House Speaker Robert DeLeo says the fiscal situation is so dire that, even with $1.5 billion in federal stimulus money flowing to the state, billions of dollars in spending cuts will be needed to balance next year’s budget.
DeLeo said inefficiency and waste must be eliminated wherever possible, and strongly hinted that the state’s arsenal of tax credits might be on the chopping block.
“As part of the discussion, we must take a careful look at tax credits to make sure we are getting the most out of our investments,” he told the Greater Boston Chamber of Commerce.
DeLeo didn’t mention any specific tax credits and offered no more details. His spokesman, Seth Gitell, said any specifics would be worked out as the budget process proceeds.
The state’s use of tax credits to spur investment has been facing increasing scrutiny lately, partly because tax revenues are falling so dramatically and partly because so little is known about the effectiveness of tax credits.
In his budget proposal, Gov. Deval Patrick proposed language that would require more public disclosure about who is receiving state tax credits and how many jobs they are creating. But DeLeo’s comments indicated the House might actually scale back the use of tax credits.
“It is almost impossible to overstate how dire the situation is for us,” said DeLeo, who noted that unemployment is rising, consumer spending is falling, housing prices are down, and capital gains tax revenues are expected to drop at least 55 percent in fiscal 2010.
“Just to give you a sense of how far we have fallen, consider that over the last three fiscal years, revenues grew an average of 6.9 percent, while this year they will have declined by at least 6.8 percent,” he said. “That is, by any account, a massive downward swing.”
The state offers a host of sales, corporate, and income tax credits to provide investment incentives to businesses. Patrick’s proposal was targeted at tax credits that can be sold or converted into cash, including the film tax credit, the historical rehabilitation tax credit, the life sciences investment tax credit, the low-income housing tax credit, and the medical device tax credit. The proposal would require state agencies to disclose how many tax credits each recipient received and require each recipient to disclose the number and pay of jobs generated by the tax credits, information that is not readily available now.
The film tax credit offers a 25 percent credit on all payroll and production expenditures in Massachusetts and exempts most of a film company’s purchases from the state’s sales tax. In essence, for every dollar a production company spends in Massachusetts, it receives a credit worth 25 cents that can be converted into cash by either selling it to a third party or back to the state. (For more information, see this story in CommonWealth magazine.)
A lot of movies are being filmed now in Massachusetts, but there has been little information about their economic impact. The Revenue Department occasionally releases some aggregate tax credit figures, but little or no information on who is receiving the credits, how many jobs they are generating, or what those jobs pay.
The state’s historic rehabilitation tax credit program is currently capped at $50 million a year, but a number of bills have been filed this year that would raise the cap to $100 million and eliminate it entirely in certain depressed areas of the state.
The historic rehabilitation tax credit is used by developers to help finance the repair of historic buildings. The tax credit is widely viewed as an economic development tool for historic yet depressed areas of the state, but two of the biggest recipients of the tax credits have been the Boston Red Sox, for their renovation of Fenway Park, and Richard Friedman, the developer of the upscale Liberty Hotel in Boston. As CommonWealth reported last summer, the historic rehab tax credits are doled out by Secretary of State William Galvin, who runs the program like a personal fiefdom and has resisted efforts by lawmakers and developers to find out who is receiving the tax credits.