The “tax breaks for corporations” economic development strategy is not new, and in fact this approach exists in almost every state across the country, resulting in a “race to the bottom” that forces states to compete against each other to attract big name companies, all the while often giving away millions of dollars in tax revenue that is rarely recouped by the revenue generated by these very companies. In Massachusetts, this approach really ramped up the 1990s, resulting in new tax breaks for the mutual fund industry, manufacturers, and more recently alternative energy, biotech and the film industry. (Learn more from the fine folks at Good Jobs First.)
While I acknowledge that these tax breaks have attracted some new companies to come to Massachusetts, and others to stay, the big question is whether this is the wisest use of taxpayer dollars, compared to other investments we could make.
In Massachusetts today, there seems to be a status quo consensus that giving big tax breaks to companies is a good economic development strategy. But if the state is using precious taxpayer dollars to create jobs at a massive subsidy rate at a time when local aid, human services, health care, environmental protection and infrastructure investments are being cut back, isn’t it the responsibility of public officials to revisit this strategy? While a group of progressive Democrats have led the fight over the past few years to increase corporate tax credit transparency, the status quo still persists.
The Commonwealth of Massachusetts invested almost $60 million in state grants, tax breaks and subsidized loans in Evergreen Solar to create approximately 800 jobs, translating into about $75,000 in taxpayer dollars being spent for every job. And of course now even those 800 jobs are gone, and we aren’t getting our $60 million back.
Perhaps even more egregious, the long-awaited DOR report on the Film Tax Credit came out yesterday. This report found that in 2009, the film credit created a whopping 222 net jobs for local residents – at cost of almost $325K per job. (Jobs that pay about $51K per year on average, by the way).
Why so low? In part because, as the report points out, when you’re calculating the new jobs in the film industry created by the tax credit, you have to offset that with the jobs lost in the public sector, when state spending is diverted from, say, human services and local aid to the film industry. (At least if you’re going to be intellectually honest about it.)
What if this money for Evergreen Solar and the Film Tax Credit had been used to invest in universal pre-kindergarten programs, or to expand commuter rail service, or to improve water infrastructure? These programs and services, in addition to providing a direct service to the people of Massachusetts, also play a critical role in economic development. And they can’t just walk away from Massachusetts as Evergreen Solar is doing right now.
Just as we observe how corporate special interests dominate the national agenda and determines what does and does not get passed in Washington, D.C., Massachusetts residents, and elected leaders, need to wake up to the fact that these same interests have far too much influence in Beacon Hill’s agenda.
As the 2011-2012 legislative session begins, it is my hope and plan to generate as much discussion as possible about the wisdom of investing tens of millions of dollars in a risky economic development strategy that could leave us as Evergreen Solar did yesterday – taxpayers holding the bag, and economic devastation that has hurt hundreds of Massachusetts families.
Whether it is sloppy drafting, or a response to connected lobbyists, I have seen this over and over with “Evergreen” the most recent piker to take taxpayer money and run.
<
p>There really must be clawback provisions (if company leaves for another venue w/in 10 years, say) and local benefit provisions in other ways (like a 10 million subsidy with clawbacks, and a 58 million tax credit valid if and only if the materials used were produced in Massachusetts)…just saying.
<
p>Legislative drafting is an art, and if a legislator allows a lobbyist to do the drafting, one must expect the legislation to be better for the lobbyist’s employer – who is NOT the taxpayer, then beneficial to the taxpayer.
<
p>Frankly, legislative drafting is taught in some law schools and MBA programs; I have studied it in my law school (Wayne State University Law School in Detroit, a working person’s law schoo) and tried my hand at it with some success in areas where there are no lobbyists and staffers are not able to be proficient and educated in every topic. It is so critical to think through the layers of consequences and not create unintended consequences that make legislation create more problems then it solves.
BOTH sides make a fatal error – they reward business that they approve of, not necessarily business that will be profitable or long term.
