Investment companies are cashing in on rural jobs bills that often fail to deliver on promises, Jen Fifield reports for Stateline in the first of a two-part series. "Under the bills, state tax credits are awarded to companies that agree to invest in or loan money to funds set up by investment firms or other brokers. The funds then invest the money in rural businesses. But states that have evaluated the multilayered subsidized lending programs—originally CAPCO (certified capital companies) programs and later New Markets Tax Credit programs—have found that they failed to deliver promised jobs and tax revenue."
This year 11 states have proposed rural jobs bills and Utah Republican Gov. Gary Herbert signed one into law last week, Fifield writes. "Three firms—Advantage Capital Partners, Enhanced Capital and Stonehenge Capital—have led the lobbying for the programs and have been the main participants in several states. The laws, through which states have awarded billions in tax credits, are generally structured in such a way that these and other firms that participate can profit from the deals even if the businesses they fund never create another job." (Stateline graphic: Rural jobs bills)
"The programs are so complex, and the promises so appealing, that states typically don’t take a close look at them until it’s too late, according to 10 economists and policy analysts who have studied them," Fifield writes. "Many critics, such as Steven Miller, senior vice president of the Nevada Policy Research Institute, call the programs 'schemes.' Miller says he expects a public backlash once they 'have gone belly up and taxpayer dollars have been used for private benefit.'"
"Under the new rural jobs bills—being considered in Arizona, Georgia, Kansas, Kentucky, Massachusetts, Minnesota, Missouri, New York, South Carolina and Washington state—investments would be made in small, rural businesses," Fifield writes. "The idea behind the programs is that they will generate economic activity that exceeds the cost of the tax credit. Unlike many other economic development programs, in which the state directs the flow of money, these programs rely on private firms or nonprofits—often investment firms or their affiliates—to act as brokers, directing the investments and loans made under the program."
State reports from Alabama, Colorado, Missouri and New York found that programs failed to create as many jobs or as much state revenue as promised and recommended they be shut down, Fifield writes. Only one state, Maine, "has concluded that the economic benefits of a program outweighed its costs." That study found "the state’s New Markets program would generate millions more in tax revenue than the state offered in tax credits. But some analysts cast doubt on its conclusions, arguing that the authors used methods for counting jobs, backed by the investment firms, that overestimate the number of jobs directly linked to the tax-credit program."
This year 11 states have proposed rural jobs bills and Utah Republican Gov. Gary Herbert signed one into law last week, Fifield writes. "Three firms—Advantage Capital Partners, Enhanced Capital and Stonehenge Capital—have led the lobbying for the programs and have been the main participants in several states. The laws, through which states have awarded billions in tax credits, are generally structured in such a way that these and other firms that participate can profit from the deals even if the businesses they fund never create another job." (Stateline graphic: Rural jobs bills)
"Under the new rural jobs bills—being considered in Arizona, Georgia, Kansas, Kentucky, Massachusetts, Minnesota, Missouri, New York, South Carolina and Washington state—investments would be made in small, rural businesses," Fifield writes. "The idea behind the programs is that they will generate economic activity that exceeds the cost of the tax credit. Unlike many other economic development programs, in which the state directs the flow of money, these programs rely on private firms or nonprofits—often investment firms or their affiliates—to act as brokers, directing the investments and loans made under the program."
State reports from Alabama, Colorado, Missouri and New York found that programs failed to create as many jobs or as much state revenue as promised and recommended they be shut down, Fifield writes. Only one state, Maine, "has concluded that the economic benefits of a program outweighed its costs." That study found "the state’s New Markets program would generate millions more in tax revenue than the state offered in tax credits. But some analysts cast doubt on its conclusions, arguing that the authors used methods for counting jobs, backed by the investment firms, that overestimate the number of jobs directly linked to the tax-credit program."
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