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Report reveals big tax losses Wise says it shows

Published: Wednesday, October 31, 2001
Page: P1C
Byline: Ken Ward Jr. Gov. Bob Wise on Tuesday downplayed a report that showed the state government spent $900 million over 10 years on mostly ineffective corporate tax breaks.

Wise said that he believes the report showed that the biggest problems - giveaways under the Super Tax Credit program - have been fixed.

"Some of the problems of the past have been corrected," the governor said.

"The cash flow to that has been reduced dramatically," he said. "The amount actually being expended now is far less." Last week, the state Department of Tax and Revenue released parts of its first detailed examination of West Virginia's corporate welfare programs.

Between 1988 and 1997, the study found, the government doled out an average of $90 million a year in tax breaks in the name of economic development.

Most of the money, the study showed, went to three major tax credit programs that did not create large numbers of jobs.

By far the largest boondoggle, the report showed, was the Super Tax Credit.

Over the 10-year period studied, the program cost the government $622 million. Most of the money went to coal companies, at a time when the industry was laying off miners and replacing its workers with bigger and faster machines.

In the report, Tax and Revenue Secretary Brian Kastick said that the Super Tax Credit has been reformed.

Lawmakers narrowed the credit in 1990 and again in 1993, so that future tax breaks would not go to coal companies or to retail giants like Wal-Mart.

"As a result of past reforms, Super Credit claims against severance taxes declined from a high of nearly $67 million in 1991 to $34 million in 2000," the report said.

"Following implementation of the 1990 and 1993 reform legislation, the Super Credit is now a cost-effective incentive tool for West Virginia," the study said. "The projected cost to the State of tax credits claimed by the 56 businesses that collectively created more than 9,000 new jobs between 1993 and 2000 is less than $30 million over 13 to 15 years." The second-largest tax-credit program, according to the study, is the Industrial Expansion and Industrial Revitalization Credit (IERC).

Over the 10-year period studied, the program cost the state $207 million. The study found "little or no correlation between the use of the IERC and employment or economic output." No reforms in that program have been made or proposed.

The third-largest tax-break program is the Capital Company Credit, which cost the government $44 million over 10 years.

Earlier this year, the Legislature reduced the amount of money available under that program.

Administration officials wanted to withhold public release of the new tax break study until the governor reviewed it and decided on any proposed changes in tax-break programs.

Kastick declined to release portions of the report that contained his recommendations to the governor. He has not returned phone calls seeking comment on the report.

On Tuesday, Wise answered questions about the report after a public appearance to promote the state's efforts to help low-income residents weatherize their homes.

The governor had called for the study in his February State of the State address, and promised to propose reforms during the session in January 2002.

"I foresee perhaps eliminating some of the ones that aren't applicable anymore or aren't working or aren't being used," Wise said Tuesday.

The governor also said he might propose reworking some programs to target specific sectors, such as research-and-development firms.

Wise said that continued monitoring of tax-break programs is needed.

But he said that he still supports his own pet project, a new "Sunny Day Fund" of money for the governor to spend to lure new companies to the state.

Earlier this year, lawmakers declined to pass a Wise bill to create that fund.

As proposed by the governor, the legislation contained no guidelines for how the money could be spent. It continued no monitoring to make sure that the investment created the promised jobs.

"I'm happy to look at whatever checks and balances need to be in there," Wise said Tuesday. "But I need some flexibility when specific programs don't meet a project's needs." To contact staff writer Ken Ward Jr., use e-mail or call 348-1702.

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