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West Virginia New Business Incentive Fund endowed with $ 30 million and no safeguards

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Many other states were doing it. And the pressure has arrived in West Virginia to follow suit.

Now lawmakers have approved the $ 30 million investment in a closing fund to attract new business to the state, following Governor Jim Justice’s recommendation in the recent special session. Dubbed the ‘seal the deal’ fund, the money is intended for projects that will convince a business to come to West Virginia.

Economic Development Secretary Mitch Carmichael said this type of fund was necessary for West Virginia to compete with its neighbors.

“In a post-pandemic world, we are trying to recover from our global economic downturn, and other states have these tools,” Carmichael said. “Why would anyone want to tie the hands of West Virginia and not allow us to compete for these jobs and these opportunities?” “

But these types of funds have drawn bipartisan criticism in other states for failing to deliver results, and past incentive programs in West Virginia have rarely produced the economic benefits promised. Additionally, the legislature approved the fund without putting any safeguards – while officials say rules are coming, there is currently no independent oversight governing how it is spent and analyzing what jobs – if at all. – materialize.

If at first you don’t succeed….

The justice system has tried for years to get the legislature to allocate money to a deal-making fund; a few years ago he proposed allocating $ 35 million for it, but lawmakers chose to exclude this item from the final budget.

“All of our contiguous states have such funds, and we’ve been looking for those funds for a long time,” said Carmichael, who served as Senate speaker from 2017 to 2021. He lost his seat in the 2020 Republican primary elections. “We tried. to get those deals, but there was always a higher priority for public funds. “

But West Virginia’s budget surplus, widely attributed the increase in funds the state has received through federal stimulus packages, has changed the fund’s outlook. Justice called a special session in June to ask lawmakers to allocate $ 250 million in excess revenue to various initiatives. By voting on June 24, lawmakers on both sides overwhelmingly approved nearly all of Justice’s demands, including the $ 30 million closing fund.

“It’s in an effort to fill that gap in a deal to recruit a company that wouldn’t be here without this funding stream, whatever it is,” Carmichael said. “It could be a water and sewerage project at a particular site, it could be broadband development, it could be environmental clean-up, any of those issues that prevent a business from locating and creating jobs in West Virginia.

Carmichael cited Texas and Florida as two of the states that have successfully used similar funds – however, there is debate over the value of these funds in both places.

John Deskins, director of the Bureau of Business and Economic Research at the College of Business and Economics at the University of West Virginia, agreed with Carmichael that the absence of such a fund would put West Virginia at a competitive disadvantage. .

“Other states are doing it very aggressively,” Deskins said. “If other states are doing it, we have to do it too. “

But he said the fund needs clear and transparent rules so that companies and the government are confident that the other side will meet its targets of any deal.

Guardrails and opposition

So far, the West Virginia fund has no rules. Lawmakers have adopted The law project without putting a railing on it to make sure the money is well spent, although Commerce Secretary Ed Gaunch told them at the time that they would welcome surveillance.

“The rules, specifications and oversight are still expected to come, and we would invite it,” Gaunch said at a meeting of the House finance committee.

Carmichael said that the flexibility newly created The Ministry of Economic Development has with the money is part of the point: it helps to do business, facilitate relationships and quickly create jobs.

And he’s already started committing the money, promising Macy’s $ 200,000 for a red light in an area that will help its Eastern Panhandle distribution center. Carmichael added that he will not write the check until the fund guidelines are in place.

“It’s going to be completely transparent, and there will be safeguards around it so that we know we’re getting what we’re paying for,” he said.

But organizations from all political walks of life agree: the best practice with such funds – if they are to be used at all – is to set the rules up front to ensure that the money doesn’t is not badly spent.

Kasia Tarczynska, research analyst at left-wing organization Good Jobs First, said that ideally lawmakers would have included some regulation on funds, such as job creation requirements and caps.

James Hohman, director of tax policy for the conservative Michigan-based Mackinac Center for Public Policy, said the best practice is to insert into any law that allows the required funds from recoveries, so if a company does not meet its obligations , she repay the state. But he said regardless, such funds usually fall short of what lawmakers expect of them.

“In fact, they more often than not end up showing that they are ineffective at creating jobs, unfair to businesses that don’t get them, and costly to state budgets,” Hohman said.

For delegate Pat McGeehan, R-Hancock, whether there were any rules is a moot point. McGeehan was one of the 12 state delegates – all Republicans – who voted against the bill. He called it an “immoral procedure”.

“Hey, we’re going to take this money and steal it from all the workers in the state and then give it to these big companies that don’t need it and he’s probably not going to make a deal anyway that does.” was not already sealed, ”he said. “It’s just [going to] waste a lot of money, you will have a bunch of groundbreaking ceremonies, some politicians will have their names in the paper, but nothing productive will come of it.

McGeehan said the bill would not only be ineffective but also counterproductive, putting too much power and influence over public funds in the hands of a privileged few, a business he said could be ripe for abuse.

The delegate cited historical examples of the state’s misuse of money as cause for concern, highlighting the stimulus money the Obama administration gave West Virginia for broadband expansion in 2009. A report by a West Virginia legislative auditor found that millions of dollars could have been spent on high-speed internet was wasted.

Over the years, West Virginia has not had much success with programs using tax breaks and other incentives in an attempt to stimulate the state’s economy. Among the most publicized examples was the Super Tax Credit program in the mid-1980s. It was to attract an auto factory to the state, but the plant went elsewhere and the tax credits went mainly to the coal industry. More recently, an audit earlier this year found that the state’s Economic Development Authority spent millions of dollars on incentives for jobs that never came.

Tarczynska says there are more effective economic development solutions than closing funds.

“What we generally recommend is to spend this money on programs that actually reduce poverty and create equal opportunities for growth,” she said.

The compact

Hohman said there is a growing coalition of people from all ideological backgrounds who are skeptical about closing funds.

“Whether you are on the right or on the left, the two sides kind of agree that this is not the type of competition that states should engage in,” he said. “We want to compete on your business climate and quality of life issues, rather than what lawmakers are offering a handful of companies. “

For several years, State Senator Mike Romano, D-Harrison, sponsored legislation that would bring West Virginia into an interstate deal not to offer subsidies to businesses.

According to Coalition to phase out corporate tax giveaways, this pact is still theoretical: no state has entered it yet, but legislation to this effect has been introduced in 15 state legislatures this year. While none ultimately came into force, a bill did manage to pass Utah House last year.

“I think this legislation, SB 95, is a great way to get all states to join a pact that says, “Look, we’re not going to buy business, we’re going to be competitive, we’re going to be competitive based on the attributes of our particular state. Romano said. “And, if you want to come to one of our states, come and get us because we are the best place for your business.”

His bill, however, would allow the state to compete as usual against states that are not part of the pact. It would also have no impact on existing company specific subsidies.

And, until his state and other states sign the deal, Romano said West Virginia should continue to compete using those closing funds.

While Romano was absent for the fund’s vote to “seal the deal”, he said that in order to gain his support for investing future money in the fund, he would like more metrics on it.

“If it were up to me, this ‘seal of the deal’ will be used to benefit all businesses, not one particular business,” he said.

Contact journalist Douglas Soule at [email protected]

Mary Cashion

The author Mary Cashion