<
p>Business credits and regulatory reform should not be tied to a specific industry but be broadly based instead, available to all business. For one thing, that ties the business that wishes to enjoy the credit tpo remaining in the Commonwealth. The Federal model of forgiving the employer share of taxes on new employees hired off of unemployment is a good example – the job it rewards has to remain in the US. How about forgiving the employer tax for unemployment for such a hire, with a tax credit after one full year of continued employment, and a larger one for two years? That may sound like its starving the unemployment fund, but that would have been a better use of $60 million than Evergreen was.
The government can certainly provide the infrastructure, metaphorical and otherwise, for jobs to “manufacture” themselves. Would Boston have more jobs or less without the T? Would we have more jobs or less without the highways? Or without public education? If those things all lead to more jobs, how can your statement stand?
I corrected you. If you want to make the argument that government can’t manufacture jobs through the Environmental Bond Bill (at least as is), that’s an entirely different argument — and one that Jamie seemed to be making himself if I understand the Environmental Bond Bill fully.
…if they have broader benefit such as environmental. Usually it is precisely to help those that otherwise are not as naturally profitable. If they were the profitable ones they wouldn’t need government help.
China’s slave labor will produce the units quicker and cheaper. We have the consolation of helping to better the world – for some people – with taxpayer money.
<
p>If that’s the plan, to subsidize virtuous and unprofitable industries, then don’t pretend it will create jobs in Mass. And don’t be surprised when a DIFFERENT philosophy subsidizes nuclear warhead building.
<
p>If you want to grow the local economy, you make you efforts in ways that cannot be taken out of state.
If they take our money they better darn well stay! We subsidize virtuous industries it’s in part to MAKE them profitable in a way that they might not be in the market alone. If they decide to leave make them pay through the news on the last tax return they file with the state.
Not bad for a Socialist.
<
p>Then he decided to become a deficit hawk. Things didn’t go as well.
One of the more pernicious effects of subsidies is the politics of it. If a company builds in a district, and got a subsidy for doing it, the Representative and Senator of that district, as well as the Governor, gets to claim credit for those jobs. They get a nice little headline, and residents see they’re ‘doing something’ on jobs — even if what they’re doing isn’t an effective way to create jobs.
<
p>How do we change the risk/reward calculation for politicians on this — to the point where they’re afraid to risk funds for public projects and education in order to provide more money for subsidies? Right now, there’s very little risk to pushing for subsidies, but increasing money toward public projects and other government spending is seen as ‘bad’ by many politicians, because they don’t want to be seen as a “big spender.”
<
p>I think changing the way we prioritize public funds — particularly re: subsidies — has as much to do with changing the culture of Beacon Hill as it does convincing people this isn’t a wise way to spend money in order to create jobs.
Its also city and town versus city and town. Which can be equally damaging in these times of tight budgets and reduced local aid.
<
p>The most recent example of this is Quincy coming out and stating that they want to compete with Boston and Cambridge for companies. In particular the story mentioned Quincy’s desire to lure State Street Bank from Downtown Boston to Quincy Center.
<
p>http://bostonherald.com/busine…
<
p>We also have Boston providing Liberty Mutual with significant tax breaks on its new building even though it was highly unlikely that Liberty was leaving Boston.
<
p>So not only do we need to look at how the Commonwealth focuses its efforts on business development for ALL businesses rather than trying to pick winners (and picking one heck of a loser in Evergreen Solar) we also need to look at how the Commonwealth’s cities and towns work together to grow businesses across the Commonwealth and NOT compete with each other. If the competition between the states is a race to the bottom then what is the competition between the cities and towns?
<
p>We need to get smart about this, there it far too much at stake.
It may be fair to criticize Gov. Patrick and his administration for failing to do diligence on the clawbacks issue and, perhaps, failing to evaluate the long-term and short-term economic viablity of Evergreen Solar’s business plan.
<
p>However, the effort to characterize the approach Governor Patrick and his economic team as strictly or even predominately a “tax break for corporations” approach distorts the goals and successes of this economic development policy approach.
<
p>Perhaps, Representative Eldridge should speak to representatives of the biotech industry in Cambridge, the Polymer companies that grew out of state-supported research of these commercial plastics initially developed at UMass Amherst, aquaculture businesses developed in southeastern Mass., and other more profitable alternative energy companies in Massachusetts that have received state tax breaks and other financial assistance and partnerships. Finally, it is unlikely that state’s many brownfields would be developed by businesses, if the state did not step up with some attractive financial incentives to complete their clean-up and development.
