March 29, 2010
By Todd Wallack
Just weeks after Fidelity Investments announced plans to move nearly 1,100 jobs out of state, a hearing on Beacon Hill this morning is expected to focus on whether tax breaks for Fidelity and other selected companies are paying off.
State Senator Mark Montigny, chairman of the Post Audit and Oversight Committee, noted that the state government has created various tax incentives for one sector after another over the years, ranging from filmmakers to biotech companies to green energy firms. But Montigny said there has been too little follow-up reporting on how much money the companies received and whether they produced the amount of jobs expected.
“It almost seems like the flavor of the month,’’ said Montigny, a New Bedford Democrat. “The one thing that happens is that these tax breaks continue, and in fact accumulate.’’
The hearing is expected to include several key members of the Patrick administration, as well as Ronald O’Hanley, Fidelity Investments president, and Michael El-Hillow, Evergreen Solar Inc. chief executive.
Fidelity, the financial services giant based in Boston, disclosed plans earlier this month to close its Marlborough office by the end of 2012 and move nearly all 1,100 jobs out of state. Fidelity is one of several mutual fund companies that received a significant tax break from the state 15 years ago in exchange for a promise to add jobs.
But even before the Marlborough closure, the Fidelity has cut employment in Massachusetts to 8,400 jobs, down from 13,000 five years ago.
Fidelity is “a good poster child to do the hearing,’’ said Montigny, who said he originally planned to hold a hearing on state tax incentives later this year.
Under legislation signed in 1996, the state provided a tax break to Fidelity and other mutual fund companies that significantly increased their workforce over the next five years.
One of the changes allowed firms to calculate their state income tax solely based on the amount of sales in Massachusetts, instead of having to use a combination of sales, property, and payroll.
But after five years, all the job requirements attached to the tax incentive disappeared — allowing any mutual fund company to qualify for the more favorable tax treatment, regardless of whether it added or eliminated jobs.
The Department of Revenue estimates the tax change has allowed the industry to save roughly $1.7 billion over the past 15 years, including $142 million this year.
The Revenue Department said it isn’t allowed to break down figures for individual companies, but Montigny said he plans to ask Fidelity how much it saved today.
Fidelity said O’Hanley plans to emphasize Fidelity’s role as a major employer in the state, explain its decision to close its Marlborough offices, and argue the 1996 tax change helped significantly bolster the health of the state’s mutual fund industry.
“We have chosen to be here and we are one of the few large national companies that are headquartered in Massachusetts,’’ O’Hanley said in a statement issued late yesterday. “Massachusetts remains very important to Fidelity and we hope and believe Fidelity will continue to be important to Massachusetts.’’
Meanwhile, Evergreen Solar shut its three-year-old solar panel plant in Devens this month and eliminated more than 800 jobs statewide, despite receiving $58 million in cash, tax incentives, and other aid from the state.
Evergreen said it created far more than the 350 jobs it initially promised prior to the closing and expects to pay back a portion of the cash grants it received.
But the company said it was forced to close the plant because it couldn’t compete with cheaper manufacturing in China.
Montigny said he is skeptical of the decision to support particular companies and industries. But if the state keeps such breaks, he said it should increase the amount of information that is reported to the public and make it easier for the state to recoup its money if companies don’t meet their promises.
Dozens of lawmakers, including Montigny, have signed a proposal that would do just that.
The measure has been filed by Senator James Eldridge, Democrat of Acton, and Representative Carl Sciortino, Democrat of Medford.
One Patrick administration official slated to testify today said he supports working with the Legislature to improve the accountability, consistency, and transparency of state tax incentives.
“There are lots of great questions,’’ said Gregory Bialecki, secretary of housing and economic development, adding that the administration is still in the midst of talking to lawmakers. But “we are not prepared to have all the answers.’’