Fidelity’s decision has become just the latest in a long line of reasons why we need much greater oversight and accountability for our economic development spending. For far too long, elected officials have made economic development agreements and passed big tax breaks for corporations that have left taxpayers – the ones paying for those subsidies and tax breaks – at a disadvantage.
We’ve given companies subsidies to create jobs with no real strings attached: no monitoring to make sure jobs are actually being created, and no requirements to give the money back if they aren’t. We’ve passed tax breaks for companies, such as Raytheon and Fidelity, with the understanding that a certain number of jobs would be created in exchange – but we didn’t build in any protections for taxpayers when those tax breaks were passed, no clause to say if you eliminate those jobs, your tax break will end.
This “corporations over taxpayers” mentality needs to end in Massachusetts. At a time when we are cutting vital services left and right, it’s time we start demanding that our economic development dollars are spent as efficiently as possible. That means more transparency in economic development spending – from tax incentives to subsidies to tax increment financing (TIF) deals – and more accountability for how that money is used and what results it creates.
Representative Carl Sciortino and I have introduced legislation this session – An Act to Promote Efficiency and Transparency in Economic Development¬ – designed to increase the efficiency of our state’s economic development agencies by improving transparency and strengthening our state’s clawback authority to get taxpayer dollars back if a company breaks its job creation promises. [More Information]
The bill would require companies to make firm job commitments in exchange for economic development support, and would cap the amount of money the state could give a company at $35,000 per permanent, full-time job. (That number is based on the federal CDBG guidelines.)
It would require enhanced reporting and monitoring, to make sure job creation commitments are truly being met. All of this information would be made public, so taxpayers – and legislators – can see how the state’s money is being spent.
Most importantly, it would significantly enhance our clawback authority: if a company failed to live up to its commitment – as Evergreen Solar did — it would require that the company give us our money back.
We can’t change the bad deals that have been made over the past 15+ years. But we can act now to ensure that any economic development agreement we make going forward includes these important transparency and accountability protections for taxpayers. I hope we do it soon – quite frankly, I don’t want to hear about any more companies leaving my district, taking taxpayer-subsidized jobs with them.
This issue drives me crazy. Thanks for working to do something about it.
I’m a fan of government spending on economic development.
<
p>I despise the cynical behavior of companies who enrich their executives by misusing these programs and then walk away with all that taxpayer money in their bank accounts and no jobs.
<
p>Thus, I think the clawback provision is crucial.
<
p>Having said that, companies with even the best of intentions do fail. Another inescapable reality of the “innovation economy” is that many “innovative” companies fail.
<
p>Investment firms have always used increased returns from their winners to cover the costs of their losers. I wonder if there is a mechanism to do the same for these public programs.
<
p>Finally, I think we should face another economic reality: big companies tend to also fail big. Our public programs have a rather pronounced bias towards large companies like Raytheon and Fidelity (who, for example, can afford to pay for the often enormous amount of documentation typically required by these programs). I have a much bigger problem with the subsidies pocketed by Raytheon and Fidelity than by the ultimate failure of a struggling startup like Evergreen.
<
p>The business (and often physical) landscape of Massachusetts is littered with the debris of large employers who took large “economic development” grants and then fled anyway. We now face, for example, the need to invest a huge amount of money to undo the damage created at the site now called “Landmark Center” to create a huge parking lot demanded by Sears — who left anyway, leaving behind a wrecked Muddy River.
<
p>Bills like this are an excellent beginning. In my view, we need to rethink the political relationship between local government if we are to achieve a sustainable way of using public funds to support economic development.
<
p>Got some suggestions for us on how to create sustainable ways of using public funds?
Governors (and presidents) don’t create jobs except government jobs. Shoveling money into an industry because you like it and it complements your societal goals does not mean it will be profitable (Raytheon and Evergreen are both good examples).
<
p>Politicians need to stop targeting specific industries, companies, and districts for economic growth money. Instead they need to concentrate of streamlining and ‘clawing back’ business regulation. For example, Mass DOR and DUI STILL use different criteria to establish who is a 1099 or W-2 employee, despite a year old report outlining the difference. A sole employee working from their own home with no customer traffic (like a writer or a computer designer) still cannot legally smoke in their own ‘workplace’. And so on.
