When Low Taxes Aren't Enough: How State-Backed Incentives Help Lure Businesses to N.H.
Corporate subsidies are something of a taboo topic in New Hampshire. The state historically doesn’t offer them and, to hear most elected officials explain it, they wouldn’t even consider subsidies when courting new businesses. That was the case when Amazon was scouting potential sites for its new headquarters and 50,000 accompanying jobs.
“We don’t play in the game of giving massive tax gimmicks and tax breaks, and all that,”
said Gov. Chris Sununu during his pitch to Amazon last year. “Other states do that because they have to. Because they have massive taxes. We’ve had the best tax breaks in this country for the last 200 years.”
Sununu was referring, of course, to New Hampshire's lack of an income tax and broad-based sales tax. For him, and many other state officials, what’s traditionally thought of as the New Hampshire Advantage is the best way to lure companies.
The reality is a bit less clear cut.
While New Hampshire fell short in its Amazon bid, in recent months the state has landed three other corporate expansions. And in each case, sizable incentives packages helped seal the deal. Between BAE Systems, Hitchiner Manufacturing and Lonza, the state, quasi-public organizations and municipalities have put forward nearly $26.9 million worth of incentives to lure expansions, with more than 1,500 promised jobs in the balance.
Breaking Down the Deals
BAE Systems, one of the world’s largest defense contractors, promises to create between 400 and 800 new positions in a giant office-park near the airport. It’s the type of good news any politician would love to share, as Manchester Mayor Joyce Craig did, to a round of applause, at a campaign event last September.
But BAE’s decision wasn’t solely based on New Hampshire’s tax climate. Also included in the state’s pitch to BAE Systems was an incentives package valued at just under $15 million. Just don’t call it a corporate subsidy.
“I would call it an innovative package that address BAE’s needs for the future, and just shows that New Hampshire knows how to get creative without giving away large subsidies,” says James Key-Wallace, executive director of the New Hampshire Business Finance Authority, an quasi-public organization that encourages job creation in the state.
The BAE deal is a bit complicated, but the upshot is the Business Finance Authority will buy the building in Manchester, financing the deal in part with a bond backed by the state treasury. BAE Systems will then lease the building for 10 years, and has the option to purchase it outright at the end of the term. All in, the financing package saves the company about $12 million.
“Since we are not giving anything away, the actual cost to any taxpayers is zero,” says Key-Wallace.
That’s true at the state level, but the City of Manchester is also involved in the deal. The Board of Aldermen in October approved a property tax savings proposal with BAE Systems that’s worth another $2 million. That’s money the city won’t have to spend on schools or roads.
Two other recent expansions follow similar playbooks. Hitchiner in Milford is going to build a new plant in its hometown, and Lonza, a pharmaceutical giant, is going to expand its facility at Pease. All in, those two companies say they’ll add more than 1,000 jobs. According to proposals obtained by NHPR through a public records request, the companies will benefit from financial incentive packages valued at more than $12 million, as well as the promise of fast-tracked building permits.
The deals don’t sit well with some.
“I’m disappointed to see New Hampshire going down the path where we are offering special deals to specific large businesses rather than focusing on making our overall economic climate better for all businesses,” says Drew Cline, president of the Josiah Bartlett Center for Public Policy, a free-market think tank.
In these deals, Cline sees a muddying of the waters. When incentives are introduced, companies no longer compete based purely on their products or their ideas or their talent. It’s also suddenly about lawyers and lobbyists.
“Big businesses like to play the game where they get to be insiders and they get cozy with a government and they rig the system in their favor,” he says. “New Hampshire has avoided doing that to a large degree. If we go down the path of having the government favoring big businesses over smaller competitors, that has the potential to really harm our economy in the long run.”
Exhibit A, the incentives deal that Cline finds hardest to swallow, was the Legislature’s passage last year of a tax break for companies in the business of growing human organs. The Manchester-based group ARMI, led by Dean Kamen, pressed for it with the promise of a new industry taking root here.
Cline says it’s not ARMI’s fault--or BAE’s or Hitchiner’s or Lonza’s--for pursuing these deals. Any company would.
Taylor Caswell, commissioner of the state Department of Business and Economic Affairs which helped put together these deals, says these projects are modest, almost quaint. compared to what other states offer. But he says they’re necessary.
“It helps us show that we have something competitive to put on the table with other states. It shows that there is a willingness in the state to have some skin in the deal,” says Caswell.
He believes these financing arrangements should be thought of as investments that pay off in jobs and economic growth. They don’t meet the definition of corporate subsidy. They just hopefully produce the same result.