Archive for April, 2008

For New York firms that didn’t RSVP, tax credits may RIP

April 8, 2008

Despite all the hoopla created by the 3,000 warning letters sent by New York State officials last year to companies participating in the Empire Zone program it was announced today that only twenty six are likely to be removed. The “lowest hanging fruit” companies getting pink slipped are those that ignored numerous inquiries from the state.

The Empire Zone program – which provides tax credits to firms based on job and investment commitments – has been a thorn in the sides of policy and environmental watchdogs like the Fiscal Policy Institute and elected officials and is a half billion dollar hit on the state budget. The impact on job creation has been questioned far and wide. For groups like ours, last year’s onslaught of warning letters was a hopeful sign there was a new sheriff in then Governor Spitzer would rein in the program.

Sadly, that’s not the case. Of the near 10,000 businesses participating in the Empire Zone program, today’s news is expected to save only $3.2 million. That’s always good news, but many of the firms that are getting the ax weren’t even receiving any benefits. Today’s announcement should add fuel to the fire to scrap the program and start anew since some firms receive millions of dollars worth of tax credits each year and only have one or two employees. While there are efforts to investigate another 145 firms, we can only hope that the newest sheriff in town, Governor Paterson will push to revamp the program entirely.

Dell Goes Carbon Neutral, Employment Negative

April 7, 2008

Computer giant (and frequent subsidy recipient) Dell apparently tried to use an environmental initiative last week to deflect attention away from an announcement about ongoing financial difficulties. The company made a big deal over a plan to become “carbon neutral” at its corporate headquarters in Texas. But while its offices were going green, the company revealed it would be taking “green” out of the pockets of 900 workers at a nearby desktop assembly plant, which the company said would be shut down as part of a previously announced effort to eliminate 8,800 jobs. Or, as the Orwellian headline of the company’s press release put it: “Dell Driving Actions to Enhance Competitiveness, Optimize Operations.”

When the identity of the plant slated for shutdown was announced, there was relief at some other company facilities—including the one in North Carolina being subsidized to the tune of some $270 million—that felt they had dodged a bullet. Yet a few days later, CEO Michael Dell told investment analysts that the job elimination target would be raised above the 8,800 figure. To make matters worse, he said Dell would outsource more of its assembly work.

Dell has a track record of persuading local officials—in places such as Tennessee and Alberta as well as North Carolina—that giving the company generous tax breaks would be a virtual guarantee of supposedly high-tech prosperity. Now these deals look as prudent as a PC without virus protection.

Canadian Aircraft Manufacturer May Fly South for Subsidies and Cheap Money

April 3, 2008

Missouri lawmakers have fast tracked legislation that creates a new state income tax credit program to lure Ottawa-based aircraft manufacturer Bombardier Aerospace to Kansas City.

If Missouri’s package passes, the $375 million aircraft assembly plant will receive an estimated $300 to $400 million in “Enhanced Enterprise Zone” credits over 22 years. However, it was the weak American dollar (which has lost about a third of its value versus the Canadian dollar over the past five years) rather than the subsidy that prompted Bombardier executives to consider relocating to the U.S.

Both Kansas City Mayor Mark Funkhouser and Kansas City Star columnist Chris Lester, frequent critics of subsidy giveaways, are in favor of the deal. That’s because this is not a typical subsidy deal. World Trade Organization regulations forbid aerospace companies from receiving subsidies, so Bombardier would have to pay back the tax credits through fees charged to buyers of jets assembled at the plant.

Meanwhile, Canadian officials are teaming up to offer a $488 million incentive package to keep the expansion site at home. While it’s unclear if the bigger subsidy will be enough to overcome the weak American dollar, one industry analyst questioned whether Bombardier is using the Missouri offer as leverage in its talks with Canadian officials.

In other jet-set subsidy news…

Michael Scheeringa, CEO of Cuyahoga County, Ohio-based FlightOptions LLC wants a big tax break. After all, it would only be fair.

That’s after it was announced in March that NetJets Inc. would receive about $68 million in state and local subsidies to assist in the $200 million expansion of its Port Columbus Airport aviation campus. FlightOptions and NetJets are direct competitors in providing private flights to corporate executives and, Scheeringa points out, the subsidies give NetJets an unfair competitive advantage.

With No Tax Breaks to Lure Venture Capital, Oregon Still Sees It Double

April 2, 2008

In many states, advocates of cutting taxes on capital gains (profits from sales of business assets) have claimed lower rates would increase the flow of venture capital and so clear the pathway to rapid economic growth.

Hoping to cash out quickly with big capital gains, venture capitalists provide critical large scale financing to technology startups that most states see as crucial to high-wage economic growth. But the distribution of venture capital investment has remained lopsided, with 60% going to California and metropolitan Boston. Lower tax rates on venture capital gains in other states would supposedly make the playing field more even.

But this theory may stumble over some hard facts from a new analysis by the Oregon Center for Public Policy (OCPP). It reveals that while continuing to tax capital gains at the same rate as other income, Oregon has seen its venture capital investments double within a year, rising from $153 million in 2006 to $302 million last year.

OCPP’s analysis of data from PricewaterhouseCoopers and the National Venture Capital Association report found that in 2007 Oregon ranked 9th among states for venture capital investment per capita, up from 19th place the previous year. Oregon’s per capita venture capital investment in 2007 was at least double that of 32 other states. In addition, the top states for venture capital, Massachusetts and California, also tax capital gains as much or more than ordinary income.

OCPP policy analyst Michael Leachman cites research universities, and easy access to markets and suppliers, as bigger lures to venture capital: “There’s a reason why venture capital gravitates toward places like Boston and Silicon Valley, and it’s certainly not the tax rate on income from capital gains.”

In fact, as Leachman notes, tax breaks that reduce revenue available for investment in research and public infrastructure could even reduce venture capital investment. Hopefully, this message will encourage other states, most of which still tax capital gains like ordinary income, to hold the line.