Massachusetts owes about $130 billion in debt, our state pension system is less than 70 percent funded, and we struggle to provide for our neediest citizens. But we could address these needs and have money left over for tax relief if not for the billions of dollars the state passes up each year.
Organogenesis is the latest example of a company that provided taxpayers with no return on investment after benefitting from state largesse. Seeking to double its local workforce, the biotech firm received $7.4 million in grants from the Massachusetts Life Sciences Center in 2009. Today it employs fewer people here than it did at the time of the grants.
All told, the Life Sciences Center has spent more than half of the $1 billion it was authorized to disperse over a decade to expand life sciences-related employment and support research, development, and manufacturing. Thus far the initiative has yielded about 5,000 jobs, according to a new study by the Pioneer Institute, meaning taxpayers have paid over $111,000 for every job created (full disclosure: I am a senior fellow at Pioneer)
But the cost of creating life science jobs is a pittance compared to the revenue Massachusetts forgoes each year in tax credits, exemptions, and other breaks. For example, the film tax credit cost Massachusetts $79 million in 2012. Only about one-third of the estimated $304 million in spending the credits generated between 2006 and 2012 occurred in Massachusetts
When Evergreen Solar filed for bankruptcy in 2011, after collecting more than $30 million in state grant, tax, and lease breaks, state leaders created a commission to look at these breaks. In its 2012 report, the commission estimated that the breaks would be responsible for a stunning $26 billion in forgone revenue in fiscal 2013, more than the Commonwealth collected in taxes that year. And that doesn’t include grants like the ones given to Organogenesis and Evergreen.
State leaders need to pay more attention to the Tax Expenditure Commission’s report, which called for fewer and less generous tax breaks. The commission recommended there be a clearly stated purpose and a desired outcome for each break, an explanation of why the move is expected to achieve that outcome, an estimate of the forgone revenue involved, and a cap on overall forgone revenue.
Each time a state tax break is proposed or a grant offered, we should ask if the purpose behind it is more important than a functioning MBTA, or a fully funded state pension system that would free up the more than $1 billion we spend annually to pay down unfunded liability.
Is it more important than providing tax relief for those struggling to pay for their children’s education or high housing costs? Will it provide a return on investment that could be used to better assist our most vulnerable citizens?
If we answer those questions honestly, Massachusetts’ annual forgone revenue would be far less than $26 billion and our fiscal condition vastly improved.
Charles Chieppo is the principal of Chieppo Strategies.