Just as Liberty Mutual’s $50 million city/state tax break package comes up for votes at City Council (3/24) and the state Economic Assistance Coordinating Council (3/31), the Boston Globe reveals these “business incentives” as no more than waste, fraud and abuse, the real purpose of which is to give politicians a chance to brag of “doing something” about economic development (and to recruit corporate campaign donors). Economists have long documented that subsidies don’t sway important business decisions, and Deval Patrick, when he was first campaigning, said that a business relying on subsidies is a business going out of business. Yet the state corporate gravy train has continued and accelerated. Boston Mayor Menino, hair on fire over Hynes/Vornado’s admission of “blight creation” to get public subsidies, has, with the usual help from the Boston Redevelopment Authority, created blight on paper for LibMu, to qualify the project for tax breaks.
Question: Why don’t all the the library, park and school advocates pay attention to this? Why don’t they organize to protest this bleeding of the public treasury? Every group losing services will only beg and weep over their own loss, and none will pay attention to the root cause of their problems. The tax-break lobby is taking hundreds of millions of dollars from us and the citizenry is, for some reason, unable to organize opposition, even when the information is revealed. Can anyone help me understand this syndrome?
Call your city councilor and tell him/her that the government shouldn’t be playing favorites and granting special tax deals for wealthy corporations right now. At the very least, we need to insist on clawback provisions for businesses that don’t create the jobs they promise to create- make them live up to their end of the bargain.
but they have to be targeted at the right problem.
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p>Like it or not other states are offering corporations tax breaks when they bring new business into their state – like Texas.
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p>So companies when they expand will expand where it makes most financial sense.
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p>We need to have similar breaks- but they need to be targeted toward job creation. A tax break for a short number of years when corporations hire new workers would make MA more competitive.
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p>It can’t be a straight corporate giveaway – it has to be in return for something. Remember people who have jobs pay taxes and don’t drain unemployment insurance.
If you make Massachusetts a great place to live (you know, for citizens), then people will want to live here. People living here attracts business outright — folks gotta eat, gotta transport themselves, gotta clothe themselves, and gotta have fun. Furthermore, folks who have higher incomes — and generally, more choices on where to live — may well be willing to live here despite slightly higher taxes or cost of living precisely because we have better schools, good transit, lots of cultural opportunities, and so forth.
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p>You make it a great place to live and employers will come here, not because they are bribed (and likely to leave as soon as someone else bribes more) but because they want to do business in a place where there are good employees (well educated, stable, tolerant, healthy) and a good infrastructure for business (stable regulations, stable tax policy, good physical infrastructure).
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p>Make Massachusetts a great place to live, and employers will locate here because the best employees will want to live here.
Of course we want this to be a great place to live. But you have to look at the economy and how it interacts with the rest of the world.
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p>People here spend money with businesses which are outside of Massachusetts. So we need to have business which brings money in to balance that out. Otherwise the state gets poorer and poorer.
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p>So we need to attract those kinds of businesses. With the money they bring in we can then spend it on making this place better – better schools, better roads, better services etc.
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p>Local businesses are great – like restaurants, clothing stores etc. But those businesses only at best re-circulate the money which is here already. In reality they are buying their products from outside. E.g. food stores import food, clothing stores import clothes.
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p>Boston has a nice base of those businesses – universities, financial services, technology, hospitals, tourism. That’s basically what this state lives from.
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p>To see what happens when you lose that base you only have to look at places like Detroit. Their auto manufacturing base is gone, and even though there are lots of people living there, money is not coming in and the city is dying. Or look at what happened to our industrial cities like Waltham and Lowell at the start of the 20th century. Once those factories closed no amount of coffee shops and bakeries is going to save them.
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p>We have to protect that financial base. Other states want those businesses also – so they are offering incentives to attract them. We need to compete. Of course we have to be smart. Businesses will take incentives that don’t help us as easily as they take smart incentives which help us.
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p>Massachusetts Election 2010
We dig up the dirt so you don’t have to.
My point is that by making the state a great place to live, the best employees will want to live here, and effectively turn down more financially lucrative offers in other places because they’d rather live here.
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p>The fact that you listed five robust industries which bring in money from elsewhere suggests long term strength — universities aren’t going anywhere, there is a long term risk with financial firms but nothing immediate, technology and hospitals will remain strong so long as those universities which aren’t going anywhere don’t tank in quality, and look, our compact city and public transit and birthplace of America stuff will always be attractive and relatively unique. Our natural attractions (beaches, mountains, etc), while not specifically unique, aren’t going out of style anytime soon either.
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p>And don’t forget, those coffee shops and bakeries — they also get money from tourists and from those folks who commute in from NH every day. Furthermore, those with wealth who live in the state are making dividends from companies based elsewhere, transferring that wealth into the state to be spent (redistributed) at restaurants and car dealerships and tailors.