<
p>It isn’t just our bad corporate tax rate – it’s our nanny state, pickayune business regulation climate that drives away start-ups and small business.
when it comes to other states?
<
p>Say, for example, Tennessee decides to give more incentives, etc. to a company than Massachusetts?
about picayune regulations…I’m not precisely sure how Massachusetts compares to other states in this regard, but the Commonwealth does have a number of problems with duplicative, confusing, and/or unnecessary regulations such as the ones you mention.
<
p>This is one area where I think other liberals can (or at least should) agree with you. Reducing these sorts of regulatory burdens is not the same thing as when the national Republicans talk about “reducing business regulations.” The latter refers to ending certain consumer protections, busting unions, letting Wall Street run wild, etc.
<
p>The type of regulatory reforms you are talking about, by contrast, aim to clear away sometimes unnecessary or even foolish regulations that do nothing to advance the public welfare. The reason I think this is particularly compatible with a liberal worldview is because it is there sort of regulations that are “regressive” in the sense that they hurt small businesses more than large businesses. Small businesses don’t have armies of lawyers and accountants to help them navigate confusing and sometimes contradictory regulatory structures.
You’re right that it does not mean they will be profitable necessarily, but to me the whole point is to put a thumb on the scale in favor of a business that wouldn’t be profitable if left to the market. To me a key role of government is to serve as a check and balance mechinism on the market. That’s diametrically opposed to the other philosophy of government existing to prop up the market.
There are a number of reasons why giving tax credits to businesses or industries that government wants to see succeed is a bad idea. First, it is highly dubious that the government is in a good position to determine which companies “should” be favored. Second, if the companies “wouldn’t be profitable” if left to the market then the governemnt subsidy will have to endure forever. Third, there are much better ways of achieving the desired outcomes. Transportation and infrastructure improvements that allow any business to be more productive are a proper use of public funds. In areas such as energy where one can make the strongest argument that there is a better sort of industry to promote such as clean energy instead of coal, there are still better ways of approaching the issue. Investment in a better electrical grid that would allow for more effficient transfer of electrical power over distance, regulatory reforms such as the governor’s wind siting bill etc. are better ways to go then giving money directly to corporations.
<
p>That assumes that none of the following apply:
* technology is driving down the cost of the companies which wouldn’t be profitable this year but will be in future years
* economies of scale which would drive down the cost per unit once the industry gains a foothold don’t exist
* the price of the inputs to the organization [materials, labor, etc] is stable or increasing and not decreasing
My second point is only not on point if you assume a lot of facts not in evidence.
<
p>The statement I was responding to was that government should tip the scales in favor of companies that wouldn’t be profitable if left to the market. That is at least too overly broad.
<
p>Perhaps my statement that the subsidies would have to go on forever is also overly broad and rhetorically at least makes the mistake that I believe you and Christopher are making which is to predict the future. My point would have been better made had I said that either the subsidies would have to continue in perpetuity or some future event or condition such as you describe would have to intervene. However, said intervening event or condition was not posited by Christopher.
<
p>I am generally a pretty pro-government guy but basing the spending of millions of dollars on the ability of elected officials to guess the economic future viability of an industry seems to me to be a dubious proposition at best.
<
p>I would always prefer that public money be spent for public purposes and, if those public purposes grow local industry even better. I also prefer any approach that seeks to create an environment conducive to certain industry rather than one that simply hands cash to individuals in the return for a promise that they will make stuff that we want and be profitable in the future.
I did not intend to suggest that government subsidize anything not otherwise profitable just to level the playing field for its own sake. My point was that government should subsidize based on our values regardless of profitability, but that something that is going to be profitable anyway doesn’t need government help.
You may feel comfortable with this as long as you control the administration, but will you feel comfortable when you don’t? Abstinence only funding, oil subsidy – I thought you opposed these things but they were merely the values of who ‘our’ was then.