<
p>The businessmen who have received assistance in these above projects would undoubtedly let Rep. Eldridge know that these financial subsidies were instrumental in creating, as the 1980s founder of neo-liberal industrial policy, Gov. Michael Dukakis called them, “good jobs at good wages.” Rep. Eldridge and other so-called progressives are the first to decry the lack of jobs that pay a living wage and decent benefits such as health care. The industries and businesses that Gov. Patrick (and Gov. Dukakis in the 1980s) have supported in their economic development initiatives have stimulated the creation of a significant number of “good jobs at good wages” in this state for many years. The high-tech boom in the 1980s was stimulated, in part, to state tax credits and subsidies that helped create, among other things, the “Massachusetts Miracle” of the 1980s.
<
p>Finally, it would be much more logical for Rep. Eldridge to assail the monetary and trade policies of China and the inability of successive presidential administrations to persuade the Chinese to modify them than to blame Gov. Patrick and his economic team for being responsible for the shortcomings and failures of state-supported initiatives such as the Evergreen Solar business deal with the state.
The issue, IMHO, is not tax breaks and other subsidies in isolation.
<
p>The problem is that these subsidies exist in the context of management cultures totally untethered from any obligation, either to local communities or the country as a whole.
<
p>Given our existing technological base, it would be a no-heavy-lifting dynamic to generate a viable value-added industrial base in the Commonwealth. The Massachusetts Miracle, which by the way was mostly due to the Reagan defense budgets, could have continued by concentrating on dual-use technology after the Cold War ended.
<
p>Long story short, we have to confront the results of four fallacies:
<
p>The premise of the post-industrial service economy, based upon importing and retaining “Creative Class” types, while ignoring working class residents and abandoning manufacturing.
<
p>The fetish of the MBA, whereby trendy management fads substitute for knowing how a product is made, financial services become the Holy Grail, and the quarterly return substitutes for long-term investment.
<
p>The premise that markets are self-correcting in the absence of a healthy civic culture and public oversight.
<
p>The assumptions that globalism made local workers and local markets obsolete, and that niche marketing made American middle and lower income consumers expendable.(I combine the two because they illustrate the abandonment of America by American business.)
<
p>What we have is a collapsing polity because, with few exceptions, no one in leadership wants to face the collapse of its cultural foundation.
I would add that there is a fundamental juxtaposition of local businesses. These are your smaller family type businesses. They don’t employ 100’s but they contribute to the local economy. They are the businesses that often are the places teenagers get their first work experience. They are the businesses that support the local baseball, softball, basketball, soccer, cheerleading and other teams. They are the ones who do not receive special benefits from the Commonwealth. They are all too often the ones who pay for these special benefits.
<
p>I think its time to recognize the inequity here where companies such as Liberty Mutual receive generous government subsidies while the dry cleaner or sandwich shop down the street is left, along with other taxpayers, to foot the bill.
<
p>Time to support businesses that add to the Commonwealth be they big or small rather than trying to pick winners and, of necessity, losers and in this case the losers are the small business and citizen taxpayers of MA.
Time magazine has a recent article on the great return on investment that lobbyists create. Why invest in a new product when you can hire a lobbyist to tilt the rules in your favor, or get a subsidy as in the case of Evergreen.
<
p>The 60M+ given to Evergreen came out of the pockets of individuals and businesses who could have invested in profitable enterprises. Just for starters the state could have used this to lower the Unemployment contribution rates that are going to skyrocket for businesses this year or maybe just don’t take it out of everyone’s pocket.
<
p>
The argument from the right side of the aisle is in essence that government should not fund or subsidize business. The reason that Evergreen is so uncompetitive is that the Chinese government is massively subsidizing its solar energy industries. European and Asian governments have been investing in alternative energy for decades. Gasoline prices are high in Europe because government taxes keep them there, in part to stimulate demand for conservation measures and alternative energy sources.
<
p>Am I the only one who sees the irony in right-wing complaints about “excessive” government investment because Evergreen Solar is being crushed by competitors reaping the benefits of massive government subsidies?
