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In the first day of the FY2012 state budget debate, the House adopted reforms to improve the transparency and accountability of tax subsidies. The adoption of the reforms was applauded by MASSPIRG, Coalition for Social Justice, One Massachusetts and Common Cause of Massachusetts as an important step forward in reviewing the value and effectiveness of billions of dollars in state spending through tax breaks, including corporate tax breaks used as economic development.
A new report released by Auditor Suzanne Bump found that between FY08 and FY12 the Massachusetts tax expenditure budget has increased by $5.1 billion. By way of comparison the estimated budget shortfall for FY12 is just over $2 billion, or less than half of the increase in tax expenditures.
Tax expenditures have the same bottom-line effect on state budgets as direct state spending, as they constitute an expense to the state’s budget. Once created, tax expenditures often escape oversight because they do not appear as state budget line item or rarely require legislative approval to renew. Therefore, spending through the tax code is in particular need of transparent and easy-to-use disclosure and accountability.
Currently, transparency and accountability of the economic development tax subsidies, (a type of tax expenditure) are poor, and/or non-existent in some cases. There is not enough publicly accessible information to identify if or which subsidies are in fact benefiting the state, and if so to what extent and at what cost. We can’t measure or evaluate what we can’t see, and currently the lack of transparency results in a lack of accountability and efficiency in spending taxpayer revenue.
According to findings by State Auditor Bump, of the 92 business tax breaks and credits, totaling $2.1 billion and many dating back decades, only 7 had sunset clauses, automatic review of the program after a fixed period of time; and only 10 had clawback provisions requiring the businesses to return the money they received if they failed to meet the commitments for which they received the tax break.
With the leadership of Representatives Dempsey, Rushing, Sciortino and Hecht the House adopted amendment #670, which establishes a Tax Expenditure Commission to review and evaluate the effectiveness, timeliness and public benefit of tax expenditures. The commission will create a metric for measuring their success relative to policy objectives, and determine whether there is a need for additional reporting, sunset, or clawback provisions. It also requires that the commission file a report with the legislature by April 30, 2012 with recommendations for repeal or modification and ongoing evaluation of tax expenditures. The amendment also includes improved reporting and transparency of economic development subsidies, requiring uniform data collection and reporting for all economic development tax incentives, including the number of jobs to be created, the cost and recipient of the subsidy, and the annual reporting on how many jobs created as a result, and transparency of all applications and reports related to the subsidies.
Like any commission, the findings will only be valuable if they have committed leadership and members, access to meaningful data and resources to properly review and analyze the programs.
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