tax incentives

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The Week in Public Finance: Puerto Rico's Quasi-Bankruptcy, Congress Meddles With State Retirement Plans and More

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BY  | MAY 5, 2017

Puerto Rico (Sort of) Declares Bankruptcy

Puerto Rico declared a form of bankruptcy protection this week that puts it in uncharted territory for U.S. governments and municipal finance.

As a territory, Puerto Rico is not eligible to file for Chapter 9 protection. But thanks to the Puerto Rico Oversight, Management and Economic Stability Act, it has a similar option available to it: Title III protection.

The act, which was passed by Congress and went into effect last July, put a temporary moratorium on litigation regarding Puerto Rico’s more than $70 billion in bond debt and created a seven-member financial oversight board with final say over the commonwealth’s finance decisions. The litigation moratorium was lifted on May 1, and with creditor negotiations going nowhere, the government is allowed to file debt restructuring petitions in federal court.

The Takeaway: Puerto Rico has been in a financial downward spiral for years. When it first started defaulting on debt, there were concerns that it could have a negative ripple effect on the municipal market. As it turns out, those concerns have not been justified. So, while this latest move by the commonwealth is a great concern for anyone with money tied up in Puerto Rico, there have been few concerns that the event will cast a shadow over other U.S. governments now issuing bonds.

The Real Price of College

Most states don't keep track of how much they give to students and their families in tax breaks. That could be hurting their ability to make college affordable for all.
BY  | FEBRUARY 23, 2017

How much does higher education cost? Surprisingly, that's a question most states can't answer.

Every state, of course, knows what it plans to spend on higher ed each year, which generally accounts for about 10 percent of a state's budget. But few places track what they give up in tax breaks to help defray the cost of college for taxpayers, according to a new Pew Charitable Trusts report. Since many states default to the federal government's qualifications for these tax breaks, most don't know how vulnerable they are to changes at the federal level.

Phillip Oliff, one of the report's authors, says states should be regularly looking at both sides of the equation -- tax breaks and direct spending -- when considering how they pay for and promote education policy. "Then they can think about whether the full package of support is being used as effectively as possible to promote their policy goals," he says.

In a review of the 41 states and the District of Columbia that tax personal income, just nine states and the district assess their higher education-related tax expenditures. These expenditures include special deductions, tax credits and exemptions that allow tax filers to reduce their declared taxable income. California, for instance, spent $10.8 billion on higher education in 2014, the year for which Pew has comprehensive data. But its estimated foregone revenue from higher education tax expenditures nudges the state's total cost up to $11.2 billion.

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5 Hot Topics Hitting Public Finance in 2017

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BY  | DECEMBER 29, 2016

In what could be a tumultuous year for state and local finances, these five issues are likely to take center stage.

Tax Reform

Many Capitol Hill watchers expect federal tax reform to roll forward in some fashion in 2017 now that a Republican will be in the White House. There are two major proposals on the table that could directly result in higher costs for states.

For starters, many in Congress have been supportive of limiting the tax-exempt status of municipal bonds. Removing this tax perk for bond investors would force governments to offer higher interest rates on the debt, thus increasing their cost of paying off that debt.

It’s hard to overstate the potential impact of such a move. One estimate pegged the current tax perk savings for state and local governments at about $714 billion from 2000 to 2014. For its part, the federal government estimates it loses as much as $30 billion in potential income tax revenue each year as a result of the perk.

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What We Don't Know About Trump's Carrier Deal (and Most States' Business Deals)

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BY  | DECEMBER 8, 2016

Critics and supporters of Donald Trump’s deal that kept Carrier Corp. from exporting hundreds of jobs from Indiana to Mexico have spent much of the past week arguing about how many jobs the deal actually saved.

But what the public will likely never know is how much the deal helps the air conditioning company’s annual state tax bill. It's information that's typically not released but can reveal whether a tax incentive has the potential to bring a business' state tax burden down to zero.

Last week, President-elect Trump and Vice President-elect Mike Pence, who is still serving as governor of Indiana, announced a deal with Carrier that they say will keep 1,100 jobs in the state in exchange for $7 million in tax breaks over a decade. Since the announcement, unions have refuted the jobs number and said it’s closer to 800 since Carrier still plans to export 500 jobs to Mexico.

Arkansas, California Voters Approve Spending on Mega Projects

In an anti-debt climate, voters in the two states cleared the way for spending on major economic development projects.
BY  | NOVEMBER 9, 2016

In the post-recession era, "debt" is a four-letter word. State debt levels as a whole have been stagnant in recent years and, in 2014, actually recorded the first decline in the 28 years Moody's Investors Service has been tracking them.