<
p>While the rest of the world invests in forward-looking technology and industries, America invests in weaponry, two wars, greed, and hate-speech. And, of course, in the fossil fuel industry.
<
p>The failure of Evergreen Solar is a direct consequence of our addiction to petroleum. I agree that a candid, frank, and detailed discussion about where the Commonwealth invests public funds is overdue. I disagree with the assertion that alternative energy suppliers play a significant role in the “corporate special interests” you bemoan.
<
p>When we enumerate those corporate special interests with excessive influence on Beacon Hill, I suggest that names like “Bechtel”, “Harvard Pilgrim Health Care”, “Beth Israel Deaconess Medical Center”, “Bank of America”, and so on are way ahead of any alternative energy supplier.
…that the right side of the aisle argued FOR subsidies to businesses, but not for any kind of safety net or social welfare for the working stiffs.
Corporatists support business subsidies (and some of their more intelligent members support a social safety net – not out of compassion, but to reduce social unrest), whereas libertarians tend to oppose any and all government expenditures, exclusive of defense, and occasionally roads and courts.
<
p>It gets interesting for the Religious Right which supports a safety net for the “deserving poor”, the definitions of which get too Talmudic to go into here.
<
p>The Social Conservatives tend to oppose all domestic government expenditures on principle, but make exceptions for moneys earmarked for their Districts.
With all due respect, Senator, I believe your last two opponents argued your points above but you strongly disagreed. In fact, you were very proud of the investment you claimed to have personally championed on behalf of Evergreen Solar. Levy and Thompson both argued for general tax relief and reducing the regulatory costs on businesses in preference to picking specific industries or businesses. Glad to see you have finally seen the light and acknowledge they were right, you were wrong.
<
p>Likewise, Levy pointed out the net loss the state was realizing from the film tax credit but you insisted he was wrong and continued to support this losing proposition. Time to end this subsidy immediately and stop giving away taxpayer money.
Because I spent a good chunk of the day talking to small-to-medium scale solar developers and financiers about what they think is going right in MA on solar and where the legislature can help I missed this discussion all day. It figures that this is one of those days that I should be reading this blog for work…
<
p>I’m not going to comment about different strategies for economic development
not qualifiedbut I will share a few of the insights I learned today.<
p>Obviously, this is from the standpoint of someone who cares deeply about building solar in Massachusetts and is concerned with finding ways to promote the industry in the Commonwealth*.
<
p>The common refrain I heard from those at all stages of the Solar development chain is that the subsidies are great, right now while they are needed, but businesspeople are really excited about the prospect of reaching grid parity in the next few years, so policies that encourage solar now, are less about a permanent subsidy for a technology and more about increasing market share with the goal of grid parity by 2015(ish).
<
p>In the short term – that is, as long as we need to incentivize solar because we believe renewables are the right thing to do – all the small to medium scale people want is market certainty. They need to know what incentives are available for what projects.
<
p>That is why Environment Massachusetts is developing legislation with the goal of harmonizing MA’s SREC program with our net-metering program – to remove uncertainty from the market, help developers build more solar, faster, and ultimately move to a situation where we are building distributed generation solar because absent any environmental externalities, the bottom line makes sense.
<
p>The inspiring story I heard here is that MA companies with real, live MA employees are doing the work to be profitable now and into the future. Regardless of whether we “picked a looser” or not in the case of Evergreen, the solar industry is bright and growing, and with a smart set of policies that acknowledge the needs of entrepreneurs who want to “do well by doing good” we can expand solar and build a thriving economy based on hard working MA residents.
<
p>Ben
<
p>p.s. despite today’s weather, it should be noted that our state actually has better solar potential than Germany, the country with the 2nd most installed solar in the world (behind Spain). Solar is our future, if we want it to be.
<
p>*can’t remember off the top of my head, is there a BMG preference for capitalizing “Commonwealth” or is it lower case…
I didn’t mean to strike through “not qualified”. I do indeed, have no qualifications to speak about economic development strategies.
I agree completely that the tax subsidy strategy is not the right way to generate job creation. Please fight to end these giveaways and work to find solutions that will really help our state and the people who live here. Thank you for having the guts to stand strong for us.