Tax credit audits a work in progress
Among his 2010 campaign promises, Lincoln Chafee pledged an "immediate evaluation” of the state"s economic development tax credit programs to determine whether they"re generating their intended job growth and business expansion.
Like many lawmakers, Chafee had some doubts.
The state Division of Taxation, in August 2010, had issued an annual report showing that Rhode Island granted nearly $40 million in tax breaks during the previous fiscal year to scores of Rhode Island businesses, large and small.
But the state failed to produce a second required report verifying whether those businesses receiving the tax breaks had fulfilled their promises of hiring more people or maintaining existing staffs.
Legislation passed in 2008 mandated both reports. The legislation was the General Assembly"s attempt to quantify exactly how many new jobs were being created or sustained by those businesses benefiting from the tax credit programs.
The five tax credit programs -- offering everything from sales tax exemptions on certain construction materials to special breaks for film production companies that make movies in the state -- have come under close scrutiny in recent years as the state grapples with revenue losses in the worst recession in decades.
"We need to stop the bleeding of state resources through tax credit programs that have no discernible impact,” Chafee said during his campaign for governor, in calling for an "immediate evaluation” of tax credit programs.
Two years after Chafee"s promise, the audits have still not been completed.
Chafee spokeswoman Christine Hunsinger said "It"s in progress. He couldn"t do it with the data he had when he took office. But it remains an area of concern. He has kept his eye on the ball.”
Beyond unanticipated complications in gathering the data needed for the accountability report, Hunsinger said, the work "is time and resource intensive.”
A major delay occurred, explained David M. Sullivan, Rhode Island"s tax administrator, when the state Department of Labor and Training raised concerns about sharing the kinds of personal employee information necessary with the Office of Revenue Analysis -- the entity charged with preparing the detailed accountability report.
The Office of Revenue Analysis was to use the names and Social Security numbers of all new employees to verify the claims of businesses that they had added workers. Businesses routinely share that information with the Department of Labor and Training.
But the DLT said a federal confidentiality law prohibited it from sharing that information with anyone else -- even another state office.
The General Assembly got around the problem in 2011 by passing a revised law that now requires businesses earning tax credits to supply employee information directly to the state, for use by the Office of Revenue Analysis.
But the revenue office has yet to publish its first detailed jobs creation report. (By law it is due each Jan. 15.)
Paul L. Dion, chief of the Office of Revenue Analysis, said beyond the employee confidentiality issue, some of the 59 businesses submitting employee information expressed confusion with the new mandate from last year"s revised law. And they weren"t sure where and how to send the information, Dion said. Then there is the "overwhelming” amount of work his office is now having to produce -- with a smaller staff.
For instance, Dion says while he began last spring analyzing some of the data trickling in for the tax credit accountability report, his staff -- recently reduced to two from three -- simultaneously had to produce a study on gambling, a tax expenditure report and more than 80 fiscal notes for General Assembly members, not to mention other fiscal publications.
"I know the governor pledged to do this and we are committed to getting it done,” said Dion, "but there are resource constraints involved. We are moving forward with it and I hope no one thinks we"re not … We will put it out as quickly as we can. I"m hoping by the new year.”
Dion said "As we expand this into the future and streamline the process it will be easier.”
The bottom line: Chafee promised as a candidate that he would conduct audits of all economic development tax deals. Certainly with all the state"s budget problems it has to be a high priority.
But the audits haven"t been done yet.
However, state officials say they"ve resolved problems and are committed to completing the audits -- as state law requires.
For these reasons we rate this promise In the Works. We"ll check back by the next deadline, Jan. 15, 2013, to monitor the progress.
Interview, David M. Sullivan, Rhode Island"s tax administrator, Aug. 2, 2012
Interview, Paul L. Dion, chief of the Office of Revenue Analysis, Aug. 2, 2012
Interview, Christine Hunsinger, spokeswoman for Governor Chafee, July 27, 2012
ChafeeForGovernor.com, "The First One Hundred Days Plan for Jobs,” accessed July 27, 2012
The Providence Journal, "Firms reaped $40 million in R.I. Tax Breaks, Aug. 28, 2010