It's in this climate that voters in Arkansas and California have cleared the way for more spending on mega projects that could be economic development boons in those states.

In Arkansas, voters overwhelmingly passed a ballot initiative that eliminates the state's current 5 percent cap on debt related to economic development projects. Proponents of Arkansas’ Issue 3, who included Gov. Asa Hutchinson, want the cap lifted so the state can be more competitive in attracting new corporations by helping fund mega projects. Voters easily approved the measure, 65-35.

In California, which has one of the highest taxpayer debt burdens in the country, the results were much closer. Voters narrowly rejected a proposal, 51-49, that could have derailed two of Gov. Jerry Brown's legacy projects. Prop. 53 would have limited the state's ability to issue debt for major projects by requiring voter approval to issue more than $2 billion in revenue bonds.

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The Week in Public Finance: NYC's $3 Billion in Giveaways, Weak Revenues and Jacksonville's Pension Fix

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A roundup of money (and other) news governments can use.
BY  | NOVEMBER 4, 2016

Why New York City Gave Up $3 Billion in 2016

New York City is the first major government this year to release what it gives up in economic development-related tax incentives to corporations, following new financial reporting requirements. In its annual financial report, the city disclosed that it waived more than $3 billion in potential tax revenue in 2016 alone, mostly in uncollected property taxes.

The tax abatements represent a little under 4 percent of the city’s nearly $80 billion in general fund revenue in fiscal 2016, which ended on June 30.

The most expensive abatement was for the commercial conversion program, which cost nearly $1.3 billion in forgone revenue last year. The program encourages new housing in the city by offering a property tax discount on new construction or on commercial space that was converted into residential housing. Developments have to meet certain requirements, like reserving one-fifth of the units for affordable housing.

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To Limit Debt or Make It Limitless? 2 States’ Voters Will Decide.

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In an anti-debt climate, one state aims to rein it in while another tries to uncap it.
BY  | OCTOBER 27, 2016

In the post-recession era, "debt" is a four-letter word. State debt levels as a whole have been stagnant in recent years and, in 2014, actually recorded the first decline in the 28 years Moody's Investors Service has been tracking them.

It’s in this climate that voters in two states are considering nearly opposite proposals on debt.

California, which has one of the highest taxpayer debt burdens in the country, will decide whether to limit lawmakers’ ability to issue debt for major projects. Prop. 53 would require voter approval to issue more than $2 billion in revenue bonds.

In Arkansas, a ballot initiative proposes making it easier for the state to incur more debt. Issue 3 would eliminate the state's current 5 percent cap on debt related to economic development projects.

Each state's history with bond debt has a lot to do with these conflicting proposals

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The Week in Public Finance: Mega-Subsidies Math, a Comeback for Bond Insurance and More

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BY  | SEPTEMBER 2, 2016

Megadeals Don’t Add Up

When it comes to economic development, spending more often results in a smaller return.

Looking at more than 170 economic development "megadeals" made in recent decades, a new report finds that states and localities spend more than $658,000 per job on average. By contrast, “most workforce development programs cost only a few thousand dollars per job, and studies find they pay off well,” said Thursday's report by Good Jobs First, which tracks government subsidies.

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The Week in Public Finance: Hot Munis, Cooling Off Creditors and Warming Up to Facebook

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A roundup of money (and other) news governments can use.
BY  | JULY 22, 2016

It’s July and Muni Bonds Are Hot

The municipal bond market could be off to its best start since 2010, when federal policies helped fuel new issuance. During the first six months of this year, a total of $221 billion in bonds have been brought to market by state and local governments, according to data from the Securities Industry and Financial Markets Association (SIFMA). The total includes new bonds and refinanced ones.

Most of that activity has come from the second quarter of the year, specifically in May and June when the volume of new bonds in each month was the highest since 2008, according to an analysis by RBC Capital Markets’ Chris Mauro. Even Puerto Rico’s recent default on a $2 billion debt payment has not appeared to phase investors or hurt interest rates.

The market is currently on pace to finish the year with over $430 billion in issuance. But with more than five months to go before the end of the year, anything could happen -- particularly with a volatile presidential contest underway. Last year, the pace cooled in the second half of the year, with the value of total bonds issued finishing just shy of $400 billion. Still, Mauro said he is increasing his original prediction of new bond volume to somewhere between $400 billion and $425 billion.