<
p>Your comment illustrates the futility of trying to ‘create’ jobs based on ‘values’.
<
p>Businesses have to plan five, seven years out. How can they do that when the ‘Our’ might change? Espousing such a value – and you are far from alone in this attitude – is an example of why businesses leave Massachusetts.
They now have to compete with a public/private partnership – funding by tax dollars taken from them.
<
p>I think the Bay State Expo is a great example – went broke after the state built a convention center to compete with them, and now maybe we will build even a bigger one (let me tell you IT’S NOT NEEDED.
<
p>
We need to work to elect people who share our values so that the government will pursue policies that will reflect such. I of course have my opinions on this, but I’m sure it will be an ongoing debate as to which businesses should receive these subsidies.
Cristopher. I also understand and sympathize with the impetus behind your position. Solar panels are probably one of the best examples since they are good for the environment, get us off foreign oil, are expensive to build but are becoming less so etc. as well as the fact that China is investing in them.
<
p>I would be willing to openly admit there are certain specific instances when it seems like a really good idea for the government to pay private enterprise in order to promote one set of economic values. My position however, is that the instances when this is clearly a good idea are exceedingly rare while the instances of direct payments from government to private enterprise are exceedingly common. I think that restricting government spending to public puposes is a better approach.
about your paragraph 2? Not sure I understand you about the 1099/W2 issue. No need to comment on the smoking part. Thanks.
From THIS report –
<
p>
<
p>AFAIK, no effort has been made to reconcile this disparity of definitions, although Line 7002-1108 WILL spend $200,000 to study it.
<
p>It’s like – the Obama health care law and the MA health care law use a DIFFERENT hourly figure to determine who is an employee for purposes of the law.
<
p>Stuff like that. We subsidize Lucky Company, Inc. – who may or may not thrive – instead of fixing problems like this which has small start-ups gibbering. You’re too small – no soup for you! (Unless it’s heart healthy soup and made by blind veteran minority workers, in which case a SMALL subsidy is available…)
understand that good intentions do not alone make a viable economic success story. That 58 million or so could have been much better used in some of the programs that Amber has been trying to save and to help people who really need a hand up.
I’m all for saving those programs for people who need short-term assistance, but the jobs are long term (the whole teaching a man to fish vs. giving him a fish thing). How do we keep jobs local without engaging in a full-blown race to the bottom ina way that conflicts with our other values with regard to human dignity?
I’m not saying this is a “good” idea — I haven’t really cooked on it myself yet. But it’s a natural extension of my comment above about how investment firms work.
<
p>What if the state established a fund, perhaps targeted towards specific industries, and offered seed money (either as straight investments or some sort of convertible loans) in exchange for equity in the venture?
<
p>A variant might be to do some sort of web-based micro-funding model, where companies offer milestone-based deals and taxpayers (individually or collectively) choose deals that look attractive? There is at least one website operating this way, I’ll have to track down the specifics.
<
p>I think the basic premise is that the public should receive equity in the ventures in exchange for public funding, so that the public has the opportunity to gain from the winners.
I would agree to the opposite: the public should get some kind of dividend award from those few publicly supported enterprises which may be successful. Call this “public equity” if you wish; I call it fairness to the taxpayer.
It should the %$#### out of funding or giving targeted tax breaks to individual businesses. The state has 175,217 businesses that have employees, make the state more hospitable to them.
that can not be carried out of state.
<
p>Infrastructure, transportation, public transportation, and educated workforce, single payer health care, communications, internet, clean air and water and a healthy environment, safe, crime free communities.
<
p>These investments benefit all business – even the small business that create most jobs.
They last longer than the current tax year and cannot be easily carried to another location out of state or overseas.
from the articles ive seen, it appears that the commitment fidelity made in 1996 was to increase jobs for 5 years in order to receive the tax breaks. i havent seen any statements indicating that they did not meet these obligations.
<
p>does anyone know the fidelity employment numbers for that 5 year period? did they increase the number of employees?
<
p>im ok with a clawback provision but what is there to clawback if they met their commitments? unless there were further commitments that i have not seen yet.