As Early Investment Capital Falls Nationally, It Jumps 31% in Wisconsin  

Bruce Murhpy’s latest commentary at UrbanMilwaukee.com ventures where few people (especially “angel investors”) dare to tread – by challenging the perception that Wisconsin lags in availability of venture capital for entrepreneurs and should allocate state funding to create more incentives for boosting the amount of such capital.    His analysis was triggered by a January 17 Milwaukee Journal Sentinel (MJS) article, which reported that Wisconsin enjoyed strong growth in early investment capital in 2012 – with a 31% increase last year, even though the national venture capital pie contracted by 10%.  

Murphy’s column critiques the MJS article and contends that it painted a “glass half empty” picture of venture capital in Wisconsin, but I think he concedes that the Milwaukee paper has accurately reported the statistics.  He notes that a PolitiFact column in the Journal Sentinel reported that Wisconsin ranked 25th among the states in the amount of venture capital raised in the first three quarters of 2011 – which I think is better than many people seem to believe. Read more

Considering all the talk about jobs in the Governor’s State of the State address on Tuesday, I found it interesting that there was no mention of the Wisconsin Economic Development Corporation (WEDC).  But perhaps that shouldn’t come as a big surprise, considering all the negative publicity for this private agency, which was created by Governor Walker and the Legislature in 2011 to replace the state Commerce Department. 

The latest round in several months of bad publicity came this week in a Journal Sentinel article by Jason Stein and Cathleen Gallagher about problems with the administration of new tax breaks intended to encourage private investment in qualified Wisconsin businesses.  In case you missed that January 14 article, it’s an excellent example of investigative journalism.

I don’t have time now to summarize all the findings, but the major problem cited in the article is that the WEDC, “took a year and a half to begin posting the list of companies that have been approved to receive the tax-advantaged investments.”  UW economics professor Andrew Reschovsky succinctly summed up the problem with the lack of information about which companies state residents could invest in and qualify for the tax breaks:  

      “For an incentive to really change behavior, presumably you have to know about it in advance.”

 I raise the issue of these tax breaks not to add to the criticism of the WEDC, but instead to point out that policymakers need to take a very careful look at all the tax breaks and other incentives that are being handed over to certain companies and whether that money is being spent effectively to create good paying jobs. Read more

Earmark Transparency Bill Passes Easily in WI Senate, Moves to Assembly

In an unusual display of broad, bipartisan agreement, the Wisconsin Senate voted 30-3 Tuesday in favor of a bill that would require biennial budget bills to be accompanied by reports listing all the earmarks in the bill.  SB 114, which now moves on to the Assembly, also prohibits budget conference committees from adding earmarks.  At the national level, President Obama has pushed for similar legislation. 

Earmark transparency is the kind of “good government” issue that often draws rhetorical support from lawmakers and citizens across the political spectrum, but which is likely to run up against a wall of unspoken resistance that protects the status quo.  That’s not to suggest that there aren’t some legitimate questions and concerns about whether this seemingly straightforward requirement will always be practical and effective, but there’s growing sentiment for allowing more sunlight to shine on the budget process.    

The wide-ranging support was illustrated in Congress in May 2010 when an “Earmark Transparency Act” was introduced by U.S. Read more

A growing body of evidence suggests that film subsidies are not a cost-effective means for states to promoting economic growth. The Center on Policy and Budget Priorities (CBPP) issued a report last month that declared tax credits for film production to be as ineffective as they are widespread. More than 40 states offer such credits, according to CBPP, despite the fact that these subsidies result in few high-quality jobs for residents, reward companies for production they might have done anyway, and don’t pay for themselves.

Add to that a new report by the Massachusetts Department of Revenue, which underscores some of the same points made by CBPP. The report finds that the state’s $82 million tax incentive brought in $10.7 million in additional state tax revenue and created 222 jobs for locals in 2009 – at a cost of $325,000 per job. Two-thirds of the production spending considered attributable to the tax incentives was paid to non-residents or out of state businesses. Read more

Lights, cameras, ….fraction!  As the cameras roll, costs climb for taxpayers in the many states that pick up the tab for a large fraction of film production expenses incurred in their states. That was true for a short time in Wisconsin, but Governor Doyle and a majority of state lawmakers yelled “cut” last year after a Department of Commerce analysis found the rapidly rising tax subsidies to be an ineffective form of economic development spending.

“Like a Hollywood fantasy, claims that tax subsidies for film and TV productions — which nearly every state has adopted in recent years — are cost-effective tools of job and income creation are more fiction than fact.

Read more

There has been a great deal of political discussion this year about the state and federal deficits. Putting aside the matter of whether it’s good economic policy during a severe recession to incur more debt at the federal level, the fact of the matter is that a large portion of the electorate believes that deficits have gotten too high and need to be reduced.

In light of the increased concern about red ink, could the next session be a time when state and federal policymakers take a much closer look at “tax expenditures” (or special tax breaks)? Will those tax breaks be on the table along with other spending measures, as budget writers strive to bring revenue and spending into balance?

A short report issued this week by Citizens for Tax Justice (CTJ) outlines reforms that could serve as a useful starting point for curbing lawmakers’ addiction to tax expenditures. They make the case that procedural changes in state budget processes are the key to beginning to rein in tax expenditures. Read more