Corporate Welfare Weekly - June 21th, 2010 – Issue 55
Jun 21st, 2010
Recent Announcements…
$1,100,000 in state tax breaks through the Job Development Investment Grant has been awarded to Magna International Inc. The Canadian auto parts manufacturer will be expanding three factories in Rowan, Catawba, and Caldwell County and add 330 jobs.
~ Emery P. Dalesio, Asheville Citizen Times, June 15, 2010
Quote of the week…
Governor Beverly Perdue has been unapologetic when it comes to granting as many incentives deals as possible, even during a time of a severe recession and massive budget deficits. So what did Governor Perdue say about corporate incentives before she was elected? In September 2007, the Raleigh News & Observer quoted the Governor-to-be as saying…
"As North Carolina's next governor, I also plan to lead a discussion with other governors about interstate cooperation on controlling the use of financial incentives."[And the best incentives will always be] "a highly educated and skilled workforce, lower health care costs, and a solid infrastructure."
I can’t seem to recall any discussions from Governor Perdue about “controlling the use of financial incentives.” In reality, North Carolina residents have seen nothing more than a massive push for more.
Two companies to get incentives without adding jobs
The Triad Business Journal reported that two Triad companies have been promised incentives without job creation requirements.
“Two Triad companies have won promises of city and county incentives for sizable investments, but unlike most projects that seek public funds, neither is promising to add new jobs right away.
Observers say it’s a trend that is likely to continue as companies seek leverage with municipalities whose tight budgets need any tax-base increase they can get.
Burlington and Alamance County have agreed to provide Laboratory Corporation of America Holdings with $552,000 each, paid out over four years, in exchange for LabCorp building a $27.6 million laboratory on its Burlington campus.
Eden and Rockingham County have also both approved $367,000 and $423,000, respectively, for Gildan Activewear to make $9.8 million in building improvements and purchase $11.2 million in new distribution and handling equipment. Those incentives would also be paid out over four years.”
North Carolina’s $300 Million Omnibus Incentives Bill
The Asheville Citizen Times reported that House Bill 1973, otherwise known as the “Keep North Carolina Competitive Act,” has been tentatively approved by the North Carolina House of Representatives on Thursday, June 17th. A final House vote is expected on June 21st. The Bill combines multiple tax breaks for multiple companies.
“Tax breaks for airlines, NASCAR race teams, and paper factories drew barely a mention, but a $300 million bundle of business sweeteners drew opposition Thursday to subsidizing the salaries of Tom Cruise and other movie stars.
Still, attempts to trim the collection of inducements for business and job growth failed before the state House tentatively approved the legislation 76-28. A final House vote is expected Monday.
The incentives package also includes breaks aimed at attracting two computer data centers, an energy turbine manufacturer, and a plant converting wood pulp to paper. If all the unnamed companies moved into the state, they would combine for more than 1,500 jobs and nearly $2 billion in investment, lawmakers said.
Legislative fiscal analysts estimated the bill collecting most of the year's proposed business breaks would cost $300 million in uncollected taxes in the next five years.
One provision would allow the salaries of star actors and directors to count toward the amount movie and television producers could write off their North Carolina taxes, up to a maximum per feature film raised from $7.5 million to $20 million. But opponents argued that the provision could mean a multi-million-dollar refund check from taxpayers for producers who manage to avoid owing North Carolina taxes.
"We're subsidizing superstars," said Rep. Paul Luebke, D-Durham.
Lawmakers including Rep. Edgar Starnes, R-Caldwell, said it was insulting to offer tax breaks on moviestar salaries at a time when recession is forcing cuts in education and human services and unemployment is 10.8 percent statewide.
But Rep. Frank Iler, R-Brunswick, and others said more would become jobless if productions don't return to employ the technicians, electricians and caterers concentrated in Wilmington.
…Movie and TV projects spent $67 million in North Carolina on goods, services and salaries in 2007, $148 million in 2008 and $55 million in 2009, according to state Revenue Department records showing producers claimed $44 million in tax credits in those three years.
The expanded film credit is predicted to cost $166 million over the next five years if movie studios ramp up projects in the state.
Supporters said many of the breaks are allowed only after investments are made and jobs created, so the inducements cost state taxpayers nothing up front. Opponents said if that were true, then tax breaks ten times larger would have ten times the impact on employment.
"This is a magical bill - it's like a perpetual motion machine. It costs us nothing and yet produces thousands of jobs," said House Minority Leader Paul Stam, R-Wake.”
Film Industry Incentives a Bottomless Pit
Are film incentives really helping states to increase the amount of jobs available in their respective states? Do they pay for themselves with the increased in economic activity as most legislators claim? Experts say not quite. The featured article in North Carolina’s Capitol Monitor classifies film industry incentives as more of a bottomless pit than a benefit to the state’s economy.
“In 2004, on the 25th anniversary of the Film Office’s establishment, the Commerce Department boasted that North Carolina ranked third in the nation in film production for the twentieth year in a row with 20,000 production-related jobs. But their numbers don't jive with those of the Employment Security Commission. According to the ESC, jobs classified as motion picture, TV & record production, and distribution (excepting theaters) total fewer than 1400 annually.
…Clearly the Commerce Department is using a super-sized, blockbuster multiplier of jobs in restaurants, car rental agencies, and other businesses serving transient movie crews to come up with their 20,000 figure. But experts dismiss those bonanza claims. Jennifer Weiner, a policy analyst for the New England Public Policy Center at the Federal Reserve Bank of Boston, discounts the oft-repeated argument that these tax credits “pay for themselves.” In a January 2009 report on Connecticut’s incentives programs, Weiner wrote, "Increases in economic activity spurred by the film credit generate some additional tax revenue for the state from a variety of sources. This additional revenue is likely to offset some, but not all, of the initial cost of the credit."
In New Mexico, the Arrowhead Center concluded the state receives fourteen cents for each dollar of film tax credits the industry gets. Other states show similar lackluster results, despite efforts by proponents to distort the data. In Pennsylvania, for example, a study commissioned by the state (but conducted by Hollywood consultants) came to the extraordinary conclusion that the credits were responsible for every single production in the state, even though the majority of filmmakers didn’t even apply for the tax credit.
Nevertheless, in classic political fashion, while the state is busy inflating jobs figures in the movies, Wal-Mart, which employs 53,000 actual people in North Carolina year-round, pays much higher taxes.”
In Michigan, the Mackinaw Center reported that film-related jobs have been trending downward since the state passed its film tax credit legislation in 2006.
I wish more politicians would acknowledge that effective public policy does not have to include MORE government intervention and spending. Successful policy makers must also allow the retraction of policy that has been proven to be ineffective at best. Unfortunately, it seems that is too much to ask.