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MA Gov. Bets Revenue From New Taxes, Casino Will Coax Lawmakers to Back Biotech Subsidy

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Massachusetts Gov. Deval Patrick is betting that two new controversial revenue-generating plans he added to the state’s fiscal 2009 budget late last month will convince state legislators to approve his $1 billion, 10-year subsidy package to the state’s life science industry.
 
The proposals has added to his $28.2 billion budget proposal for the year beginning July 1 include $297 million in new business taxes and between $400 million and $450 million in revenue from three new commercially run resort casinos.
 
Patrick and his aides have said the casinos would meet state financial projections in part by taking business away from the Indian-run Foxwoods and Mohegan Sun casinos in Connecticut and the cluster of gaming establishments in Atlantic City, NJ.
 
On Feb. 6, Patrick opposed a request by one Massachusetts-based Indian tribe, the Mashpee Wampanoag, to place more than 500 acres in Middleborough into trust so it can operate a casino there.
 
Earlier this month Patrick received good news for his casino plan when the 750-union, 400,000-member Massachusetts AFL-CIO endorsed it.. The union contends that the new casinos would generate 22,000 permanent jobs and thousands of additional short-term construction jobs. That is no small claim in a state where employment last December rose by just 0.7 percent, or 24,300 jobs.
 
“The need for jobs is pre-eminent” in Massachusetts” and ”the need for revenue in the [state] is extraordinarily important,” Massachusetts AFL-CIO President Bob Haynes said, according to a transcript of remarks he made following Patrick’s Feb. 7 meeting with the union’s executive council. The legislation is currently in the General Assembly’s Joint Committee on Economic Development and Emerging Technologies, chaired by Rep. Daniel Bosley (D-North Adams).
 
But the plan faces an uphill political climb. The measure has been opposed both by Bosley and by House of Representatives Speaker Salvatore DiMasi (D-South Boston). Speaking to BRN last November, Bosley said the life sciences growth anticipated by Patrick’s subsidy “will create multiples of the jobs that we would create by putting up casinos, and they’d be much better jobs.”
 
Defending the new business tax, the governor said they amount to closing tax “loopholes” that businesses do not enjoy in most other states. To make the deal more palatable for businesses, Patrick has combined the tax increase with a three-year, 13-percent cut in the state’s corporate tax rate.
 
As part of that sweetener, corporate taxes would fall from the current 9.5 percent at the start of fiscal 2009 — the nation’s fourth-highest — to 8.3 percent in the fiscal year ending June 30, 2012. The cut is projected to return $200 million to business taxpayers.
 
Patrick originally proposed the extra business taxes last year, arguing the state needed to plug a $1 billion budget shortfall that didn’t materialize due in part to the tail end of the Boston region’s commercial real-estate boom. This year, however, the state has contended its projected $1.3 billion shortfall is likelier to happen because the real-estate market has flattened, and the economy has worsened, over the past 12 months.
 
Among the changes sought by the governor is to require Massachusetts businesses to file taxes under the same status as their federal taxes — a rule, nicknamed “check the box,” in effect in 45 other states. The commission projected check-the-box could generate $170 million for the state.
 
Another component would require multiple entities of a single business to file jointly and pay taxes based on combined business activity — a “combined reporting” rule the commission expects will enrich Massachusetts’ Treasury by $220 million. A similar law is in effect in 22 other states.
 

“Just because other states want to glamorize biotech with ill-considered public subsidies doesn’t mean that Massachusetts has to go along.”

“The elimination of these loopholes will allow the administration to significantly reduce the structural budget gap and make targeted investments in the state’s top priorities,” Patrick said in a Jan. 17 press release. Those “targeted investments” include the governor’s life-sciences subsidy, said Kofi Jones, a spokeswoman for Daniel O’Connell, Patrick’s commissioner of housing and economic development.
 
Last year when DiMasi began publicly opposing the business tax hikes, Patrick retreated, parking the tax increase with a 15-member commission consisting of members appointed by Patrick, DiMasi, and state Senate President Therese Murray (D-Plymouth).
 
In December the Massachusetts Special Commission on Corporate Taxes approved Patrick’s check-the-box plan and combined reporting proposals in a 9-6 vote that reflected opposition by some of the state’s business groups. That’s a better outcome for check-the-box than the interim 8-7 vote cast last June.
 
The commission’s full report can be read here.
 
The commission also voted 12-3 to extend the state’s room occupancy tax on hotel stays to Internet travel web sites and other “intermediary resellers;” a 13-2 approval to limit the earned-income credit available to non-residents; and a 14-1 win to impose sales taxes on Massachusetts residents buying goods from Internet and other vendors with no presence in the state — what proponents call a “streamlined” sales tax.
 
Michael Widmer, president of the Massachusetts Taxpayers Foundation and a commission member opposed to the business tax hikes, told BioRegion News last week that state lawmakers may be more inclined to raise taxes on businesses this year because of the tight budget proposed for fiscal 2009.
 
‘Serious Challenges’
 
Patrick’s spending plan for that period projects $21 billion in tax receipts, 3.6 percent, or $760 million, more than the current fiscal year based on a projection of 3.8-percent economic growth, which itself slid from between 6 percent and 7 percent growth in recent years. It would also raise school aid spending by $223 million, or 6 percent, to $3.95 billion, and use $369 million in state reserve funds to help balance the budget.
 
“The legislature is in a tough position this year,” Widmer said. “They may give it (the business tax hikes) a second look,”.
 
Yet as of January the state recorded around $100 million from existing tax receipts than it had budgeted for fiscal 2008. Even if that pace could be sustained for the rest of the fiscal year, Widmer said lawmakers might still support Patrick’s business tax hikes because the larger-than-expected receipts prorated through June 30 still won’t be enough to balance the budget.
 
Peter Abair, director of economic development for the Massachusetts Biotechnology Council, said the proposed tax hikes would affect larger life science businesses, as well as farther-flung companies with operations scattered in several jurisdictions. The council has not taken a formal position on the issue.
 
David Tuerck, executive director of the Beacon Hill Institute, a market-oriented think tank based at Suffolk University, said the new business taxes would discourage additional business activity in the Bay State. The institute compiles an annual State Competitiveness Report. Its latest version, released Dec. 19, 2007, showed Utah dethroning Massachusetts as the nation’s most competitive state.
 
“The state has serious challenges in addressing housing, infrastructure, and energy costs,” Tuerck told BioRegion News late last month. “What we need is comprehensive corporate tax reform that broadens the base of taxpayers and lowers the rate they pay.”
 
Tuerck and his group have publicly opposed Patrick’s Life Sciences Initiative (HR 4324), which would set aside $100 million each year for 10 years in economic incentives to attract and retain biotech companies, subsidize research, and train future professionals. Patrick has proposed that the state spend $500 million of the bill’s allocation on public education and other facilities, and life sciences equipment; $250 million on fellowships, research grants, and workforce training programs; and $250 million on tax subsidies targeted to job creation.
 
“The emergence of biotech as a growth industry should be seen as just another chapter in Massachusetts history — a hugely impressive chapter to be sure, but in many ways similar to what we have seen before,” Tuerck said Jan. 16 in testimony before the general Assembly’s Joint Committee on Bonding, Capital Expenditures and State Assets chaired by Rep. David Flynn (D-Bridgewater).
 
“What Massachusetts has never needed and doesn’t need now is a policy of throwing state money at sectors deemed to be ‘winners,’ to the inevitable disadvantage of those implicitly ruled out as ‘losers,’” Tuerck added. “Just because other states want to glamorize biotech with ill-considered public subsidies doesn’t mean that Massachusetts has to go along.”

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