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p>Of those bases, only the financial sector is really at risk to leave. The universities can’t leave, and the hospitals and tech are very much a function of the universities. The Old South Meeting House will stay there too. I wonder: which brings more wealth into the state — financial service companies located here, or the dividends and capital gains made by individuals who happen to live here? And really, where are the financial services folks going to go to get a cheaper deal? Not NYC nor NJ… Charlotte? It wouldn’t be so bad, but you’ve got to live in or near Charlotte.
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p>I believe that if MA focuses on a more educated workforce, better transportation infrastructure, better cultural opportunities, and higher quality public schools and services, we won’t have to worry about losing those large businesses which bring in money from elsewhere. They’ll want to stay here or expand here because here is where the most productive employees want to live.
…of tax incentive abuse. They already have a significant facility in the state. The new location is in no way blighted and the new jobs will be marginal and very expensive.
They are, if I understand it correctly, taking over presently unused space (which presently generates no tax revenues whatsoever) to build a larger headquarters. They could move HQ elsewhere and leave Mass with even less revenues… Not a pleasant bargaining position for Boston to be in, to be certain…
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p>Enormities may have been taken in the stretching of the rules regarding ‘blight’. But that’s an implication of our political infrastructure and the crudity with which we make such definitions. If we had the institutions, numeracy and the vocabulary to understand beyond knee-jerk hysteria over ‘tax giveaways’ these kinds of trade-offs might be better handled. Menino, however, is not a subtle man… aand he wields the BRA like a shillelagh.
So I’d say the city’s negotiating position is pretty good. In any event, I take a pretty simplistic view of these deals: it’s not fair to other businesses or residents to selectively cut the taxes of individual developers or companies. Their threats to take their ball and go home are often as empty as their promises to add jobs, and it’s just not a healthy way for government to function.
Why are tax incentives not structured so that the tax break is given after the job is created, and not on the promise that it be created?
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p>If need be, the state can cover the cost to take out a loan to float the capital to open the plant, which would be repaid by the company with the tax credits they receive.
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p>There’s no real reason to take corporate America at it’s word on anything these days. Workers don’t…not sure why government does.
The Boston incentive program as structured has nothing to do with creating jobs; the issue is one of development in isolation, insofar as the City is concerned.
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p>Talk of jobs is generally
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p>The tax incentives are solely to promote “development”, defined as building structures consistent with the neighborhood zoning codes, and their legal structure reflects that.
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p>A side point: the development is not in the Back Bay; it’s at the edge of the South End, which has its own interesting developmental history…
“Talk about jobs is generally political spin, having little to do with the planning premises of a given development.”
Can current legislatures (of any flavor) bind future legislatures with respect to revenue decisions?
But can the loan be conditional — say, held in an escrow account executed by the secretary of state?
Of course a backloaded incentive is worth a whole lot less, because banks won’t lend against it, it won’t help pay the construction costs now, etc.
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p>Still, seems like a reasonable tool to add to the toolbox.
One way to deal with this is clawback provisions. You agree to create X jobs for Y tax break. If you don’t you give some part of X back.
I would also like to see the govt produce real savings first before they take more tax money for prgms like helathcare that they save will save us millions. Produce the savings first then we will provide you with extra tax revenues.
As the article says, think of it like a poker game. But it’s not a regular poker game. The incentives are perverted. The local authorities can either put raise the bet by a tiny, tiny amount, or they can call the hand and see how it goes down.
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p>Raising the bet actually puts more money into city coffers, because the state is the one funding most of the tax incentives. Particularly when, as described, the company kicks back the tax savings to the community. Even if the company doesn’t do this, it is the absolute safest bet because there’s almost no immediate downside — forgiving property taxes results in everyone else paying a tiny bit more. It’s often not noticeable.
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p>Calling the hand could result in a HUGE loss. Disastrous, because when you lose a 300-person manufacturing facility, there’s no one lining up to replace it. You not only lose the taxes, you lose the taxes on the businesses that the facility supported. Remember, the multiplier on manufacturing jobs is something like 2 to 5 other local jobs that support it. The political downside from such a loss is huge too, people will say that you “let the company get away”.
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p>Local authorities are acting rationally here. They can’t play to the bigger picture because if they do, they run the risk of even bigger losses. This is the prisoner’s dilemma. How do you beat the prisoner’s dilemma? In effect, you unionize communities. Or maybe better described as forming a cartel. Get them all to agree not to poach businesses. Of course, that doesn’t help businesses that will move across state lines, so you have to enter into intra-state pacts.
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p>Either that or we need to make our economy more robust, so that if a company leaves, another is willing to take its place.
At least for inter-community competition: disallow the practice. Require everything to be assessed and taxed at its full and fair market value. At least limit these government interventions in the market to communities that are truly blighted.
By the way, Liberty Mutual is not a manufacturing company, and has pledged to add only a dozen or so jobs, all the while admitting it never planned to leave the state.