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The Week in Public Finance: Special Sessions, Chicago's Pension Deal and a Historically Giant Tax Break

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A roundup of money (and other) news governments can use.
BY  | MAY 27, 2016

Special Session Begins in Alaska

After failing to agree on a budget for the 2017 fiscal year, Alaskan legislators met this week to begin a special session. The state is one of a handful that has yet to pass a budget for the upcoming year, which starts in five weeks for most. But Alaska is arguably in the toughest position.

Lawmakers extended their regularly scheduled session but still failed to decide how or whether to enact fiscal reforms that would close its structural budget deficit. According to Standard & Poor’s, the continued “impasse risks a government shutdown starting on July 1 when the state's new fiscal year begins.”

The cause of Alaska’s woes is simple: The prolonged drop in oil prices has hammered its budget, which largely relies on oil revenue. To meet expenses, the state has drawn out of its substantial rainy day fund over the past two years. As a result, its top AAA credit rating was stripped away in January.

The solutions, however, are not so simple. Gov. Bill Walker wants to completely revamp Alaska’s revenue system, which includes implementing the state’s first income tax in more than three decades and significantly reducing the annual stipends that residents receive from oil revenue. Instead Walker wants to funnel more of that revenue into a new state investment fund to support the budget. Still, legislators disagree about how many -- if any -- of those proposals to adopt, and many still want to tap into the state's rainy day fund again to balance the budget.

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The Fight for Jobs Intensifies Between Kansas and Missouri

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Nowhere are tax incentives more complicated -- and some say pointless -- than in Kansas City.
BY  | MAY 12, 2016

In major metropolitan areas, using tax incentives to lure businesses from one part of the region to another can sometimes seem like a big family fight. In the Washington, D.C., area, for instance, several jurisdictions are vying to become the new headquarters of the FBI, which is currently located in the district. If the FBI moves outside of D.C., Maryland or Virginia can claim "new" jobs. But the net gain to the metro area is negligible, save the temporary work created by new construction.

In nowhere does this chess match seem more futile than in Kansas City, which sits in both Kansas and Missouri. The two states have long competed with each other to woo businesses across the state line. AMC Theaters, Applebee's and JP Morgan Retirement are just a few businesses that have crossed the border in recent times. So much money is involved that the tax incentives battle has been dubbed the Kansas City Border War.

But recently there's been a concerted effort to call a cease fire. In 2014, the Missouri General Assembly passed a bill that effectively ended the state's tax incentive program in Kansas City after a group of 17 businesses in the two-state region lobbied both governors for it. For the law to go into effect, though, Kansas has to approve a similar bill. The state has until Aug. 28 to do so; otherwise, the "deal" is dead.

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Panama Papers Unlikely to Lead to Reforms in Corporation-Friendly States

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A recent document leak revealed that four states were targeted by a Panamanian law firm to hide assets.
BY  | APRIL 13, 2016

States like Delaware and Nevada have long been criticized by transparency advocates for allowing Americans to use them as tax havens. But a recent document leak revealed that such corporation-friendly states may be helping foreign nationals hide potentially illicit assets as well.

Earlier this month, 11.5 million confidential documents were leaked from a Panamanian law firm, exposing how some of the world's richest people hide assets in shell companies to avoid paying taxes. It’s the largest leak in history, and among the so-called Panama Papers' many revelations was that the seventh most popular place to set up shell corporations was in Nevada.

More than 1,000 companies have used Nevada to hide their money. Delaware, South Dakota and Wyoming also emerged as popular places to stash cash.

Some of these states actively market themselves as quick and easy places to set up corporations. Take Nevada. Its website points visitors to its WhyNevada.Com to find out “why NV ranks as a top state for commercial filings," highlighting its favorable tax structure. Meanwhile, Delaware’s most recent financial report touted another record year for the number of new entities registered in the state. Delaware’s 1.1 million registered corporations outnumber the people who actually live there.

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The Complicated Business of Evaluating Tax Incentives

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Massachusetts, like many states, uses tax credits to attract companies. But also like many states, it struggles to track the effectiveness of these programs.
BY  | FEBRUARY 25, 2016

States give out billions to businesses and corporations each year in tax breaks to keep them within their borders. But tracking how these tax incentives are spent -- and whether they even work -- has been an incredibly tricky business.

Back in 2000, Good Jobs First, which follows corporate tax subsidies, released a report that looked at 122 audits of state economic development programs in 44 states. What it found was that auditors were having trouble doing their jobs because "they are hampered by lack of data and objectives."

The climate has improved somewhat since then, says the group's president, Greg LeRoy. But it's been a long, state-by-state slog.