Author Archive

Balancing the Scales in New Jersey

May 14, 2015

Risky Business, a new report by New Jersey Policy Perspective, urges the state to improve subsidy accountability and protect taxpayers from bad economic development deals. Such reforms are needed now more than ever as spending on subsidies has sky-rocketed under the Christie administration: $5.1 billion has been awarded since 2010, four times the amount awarded in the previous ten years.

One of NJPP’s key recommendations is to change the “net benefits test,” which is intended to ensure that the new tax revenue generated by a subsidized project exceeds the cost of the subsidy. The current formula is lopsided: benefits are counted over 35 years and subsidy costs over 15 years, the latter being the length of time the company must meet its performance obligations to receive the maximum award. NJPP’s analysis of a $260 million tax break to Holtec International shows how this works. If Holtec keeps performing for 35 years, the state gets a net benefit of $156,000. Yet if it were to leave the state or significantly downsize after 15 years, the New Jersey would experience a loss of up to $105.7 million.

Image Source:  NJPP

Image Source: New Jersey Policy Perspective

Changing the nets benefits test to equally weigh costs and benefits might rein in some of New Jersey’s more extreme subsidy awards. But it still avoids the most important question: do the benefits of awarding a subsidy outweigh the benefit of investing the money in other proven economic development assets like education and infrastructure? Research has shown the answer to this question is almost always no.

New Markets for Whom?

May 11, 2015

A recent series of articles from the Portland Press Herald (see Payday at the Mill and Shrewd Financiers Exploit Unsophisticated Maine Legislators) is bringing new attention to the complex system of state level New Markets Tax Credits (NMTC). Whit Richardson’s reporting exposes how a NMTC deal that was intended to upgrade the Great Northern Paper mill in East Millinocket, Maine was exploited by out-of-state investment firms using complex financial tools. In the end, $8 million was expended on debt payments and fees with no investment made in the mill itself. A one-day loan for $32 million artificially inflated the investment to a total of $40 million, allowing the investors to cash in on a $16 million tax credit (at 39% of the total investment) payable by the state of Maine over the next 7 years.

Image Source: Portland Press Herald

The Federal NMTC program states the intent of the program as “the creation of jobs and material improvement in the lives of residents of low-income communities.” Many states, like Maine, have in recent years created state level NMTC programs, driven largely by the lobbying efforts of a handful of investment firms that benefit from these deals. And as the Maine case strongly shows, it seems it is these very firms that are benefitting from the state NMTCs, not low-income communities or the businesses that serve them.

In the weeks since Richardson’s piece legislators and others have been pushing to attach greater accountability measures to the NMTC program.