I think this a foolhardy bit of pandering. It’s unnecessary, and it reinforces the idea that Boston is a weird, arbitrary, and borderline corrupt place to do business, subject to the whims of quirky and irascible politicians like Menino.
Where is the state getting the money to pay off the companies? From income taxes and business taxes on everybody else.
in tax unaccountable incentives to businesses. It’s been a big target by progressives for a while now, especially since the invention of the Hollywood Tax Credit.
especially when there’s nothing in the deal that keeps the company there beyond when the tax incentive ends. In that situation, everyone but the business loses, no matter which city or town ultimately was willing to give up the most for the right to sell their soul.
Or is it you’re against breaks only to private companies? Or maybe you’re angry but only at insurance companies?
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p>Did you complain when Evergreen Solar got all that state largess? Then they shift panel fabrication to China. Did you express outrage then?
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p>Or the massive tax subsidies provided the renewable energy business (I’m involved in wind finance and so know FIRST HAND no projects would be built without those tax benefits. None. Zero. Zip.)
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p>Is a TEMPORARY tax break to a large, white-collar employer worse than that?
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p>At least the tax incentive for Liberty Mutual to build sooner rather than later — I don’t think it’s a choice between now or never — has demonstrable fiscal benefits: construction jobs, LM permanently hiring more people to work and pay taxes, and increasing Boston’s property tax base.
Are you seriously suggesting that unless an individual has objected to every single instance of “corporate welfare” injustice that the city of Boston has committed since the beginning of time, then we give up the right to complain now? Really?!?
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p>For your information, Shirley Kressel has been at the center of more fights of injustice then I can name, including just a partial list:
1) Maxing out Boston’s Property Tax increases every single year.
2) Continuation of the parasitic BRA.
3) Giving away of millions of dollars of our common property for a node and a wink.
4) Violations of the open meeting law.
5) Violations of the zoning laws.
6) Corporate giveaways to well connected developers, such as the Columbus Avenue project that just went bust.
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p>If you are going to saddle someone with the false claim that “they have never stood up to power before, so why now?”, you may want to at least perform a simple Google search on the person you are attaching.
(although you’re right to criticize me on the straw man stance.)
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p>But you make it sound like these tax incentive programs are Kressel’s fault when in fact this is the way City Hall operates, including the BRA and especially the Mayor’s office. What else is new? She’s the worst of the bunch. Why single her out?
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p>For your information, Boston hardly has any zoning code left because of all the incomprehensible and discretionary overlay zones and project review processes created out to satisfy City Hall’s “urban planning” geniuses. “Discretionary” is the operative word. But this is the cost of giving neighborhoods an active roll — a veto, actually — in everything down to the color brick used.
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p>The result is zoning by influence.
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p>And what corporate “giveaway” on Columbus Center are you talking about? Last I read, the developers (Winn) and their financial partners (Calpers) burned through $130 million and had nothing left to show for it.
Shirley Kressel wrote the original post. To which you, bostonshepherd, responded, “NOW you believe in the free market?”, followed by, “Or is it you’re against breaks only to private companies? Or maybe you’re angry but only at insurance companies?” and “Did you complain when Evergreen Solar got all that state largess? Then they shift panel fabrication to China. Did you express outrage then?”.
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p>Then, when I defend Shirley as one of the people fighting the good fight, you say that I am singling her out as one of the “worst”. What? You started with singled out Shirley through every instance of the word “You” in your original post, and then you take umbridge with me. What?
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p>I have absolutely no idea where you are coming from, or if your intention is simply to argue with people for the sake of being contrary, but back on planet earth, I have better things to do.
…the enabling legislation for the tax exemption in Boston-specific projects.
One answer to your question is that many of the paid advocates, and their lawyers/lobbyists, are on the take. Liberty Mutual will make a $100M profit on the building overnight, yes. But they will pay out some of that to connected foundations and charities.
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p>The other situation is that Boston exists by demanding money from the state and the federal government to pay for a city that runs at a substandard rate. We have high taxes and regulations that make growth and expansion through solid production a very dicey proposition. A federal job or a federal grant is much more secure.
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p>One little-appreciated fact about the American Revolution is that the colonists had the power to set the salaries for Crown officers such as the governor. Very often they withheld paying those salaries if they didn’t like what the governor was doing. And they demanded the right to keep paying those officers during fights over the Stamp Act etc.
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p>The library would certainly have to act differently if the cardholders were paying a fee. But you have to be willing to pay the fee to take the power!
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p>The city is poorly situated to build up disposable income and power among the residents. You may have a cause, but federal money is sitting out there to do the opposite. Will you spend your money to fight? Do you have the will for it?
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p>Democratic politics at the state and national level encourage the government to take more of the income of people and use it for their benefit in some other way. I recently engaged in a development fight, and if we didn’t have money, our fight would have gone NOWHERE. So the Democratic Party working mechanism sucks the money and power away from residents.
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p>The Republicans of course are so horrible and so far in the tank with tax breaks for these creeps that it’s not even worth talking about them.