April 17, 2011
IT’S BEEN a bad few months for the idea of using tax breaks to persuade companies to move to or stay in Massachusetts.
Evergreen Solar, a once-promising renewable-energy firm that had been awarded more than $30 million in grants and tax and lease incentives, announced in January that it was closing its factory at the former Fort Devens. Fidelity Investments, which benefited from a 1996 law granting a tax break to mutual-fund companies, recently announced that it was moving about 1,000 jobs out of state. These high-profile blows shouldn’t scare Massachusetts off its economic-development strategy of targeting certain industries, but they do show the need for a consistent way to assess whether such policies are achieving what they promise.
In the upcoming session, the Legislature should establish an office or commission to monitor economic-development initiatives and police their effectiveness.
Massachusetts initiatives range from industry-specific tax breaks to special land deals to programs that make loans, grants, and equity investments in specific companies. These initiatives can be controversial even when they work as intended. Good-government groups worry about a coziness between the state and client companies; budget purists on the left resent the loss of money from the state treasury; those on the right would prefer fewer exemptions with a lower tax rate overall. But Governor Patrick’s administration has taken the position that making strong bets on promising firms is how the modern economic-development game is played, and that targeting tax incentives to specific industries can preserve the state’s competitive advantage in some industries and overcome its disadvantage in others.
It’s a sound strategy, consistent with the way companies in certain industries tend to cluster together in hospitable environments. But it needs to be monitored closely. To her credit, State Auditor Suzanne Bump recently examined 91 of the business-tax exemptions granted by the state; they total more than $2 billion a year — a figure that doesn’t include the full impact of economic-development measures that the state negotiates with individual companies. Bump found that few of the tax breaks have expiration dates or so-called “clawback’’ provisions allowing the state to get money back if the beneficiaries fall short of their promises.
That’s bad business — made worse by the fact that the state doesn’t strictly enforce the provisions it does impose. As the Globe reported last month, the state’s main economic development agency allows companies that receive state aid to miss their targets by half before it asks for its money back; the Massachusetts Life Sciences Center, which oversees some of the deals, is somewhat tougher.
State Senator Jamie Eldridge and Representative Carl Sciortino have filed bills that would ratchet up reporting requirements and toughen clawback rules. What the state needs most, though, is an impartial scorekeeper who can evaluate the impact of economic-development deals in a consistent way. State Representative Jay Kaufman has filed promising legislation that would set up a new commission to periodically review business incentives. For his part, Governor Patrick is proposing a new office of transparency and accountability within the Department of Administration and Finance, but any oversight system should include voices from outside the administration as well.
Without a consistent yardstick for evaluating each of the initiatives it offers, the state lacks a strong basis for getting rid of initiatives that have outlived their usefulness or simply don’t deliver enough benefit relative to their cost. Even supporters of targeted business incentives should agree that there has to be some limit to the state’s generosity, and setting those limits requires much more information than the state has been collecting.