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SUPER TAX CREDITS COST STATE MILLIONS BUT FEW JOBS CREATED
Publication: THE CHARLESTON GAZETTE
Published: Sunday, March 07, 1993
Byline: Paul Nyden
A tax credit program designed to create new jobs has cost the state as much as $2 million per job. The state may pay an average of $105,000 in lost taxes for each job created by tax credits during the last two years, the state's chief tax analyst said.
Despite evidence the nation's most liberal tax credit program does not work as planned, state tax credits are growing faster than general revenues. They will continue growing larger for years to come, which means state taxes must be repeatedly raised to pay for them, the official said.
"As a percentage of total tax collections, we spend more than double what any other state does on tax credits," said Mark Muchow, chief tax analyst for the Department of Tax and Revenue. "The question is, what are we getting back?
"Tax credits are taking a bigger bite out of the state budget each year," Muchow said. "To keep financing the growth of tax credits, we may have to keep raising taxes." State legislators passed the Business Investment and Jobs Expansion Tax Credit Act in 1985, then liberalized it the next year.
Designed to promote investment and create new jobs, the credits are usually called super tax credits.
Lawmakers created super tax credits in part to convince General Motors to build its Saturn plant here. Companies become eligible for credits by creating at least 50 new jobs.
Muchow said the act did not stimulate a rapid growth of jobs.
"Between 1985 and 1991, private sector employment in West Virginia grew by 6.7 percent. In the United States as a whole, private sector employment grew by 11.6 percent. We spent more and got less.
"Ideally, tax credits should produce jobs and growth in the gross state product," Muchow said. "Between 1987 and 1989, West Virginia was last in the United States in the growth of gross state product. For some reason, the tax credits didn't seem to work." In addition to super tax credits, the state also offers tax credits for industrial revitalization and expansion, venture capital companies, and research and development.
Muchow said the super tax credit law generated $1.3 billion in potential super tax credits by 1992. Companies receive the tax credits during a period of 10 years, or more.
"I expect this to grow to $2 billion by 1997, unless the current law is changed. Of the $1.3 billion in current potential tax credits, $800 million is attributable to the coal industry." The state will not reveal which companies receive super tax credits until late this year. AT&T, Bruce Hardwoods and Alabama Pulp and Paper have received super tax credits. Most went to coal companies.
Coal industry sources have revealed super credits went primarily to coal giants such as Consolidation Coal, Peabody, Pittston, Island Creek, Arch Mineral Corp., Ashland Coal, A.T. Massey, Cyprus Kanawha Corp., High Power Energy, Big River Minerals, BethEnergy Mines and Drummond Coal. Some medium-sized operators have also benefited, including H. Paul Kizer, James Justice and James O. Bunn.
Between 1985 and 1992, state tax officials approved $350 million in super tax credits. They approved $300 million in other tax credits for a total of $650 million, Muchow said. The state's annual budget is just over $2 billion.
Muchow said coal employment has not soared with super credits and venture capital credits.
"Between 1985 and 1992, the coal industry received $270 million in super credits. During that same period, employment in the industry fell by 33 percent. Even in cases where the credit worked and produced jobs, it was pretty darn expensive for the state." But many coal executives say super credits convinced many companies to expand their operations, making West Virginia the top coal producer in the East. Coal employment would have dropped further without the credits, they argue.
In 1991 and 1992, the state received 48 requests for new super tax credits. "These requests could create $522.6 million in new potential tax credits. That does not guarantee they will be used," Muchow said.
"These credits could create 4,938 jobs. Each new job would cost the state between $105,000 to $106,000," Muchow said. "In some cases, we found jobs that cost the state up to $2 million." Muchow said these and other figures will be published in an investment tax credit expenditure study which will be completed later this year.
"Do we want to continue these programs or not? That is a question for other people to answer. We are throwing out the numbers so other people can decide," he said.
Although other businesses ultimately pay for tax credits, Muchow said, he has heard few complaints. "I guess they don't mind, because we haven't heard from them." Muchow predicts coal jobs will continue to disappear with mechanization. Since 1978, employment has dropped from nearly 6000 miners to about 26,000 today.
"Ultimately, we may have robots mining coal," Muchow said.
"I don't know how far off that is, but I have a message to anyone in high school or college. You may not want to follow your dad or mom into the mines. The opportunities are becoming fewer and fewer."