Robb: Arizona's addictive game of subsidies for businesses
Robert Robb
I don’t really like the phrase “crony capitalism,” even though I’ve used it from time to time.
The “crony” implies impropriety. When it comes to the subsidy game, there’s some of that.
But the far larger problem is that both political parties support subsidies for private businesses. “Crony capitalism” is a label politicians lob at the subsidies favored by the other side. Their subsidies are called “economic development.”
2 examples this legislative session
In reality, economic growth is maximized when government treats all businesses alike. Subsidies distort capital investment, consumer markets and public finance. Yet politicians of all stripes cling to them and they tend to proliferate like rabbits.
A couple of examples from this session of the Arizona Legislature.
Arizona State University owns a lot of property and is beginning to allow commercial development on it. However, it is also extending its cloak of exemption from the property tax to the commercial outfits that set up operations on its property. The most well-known is the massive State Farm local headquarters.
Leaving one tax dodge intact
The idea of a huge commercial enterprise paying no property taxes has generated some controversy, and a bill (House Bill 2280) has been introduced to stop it from happening, at least this way, in the future.
ASU has tried to cast the debate as one over whether the university can use its land to support its operations. But that’s a bit of artful misdirection.
No one disputes the university’s ability to grant land leases to generate revenue and preserve ownership of the land for the future. But ASU is creating a legal artifice to make itself the nominal owner of the building State Farm constructed, occupies and operates.
That makes the land and the building exempt from property taxes. And that robs all other taxing jurisdictions – the state, the county, the city and the school district – of the money their property taxes should generate from new construction. It also gives State Farm an advantage over competitors.
So, ASU and State Farm are big winners. Arguably the students at ASU and the customers of State Farm benefit in some minor way. Everyone else is a loser.
You’d think that Democrats in the Legislature would find this objectionable: a special deal for a big business that reduces funding available for other government programs, including K-12 education.
Yet every Democrat voted against the bill in committee. And reportedly not a single Democrat is prepared to support the bill on the floor.
So, HB 2280 is stalled in the House. Unless sentiment changes, Democrats and a handful of Republicans will have preserved this tax dodge, which undoubtedly will proliferate.
And ... opening up another
The other example is a bill providing tax credits, as a practical matter mostly to the income tax, for investments made in rural Arizona (House Bill 2590).
But not for all investments made in rural Arizona. Only investments made by the small number of investment companies established as a Rural Business Investment Company or a Small Business Investment Company under federal law. There are only 317 such firms in the country.
Total credits would be capped at $30 million. So, state taxpayers would be underwriting the investments of a small number of companies in the places where just a small percentage of Arizonans live, without any stake in the upside. All the profits would go to the private investors. We would just eat the taxes.
That sounds outrageous. And it is. But, regrettably, it isn’t new territory in Arizona.
Subsidies a bipartisan game
Republicans in the Legislature got the state into the subsidy game bigtime at the start of this decade. The Arizona Commerce Authority has a grab bag of tax credits and grants that it can dole out.
Anytime you see or read a ballyhooed announcement by Gov. Doug Ducey about some big new business relocation or expansion, you can bet that there is some sort of subsidy involved. The precise nature of it, however, won’t become public until later.
A similar rural investment tax credit passed the House last year, with both support and opposition being bipartisan. It was killed in the Senate.
That was a temporary triumph of good sense, sound tax policy and competitive fairness. But only temporary.
For politicians, subsidies are addictive. And line-drawing, deciding who gets one and who doesn’t, becomes an exercise in raw politics, not deliberative policy.
One man’s crony capitalism is another man’s economic development.
Reach Robb at robert.robb@arizonarepublic.com.
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