Among the bills now awaiting signature or veto by Gov. Nathan Deal is a complicated new tax break that promises a windfall to some well-connected financial firms and little to no benefit to rural communities it promises to help. Senate Bill 133, called the Georgia Agribusiness and Rural Jobs Act, narrowly passed the state Senate in the legislative session’s hectic last hours. It creates a lightly edited version of similar programs from other states that failed to deliver promised jobs and investment, one that auditors and researchers nationwide recommend ending. The governor vetoed a similar bill by a different name in 2015. He can take a close look again to ensure Georgians’ tax dollars are not wasted on ill-conceived schemes.
Senate Bill 133 calls for $60 million worth of tax credits over six years for investors in financial companies that provide funds to businesses in Georgia’s rural counties. Supporters claim the money will help companies add additional jobs and equipment, in turn generating more economic activity and tax revenue long-term. But while everyone can agree that Georgia’s rural communities are in need of an economic boost, this particular idea is unlikely to provide it.
The maneuver has gone by different names in different times and places, in most cases leaving states disappointed in their overall return on investment. As detailed in a recent investigation by the Pew Charitable Trusts, the program outlined in SB 133 is “the latest iteration of an approach that at least 20 states and Washington, D.C., have turned to in the last three decades. But states that have evaluated the multilayered subsidized lending programs—originally CAPCO (certified capital companies) programs and later New Markets Tax Credit programs—have found that they failed to deliver promised jobs and tax revenue.”
Several states passed versions of the credit, only to revise or eliminate them after disappointing performance. Missouri ended its program in 2013 after an official review by its Department of Economic Development found that $120 million in state funds delivered just 823 new jobs. In New York, a state audit found that $400 million in tax credits cashed in over 15 years netted only 188 jobs. And in Florida, a March 2017 review found that “for every dollar spent with this program, the state of Florida only received $0.18 back in tax revenue.”
The gimmick tends not to pan out for several reasons. The program lacks transparency and is almost byzantine in complexity, so it’s hard for policymakers to monitor. It’s typically structured in a way that limits competition and funnels most of the benefit to a few small firms, often the same ones that lobbied for the program in the first place.
And perhaps most importantly, it rarely generates the level of investment originally touted by legislators. Auditors and investigators in other states determined participating financial firms often use unorthodox investment and accounting maneuvers to satisfy the bare legal requirements of the program, without putting up the promised amount of capital. For example:
- An in-depth review by Maine’s flagship newspaper determined that state’s version of the program allowed one financial firm to claim $16 million in tax credits in exchange for an investment only half that size in a local textile plant. A tax credit payout that big was supposed to require a $40 million investment under Maine’s program rules, but “the reality is most of that $40 million was a mirage.” The plant closed soon after receiving the money, laying off 200 people.
- Colorado reported in 2014 that, 12 years after the state committed $100 million of tax credits, $27 million was never invested.
- And in Arkansas, the director of the state’s economic development commission said in 2013 “The best we’ve been able to determine [is] somewhere between 25 percent and 30 percent of the value of the tax credits make it to the end-project company. That means 70 percent of the value of the tax credit is going someplace else. Where? I’m not sure anyone is completely sure.”
One of the places the unaccounted for dollars tend to go is exorbitant interest and fees, or “the maw of financial institutions and lawyers” as the Arkansas commissioner describes it. Financial firms in Maine managed to pocket $16 million in fees and charges off the $76 million in tax credits offered by that state, a whopping take of more than 21 percent.
Defenders of the Georgia measure claim that if financial firms fail to deliver all of the promised jobs, state regulators can claw back the value of the credits. The legislation includes no such provision. If participating financial firms churn the required dollars through the program but fail to generate any jobs in the process, taxpayers can recover no more than 10 percent of the credits.
Georgia’s already examined this scheme many times in past years and rejected it at every turn. Legislators in 2004 repealed a previously passed version before it could take effect. The General Assembly turned away efforts to create it in 2011 and 2012 when it went by the name of CAPCO, as referenced in the Pew investigation. A somewhat repackaged version under the moniker of New Markets failed to pass the Legislature in 2013. The governor vetoed a similar proposal passed by legislators two years later.
The version of the tax break approved by the General Assembly this session aims to cash in on a rural nickname at a time of economic struggles in Georgia’s countryside. But the scheme by another name is the same bad deal that shortchanged other states. It’s likely to benefit a few well-connected firms and leave taxpayers holding the bag, while providing little help to rural Georgia. It deserves a skeptical eye from the governor as he reviews which bills are worthy of becoming law. This one is not.