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State near top of spending per person for tax credits

CHARLESTON, W.Va. - West Virginia spends more per person on business tax credits and incentives than all but one other state, according to data released last week by The New York Times.

A Times analysis found that, according to the latest available data, West Virginia spends at least $1.57 billion on incentive programs for businesses each year.

Facing budget cuts and tight revenues over the next few years, state officials say the Times' report underscores the need to ensure the state is using its tax credit and incentive programs as efficiently and effectively as possible.

"We've got some real challenges ahead with the coal industry and our natural resources and the gaming industry, so we've got to be very careful with what we do from this point forward," Senate Finance Chairman Roman Prezioso, D-Marion, said last week.

Lawmakers have been studying how the state evaluates the effectiveness of tax credit programs and other incentives that have been passed in recent years.

Prezioso and others have also been critical of state tax and commerce officials for not regularly providing information about what companies are using incentives and what the economic impact of that use is.

"We want to know how many jobs are produced when we give a tax credit, and we want to know how much a business grows," Prezioso said.

He said lawmakers have passed more than $500 million in tax breaks in recent years through reductions in the corporate net income and business franchise taxes, as well as reductions in the food tax.

But with the state's Medicaid program consuming more and more revenue, Prezioso said he had to draw the line during the last legislative session on passing any more tax credits.

"The Economic Development Committee met weekly and they were passing us a tax credit on something every week," Prezioso said. "There were just so many of them we couldn't get our arms around it and subsequently we didn't do a whole lot of them."

The lone exception was the $20 million annual tax credit that was intended to help Century Aluminum restart its aluminum smelter. Century has since put that restart on hold after the state Public Service Commission did not approve a controversial power rate plan that would have increased rates for other consumers.

Prezioso said the Century credit is just one of many in state code, and lawmakers have no data as to how they are now being used, how they are benefiting the economy and how much they are costing the state.

"That's why we decided that there's got to be some kind of evaluation instrument with some safeguards in it because we can't give away every idea that comes down the pike," he said.

Last week, The New York Times began a series of reports on how states are using business subsidies and incentive programs.

The Times reported that states, counties and cities nationwide dole out about $80 billion in business incentives each year but said the governments do a poor job of ensuring the programs produce meaningful results.

Texas led all states in total incentives, providing more than $19 billion each year.

When measured on a per capita basis, West Virginia ranked second behind Alaska for the amount spent on incentives.

The Times said West Virginia spends about $845 per resident each year, compared with Alaska's $991 per resident. Texas' spending came in at $759 per person.

The data said 37 cents of every dollar in the state budget goes toward incentive programs, totaling $1.57 billion each year.

Of that, $1.23 billion went toward sales tax refunds, exemptions and discounts; $80.7 million went to state corporate income tax credits, rebates or reductions; and $52.7 million was given through grants, loans or loan guarantees.

The state advertising industry benefited the most, according to Times' data, by receiving $25.8 million in incentives. Agriculture came in second at $24.4 million, and manufacturing was third at $9.5 million.

The single largest tax incentive in the Times data was a $1.17 billion annual sales tax exemption for manufacturers and other firms to purchase equipment and goods used in their production or other business activities.

Officials at the West Virginia Center on Budget and Policy, a liberal-leaning, nonprofit think tank, have long said the state gives out too many breaks to businesses without evaluating whether those tax breaks actually work.

"The state cannot answer basic questions about the millions it spends each year subsidizing businesses, such as the amount local governments provide in property tax abatements to how much machinery and equipment the state leases each year," said Ted Boettner, the center's executive director.

Boettner appeared before a legislative committee earlier this year asking lawmakers to push for more transparency and accountability in the state's tax credit programs.

At the time, many lawmakers agreed and complained they didn't know how much was given out annually.

Boettner said Friday that lawmakers should follow the New York Times' lead and create a statewide searchable database for business subsidies.

"Our state policymakers have the power to fairly evaluate business tax incentives and to ensure that taxpayers are getting a good return on their investment," he said. "With this basic information, the state and the public would at least be able to see where their tax money is going."

Prezioso said he has already talked to state tax and commerce officials about the Times report, which was generated by compiling tax information from a variety of sources, including reports that have been submitted to the Legislature or published online.

State officials told Prezioso they were still looking over the Times' data but had concerns some of the figures might not be current or have been taken out of context.

"I don't believe it's totally correct," Prezioso said. "But I also believe that there's a lot of room for gathering data to help us make better decisions too."

State Commerce Secretary Keith Burdette and Workforce West Virginia executive director Russell Fry will be appearing before a joint meeting of the Legislature's Joint Commission on Economic Development and Joint Committee on Finance to respond to the report and discuss ways to boost transparency and accountability with tax credits.

Prezioso said he hopes the Legislature will be able to set up some type of evaluation tool for tax programs during the next legislative session that will help them produce better analyses of the programs.

"You just can't hear one side of the story all the time where the business community comes in and says we need more tax relief," he said.

"I'm not saying we should take away any of those tax incentives," he said. "I just think as a Legislature we need to have a better understanding of what they are so we can make better decisions."

Contact writer Jared Hunt at jared.hunt@dailymail.com or 304-348-5148.


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