Business tax breaks need more monitoring

3/28/2017

Politicians like nothing more than to hold a press conference announcing that a new business is coming to town, creating jobs and investment in the future.

Too often, though, the costs to the public of attracting an enterprise is downplayed or ignored.

Those costs can be startling, as a recent study done for the state by the Anderson Economic Group revealed. The analysts determined the real impact of tax breaks by excluding the hiring and purchasing that companies would have done without them.

One program, the state’s Industrial Machinery Tax Credit, actually resulted in companies hiring fewer people, the analysis showed. If the ripple effect in the economy were taken into account, the program added just 55 jobs per year – at a cost of $66.7 million per year. That means each job cost the state a whopping $1.2 million, which could otherwise have been spent on building roads, hiring teachers or any number of other investments in Tennessee’s future.

Another program, the Jobs Tax Credit, was more successful. From 2011-2014, it cost the state $52.1 million on average, and created 600 jobs a year, for a cost per job of nearly $87,000.

Of course, these investments may persist after the tax credits end. But the analysts couldn’t measure that because of the state’s tax confidentiality law. Tennessee doesn’t require companies to retain the jobs after they pocket the tax credits.

Ted Townsend, chief operating officer of the Department of Economic and Community Development, points out that the credits are just part of the state’s broader, business-friendly strategy, which has resulted in companies adding 395,400 jobs since February 2010. That’s an increase of 18 percent, compared with about 15 percent nationally.

“We’re looking at the total impact, not just for one credit,” he said. “These are working. ... The job growth speaks to that.”

Perhaps. But a pair of bills before the legislature would make it easier to verify those results by adding transparency to the process.

The legislation would require annual reporting on the impact of the tax credits. State law now requires an evaluation only every four years.

These tax credits have grown 17 percent since Gov. Bill Haslam took office, and his administration has relied heavily on cash grants to businesses as well. This year the governor also is pushing to cut business taxes by $113 million to further stimulate growth.

The focus on economic development is great. But like any sound enterprise, state government must closely monitor success.

Not checking annually on multimillion dollar investments is irresponsible.

The bills are sponsored by a pair of Democrats: House Minority Leader Craig Fitzhugh, D-Ripley, and Sen. Jeff Yarbro, D-Nashville.

But Republicans pride themselves on supporting the free market and frugally minding the treasury. The legislature’s GOP supermajority surely will back these sensible measures to keep a closer eye on the tax breaks our government gives selected businesses.

Source: Knoxville News Sentinel

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

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