Tax breaks on the hot seat
Patrick, lawmakers seek greater scrutiny
August 30, 2012
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.