Jobs. Tax credits. How can you lose?
That's the view of the typical Arkansas legislator, which explains bipartisan support for yet another corporate welfare scheme that zipped through the 2013 legislature.
Now comes Ryan Saylor at The City Wire with news that the Arkansas Economic Development Commission, which administers the giveaway, has questions.
Such as, will a good percentage of the money actually go to support economic development projects in Arkansas — the stated purpose?
Here's the scam, er, scheme: Insurance companies can get a tax credit against the state tax assessed on their premiums for money invested in qualified community development organizations that finance businesses in low-income communities. Some $96 million is available. Other states have tried it. Some have rejected it. Grant Tennille, director of the AEDC, has raised questions about loopholes in the law.
This is the biggest:
Tennille added that the legislation also does nothing to ensure that all of the tax credit goes to job-creating projects versus in the pockets of the QCDEs.
“The best we’ve been able to determine looking at this program and similar programs across the country, somewhere between 25% and 30% of the value of the tax credits make it to the end-project company. That means 70% of the value of the tax credit is going someplace else. Where? I’m not sure anyone is completely sure,” he said.
What kind of a deal is it to give up two-thirds of premium tax dollars — money that otherwise supports state government from schools to colleges — to evaporate into the ozone (likely into the pockets of wealthy investors not in Arkansas.)
Rep. Greg Leding of Fayetteville, one of the big boosters of the law, plays the trickle-down card in defense. Investments will create new and greater revenue streams., he says, claiming he's heard of a $1.50 return for every $1 given away. Do the math on that. If only a third of the money is reaching an Arkansas business, think how much profit that business would have to make to generate 150 percent of the original lost revenue? That's a whopping mighty return in a market where you're lucky to get a 1 percent return on a jumbo CD.
The old siren song of easy money from corporate handouts sounds particularly off-key in this deal. States like Missouri have decided not to re-authorize a similar plan. Texas, which never met a tax it didn't want to cut or a corporation it didn't want to comfort, has refused to adopt such a program. Free money for companies that can't get private financing? It's an ironic product of the free market-praising Republican-controlled legislature.
Tennille wants stiffer rules to protect Arkansas interests.
He also said he will continue advocating for tightening the rules and regulations associated with the new markets tax credits.
“Look, my fondest hope is that this does everything everyone says it should do and create a minimum 32 new companies employing a few hundred people and say this has been a resounding success, let’s do it again. But there are a lot of questions here. And I just want to make sure that everyone needs to be watching this thing closely because there’s a lot of money at risk. One of the things to remember is the premium tax credit is ultimately the money ends up in general revenue. We are taking money that normally would go to schools and prisons and sick people and colleges and universities and gambling it,” which Tennille said would amount to a $96.28 million gamble.
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