schools, libraries, and health and human services have been cut.
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