Lembo Will Call For More Transparency Over Tax Assistance Program
A bill that calls for greater transparency in how the state’s economic development dollars are spent will pit state Comptroller Kevin Lembo against Gov. Dannel P. Malloy’s budget office Monday at a public hearing on the bill.
The bill, according to Lembo, would establish at least three new mechanisms to improve transparency in state finances — starting with a publicly accessible online database for all state tax credit and economic assistance programs. It would also require regular “tax incidence analysis” reports to determine the distribution of the state’s tax burden, and it would improve public access to vital state financial documents.
Lembo doesn’t believe the disclosure of this information favors or disfavors any economic assistance program, “it would simply provide a vital mechanism to measure the success and value of these programs so that policymakers have the means to make informed investments.”
The idea was recommended back in September 2012 by a business tax policy task force created by Malloy at a time when the state’s deficit wasn’t in the billions.
According to written testimony submitted by Office of Policy and Management Secretary Ben Barnes, the state doesn’t have the money to develop this type of reporting mechanism.
“Although many of the ideas expressed in this bill are laudable, there would be significant financial costs and staff time commitments in meeting several of the bill’s initiatives, specifically the searchable database for economic assistance programs and the tax incidence analysis report,” Barnes plans to tell the Finance Committee today. “Resources for these initiatives were not included in the governor’s proposed budget.”
Another portion of the bill would require the governor’s budget proposal to be available in an online searchable database.
Barnes said budget data is now available in a downloadable and searchable form by fund, agency, and appropriation. He said his office plans to continue to make budget information available in that format.
The Malloy administration also is pushing for less legislative oversight of its economic assistance program with another bill that would give the administration the freedom to offer incentive packages as large as $40 million.
The Hartford Business Journal reported last week that the Malloy administration wants to be able to dole out $40 million in urban and industrial site tax credits to a company without getting legislative approval. Meanwhile, the governor’s “Next Five” program, which gives out money to companies willing to create more than 200 jobs over a 10-year period, also has received a fair amount of criticism.
Lembo maintains it’s fair for taxpayers to know the following: Who is receiving the assistance? What type of assistance are they receiving? What is the value of the assistance provided? What is the purpose of the assistance? What are the anticipated results — jobs, investment and economic impact? What are the actual results?
“In this environment we must make every effort to ensure that the dollars we spend, or forego, in an effort to generate greater economic output are well spent,” Lembo says in his written testimony.
A 2011 report commissioned by the Working Families Party of Connecticut and compiled by a Washington nonprofit called Good Jobs First found that of the 70 companies that received assistance from Department of Economic and Community Development, 39 had fulfilled their job creation obligations. The other 31 had not.
Many of the tax breaks received by the companies could not even be reported since they are claimed on their income tax statements. The Department of Revenue Services claims it is unable to make available to the public any of the income tax statements in question.
Establishing a tax incident report to make sure taxes, which can sometimes be transferred from one entity to another, will help lawmakers understand who is bearing the burden of the tax.
“In many cases, the entity legally liable to pay the tax is not who actually bears the burden of the tax,” Lembo said. “For instance, a tax incidence analysis may show that a tax like the petroleum products gross receipts tax, which is paid by petroleum refiners and distributors . . . is actually transferred to consumers through increased prices on gas or other petroleum products.”
Or, he said, the state could find out the opposite is true and that it’s the big oil companies paying the tax.
“Such information would greatly impact policy decisions about whether to increase, decrease, retain, or eliminate the tax,” Lembo said.
In his testimony, Lembo said he wants Connecticut to become the fourth state to perform the analysis. Currently, Minnesota, Texas, and Maine issue these types of reports.
“Providing this information to the public will improve the state’s investment strategy,” Lembo said.“Programs that are working will have accessible data to reinforce their value and programs that don’t can be identified and the funds repurposed toward more productive uses.”
The Finance Committee hearing is at 10:30 a.m. today in room 2E of the Legislative Office Building.