AP: Auditor says $2B in Mass. tax breaks unchecked

By Bob Salsberg Associated Press / April 7, 2011

BOSTON—The state hands out more than $2 billion in business tax breaks annually with no mechanisms for reviewing their effectiveness or recouping lost revenue if the exemptions fail to produce the desired results, an analysis by the state auditor shows.

Auditor Suzanne Bump reviewed 92 business tax breaks or credits, many dating back decades, and determined that only seven had so-called sunset clauses, automatic reviews of a law after a fixed period of time, and only 10 had clawback provisions allowing the state to get back some of the taxes if a company doesn’t meet job creation goals or other benchmarks.

The tax breaks on the books containing no sunset or clawback provisions would total $2.1 billion in foregone revenue during the fiscal year starting July 1, Bump concluded. The auditor planned to present her findings Thursday at a hearing of the Legislature’s Revenue Committee.

“This review makes clear that our tax code lacks basic accountability and transparency,” Bump said in an interview with The Associated Press.

While government spending programs are subject to review and regular state audits, “once a tax break gets passed into law, it goes into this black box, and seldom if ever does anyone look back and determine whether it’s working as intended or if there is a continued public benefit to it,” Bump said.

Tax breaks and corporate subsidies have been under increasing scrutiny on Beacon Hill in the wake of a recent announcement by Fidelity Investments that it planned to move more than 1,000 jobs out of Massachusetts and the decision by Evergreen Solar to close a factory in Devens and lay off hundreds of workers. Fidelity and other mutual fund companies have benefited from a tax break since 1996, while Evergreen was the recipient of more than $30 million in direct grants and tax and lease breaks, according to the state.

Many of the tax breaks reviewed by the auditor also came with no public disclosure requirements, though some, such as the credit granted to the motion picture industry for films shot in Massachusetts, require the state to issue annual reports.

Bump’s initial analysis did not attempt to measure the relative effectiveness of any of the tax breaks, nor did it identify companies that receive them.

Bump, a Democrat who served as a state representative and head of the state office of labor and workplace development before becoming auditor in January, said the second phase of her office’s study would focus on whether the policies have benefited the state economically.

Several bills have been filed calling for greater scrutiny of business tax breaks and subsidies, and Democratic Gov. Deval Patrick, who was stung by the Fidelity and Evergreen decisions, has said he would welcome such a review.

Legislation co-sponsored by Sen. Jamie Eldridge, D-Acton, would establish uniform standards for economic development incentives and mandate clawbacks when a deal goes sour.

Under the bill, which was to be heard at Thursday’s hearing, any company that received a tax break or subsidy from the state would have to return a pro-rated portion if it does not meet job creation goals within two years. The company would have to give back the entire amount of the subsidy if it fails to reach 90 percent of the goals for three consecutive years.

The bill also would put a $35,000-per-job cap on direct state subsidies to companies and require that all details related to economic development incentives be posted by the state on a searchable website.

“I think it’s absolutely important,” Eldridge said, “that this information is transparent, that we have an idea of the jobs created and that there are clawbacks so if a company breaks its promise the state can recoup the taxpayer money that was invested in that company.”

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