Frustrated Massachusetts lawmakers grill firms on cuts

Reuters News
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Posted: Mar 29, 2011 5:35 PM
Frustrated Massachusetts lawmakers grill firms on cuts

By Ross Kerber

BOSTON (Reuters) - Massachusetts lawmakers, smarting from recent high-profile corporate defections from the state, grilled company executives who had cut jobs despite receiving millions of dollars in tax breaks.

But the politicians also got a sense of how little tax policy ultimately influences many companies' actions -- a message that could resonate in other states where businesses are complaining about rising taxes.

At the hearing, in Boston on Tuesday, Evergreen Solar Chief Executive Michael El-Hillow said his company would still likely have opened a big solar panel plant in Massachusetts without the roughly $31 million incentives it received from the state. In January Evergreen said it would close the facility and lay off 800 workers, while increasing production in China.

Also, Fidelity Investments President Ronald O'Hanley said the giant mutual fund company's recent decision to close a local facility with 1,100 workers "does not stem from competition between states."

Rather Fidelity's decision to move many of the jobs to neighboring New Hampshire and Rhode Island -- which triggered Tuesday's hearing -- reflected only a decision to consolidate vacant office space, O'Hanley told the packed hearing of the audit committee.

Lawmakers need to consider how attractive Massachusetts is to business, on net, O'Hanley said. He listed factors working against the state, such as high housing and energy prices, and favorable ones like an educated workforce.

"No single factor is going to drive a business to do one thing" when it comes to job decisions, O'Hanley said.

COMPANIES RATTLE SABERS

The story of companies seeking local tax breaks in return for creating jobs is an old one. But the U.S. economy's slow recovery has left many states with less bargaining power than in the past and scrambling to raise revenue.

Caterpillar Inc has suggested recent increases in Illinois' personal and corporate tax rates could cost jobs, and that several other states are vying to attract the heavy-equipment maker.

In Connecticut, meanwhile, the chief financial officer of United Technologies Corp recently called for limits on tax increases. "Connecticut is a high-cost place to do business," the CFO, Greg Hayes, wrote in the Hartford Courant newspaper.

Evergreen's decisions drew outrage in Massachusetts because the company had been the poster child for efforts by governor Deval Patrick, a Democrat, to stimulate "green" business. Patrick has vowed to recover much of the public money Evergreen received. The company said it will fight any attempted clawback.

FOLLOWING UP A RULE CHANGE

At the hearing lawmakers vowed more scrutiny and pressed Fidelity to say just how much it saved under a 1996 rule change that collectively reduced the tax payments of local mutual fund companies by $136 million a year.

As a result of the change, only a company's in-state sales are used to calculate its corporate income taxes, rather than a mix of its sales, property and payroll. The idea was to encourage companies to create local jobs. In return companies promised to increase employment for five years after the change.

Those obligations are over. Fidelity's employment in Massachusetts peaked at 13,300 last decade and will be 7,300 when it closes its office in Marlborough, west of Boston.

Some 36 other states have also similar tax rules in place or pending, according to the Center on Budget and Policy Priorites, a Washington think tank. That costs states $1.5 billion a year in lost revenue, but also limits the ability to any one state to end the rules without driving away future job growth.

Panel chair Mark Montigny, a Democrat from the blue-collar town of New Bedford, at the hearing criticized an array of specialized tax breaks that have gone to manufacturers like Raytheon Co., filmmakers and drug companies, rather than being spread around as broad tax cuts.

"We made lousy deals," he said.

(Editing by Ros Krasny and Steve Orlofsky)