In addition to the title of a new tax credit program in New York, the word “excelsior” also describes a chess problem.
The problem for the Empire State is that its neighboring states suddenly see an opening for checkmate.
In a gambit to close a $9 billion budget deficit, Gov. David A. Paterson is deferring tax credits due companies under the state”™s Empire Zone program and others, promising to pay up in three years. In addition to raising hackles from businesses that took the tax credits in exchange for promised work-force expansions, the deferral could cause some businesses to think twice about enrolling in the new Excelsior Jobs program that offers a fraction of the total funding of the Empire Zone program.
The next move?
New York”™s move opens two possibilities for Connecticut and New Jersey as they weigh the value of continued perks for corporate relocations against their own strained finances.
On one hand, the states could follow suit and delay awarding promised tax credits as a way to ease their budget crises; on the other hand, they could use New York”™s decision as a recruiting tool, saying Empire State promises are no sturdier than the paper on which they are written.
“I think they”™re both valid points,” said Peter Gioia, vice president and economist with the Connecticut Business and Industry Association in Hartford. “Certainly Connecticut could renege, given our huge budget deficit ”“ it is a concern. If Connecticut doesn”™t go that route, that might make Connecticut look attractive to (New York) companies, of course.”
While Connecticut eliminated three corporate tax credit programs as of July, they were seldom used and the state created several new programs, including one for “angel” investors in startups and one for small businesses that awards a tax credit of $200 monthly for each new employee hired.
It will be a year before the state learns the degree to which the tax credits have helped create jobs, and in the meantime Connecticut will continue peddling existing tax credits to large corporations in New York and elsewhere with the goal of spurring relocations.
One new law extends tax credits to companies that move into facilities vacated by aerospace and defense corporations, in a year during which Hartford-based United Technologies Corp. rejected $100 million in incentives to keep two facilities open while vowing to move additional jobs out of the state.
Do incentives spur investments?
In the fiscal year ending June 2007, Connecticut handed out nearly $110 million in tax credits for corporations, according to the Connecticut Department of Revenue Services; some tax credits were never cashed in, including some for research and development jobs.
In the fiscal year ending June 2009, Connecticut handed out $556 million in total tax subsidies according to estimates by Jeffrey Thompson of the Political Economy Research Institute at the University of Massachusetts, who advocates for wealthier New England taxpayers assuming a greater share of the tax burden. In a recent study, Thompson says as much as 96 percent of the jobs and most of the investments used to claim these tax credits would have been created anyway, without the incentives.
Thompson says a major disadvantage of corporate tax incentives and subsidies is that they deplete resources that could be spent on education and infrastructure investments that would trigger long-term jobs and economic growth.
“In the short-term as well as over the long-run, the best policymakers can do to create jobs and generate economic growth is to make the state”™s economy more productive by investing in infrastructure and education,” Thompson stated in a press release.
