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‘Unsustainable’ corporate giveaways bloat VA budget

By   /   May 2, 2014  /   No Comments

POLITICAL FIX: Mercatus Center researcher Matt Mitchell calls corporate incentives “artificial privileges, built on political patronage,”

By Kenric Ward | Watchdog.org Virginia Bureau

RICHMOND, Va. — Gov. Terry McAuliffe wants to boost corporate-welfare handouts to $136 million over the next two years – a 24 percent increase.

McAuliffe also seeks to subsidize technology companies with another $22 million.

The Democrat isn’t the only corporatist in Richmond. Lawmakers from both parties propose quintupling state giveaways to the movie industry via $11.3 million in tax breaks.

Matt Mitchell, senior research fellow at George Mason University’s Mercatus Center, calls such endeavors “unsustainable.”

“These are artificial privileges, built on political patronage,” he told Watchdog.org.

Special deals for private companies goose state spending. The current biennial budget is $86 billion; the new plan weighs in at a record $96 billion.

Much of the increase is driven by federal mandates and ever-climbing Medicaid costs, which consume more than 20 percent of the state budget. McAuliffe wants to expand the indigent-care program with “free” money from Washington.

But while Republicans and Democrats wrangle over so-called “MedEx,” corporate giveaways are embedded in spending plans that far outstrip Virginia’s ability to pay. Economists say that imbalance degrades the commonwealth’s competitiveness.

Mitchell cited 70 national studies of “targeted incentives” – including TV and movie subsidies — showing that only 4 percent produce wider economic gains.

“The vast majority only benefit the firms themselves, not the economy as a whole, by undermining competition,” he said.

Matthew Moran, spokesman for the House Republicans, said, “We generally believe government has a limited role to play in promoting economic incentives that grow jobs and the economy.”

“Over the past several years, there has been a vigorous debate over the use of these incentives,” Moran added. “Everyone agrees we need more accountability.”

House Bill 1191, by Delegate Jimmie Massie, called for regular reviews of incentive programs. Questioning whether the Richmond Republican’s bill accounted for the cost of such audits, McAuliffe has not said if he will sign Massie’s measure, which passed the General Assembly 137-1.

Overall, Virginia’s proposed state budget increase of 11.6 percent outstrips the 4.5 percent rise in personal income over the past two years, the Washington Times reported. It whips the 2.9 percent inflation rate.

Meantime, the state’s antiquated income tax tables remain unadjusted for inflation. Virginians earning $17,000 are in the highest state tax bracket.

Designating “winners” and “losers” via targeted political handouts effectively privatizes corporate profits while socializing costs — benefiting a favored few at the expense of many, free-market economists charge.

Nicole Riley, Virginia director of the National Federation of Independent Businesses, said her 5,500-member group is evenly split on the propriety of state incentives. Some see a trickle-down effect from filmmaking companies while others fear an unlevel playing field for their businesses.

“Ultimately, you get higher prices and lower quality services,” Mitchell said.

Kenric Ward is a national reporter for Watchdog.org and chief of the Virginia Bureau. Contact him at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward

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Kenric Ward is a veteran journalist who has worked on three Pulitzer Prize-winning newspapers. A California native, he received a BA from UCLA (Political Science/Phi Beta Kappa) and holds an MBA. He reported and edited at the San Jose Mercury News and the Las Vegas Sun before joining Watchdog.org in 2012 as Virginia Bureau Chief.

Watchdog.org Virginia Bureau, is in no way affiliated with "The Virginia Watchdog". Any similarities between Watchdog.org Virginia Bureau and "The Virginia Watchdog" is completely coincidental and unintentional. Any inquiries into "The Virginia Watchdog" may be done through their site.