Ryan Brennan of Advantage Capital Partners made the news in 2013 for citing nonexistent Florida and Missouri state audits to convince Nevada legislators to pass a bill that meant millions for his employer.
Auditors in the two states he cited — shown videotapes of Brennan’s testimony — were very clear that no such audits existed or had ever been done.
Confronted with that information by Las Vegas Review-Journal reporter Ed Vogel, both Brennan and State Sen. Michael Roberson, sponsor of the bill in question, attempted to argue that no qualitative difference exists between the findings of genuine state audits and the views of consultants in the pay of firms lobbying hard for passage of “New Markets Tax Credit” or NMTC laws.
According to Vogel’s article, Roberson contended that “in the broad sense a state audit can be any type of an evaluation process performed in a state.”
Brennan, for his part, continued to maintain that the State of Nevada could increase tax revenue by foregoing insurance-premium tax revenue through tax credits allocated to firms like his.
The lobbyist, wrote Vogel, “released reports from Missouri and Florida that said revenue generated by the tax credits programs far exceeded the cost of the credits.”
Once again, however, the “released reports from Missouri” can neither be found nor their existence verified. (Regarding the Florida report, see below.)
What Vogel was shown, he reported, were documents indicating that the Missouri Senate’s Committee on Rules had “found the [NMTC] program would incur $97 million in expenses and collect $177 million in new revenue.”
However, Missouri legislative staffers told Nevada Journal that their state’s rules committee would not have found anything of the sort — primarily because the committee does not do “findings” or even take or consider testimony.
“[I]n that committee, no testimony would have been given,” said the state’s Legislative Librarian, Anne Rottmann.
“That would have happened in the Senate Jobs, Economic Development and Local Government Committee,” she continued. “I have checked those committee records and [also] the House committee on General Laws that took testimony on this bill when it was in the House.”
The legislation actually being sought in the Show Me State by Advantage Capital and other tax-credit monetizing companies was Missouri Senate Bill 112. In the Nevada Legislature that same spring, Advantage was lobbying for passage of Michael Roberson’s Senate Bill 357.
This Missouri bill, however, does not seem to have, in either its proponents’ forecasts or reports, numbers resembling those that Vogel reported Brennan giving him.
This Missouri bill, after passing that state’s senate, had in mid-May of 2013 died in the legislature’s lower house. It would have renewed and extended for another six years a New Markets Tax Credit program that the Missouri legislature had approved in 2007.
The circumstances of that Missouri bill’s demise, however, do shine additional light on the NMTC-type “New Markets Job Act” program that Nevada’s legislators passed into law. As Nevada Journal documented June 1, that program is already coming in at an annual deficit for the state of $22.5 million.
At that rate, the remaining five years of the program would cost Nevada taxpayers $112.5 million.
In Missouri, after seven years of a nine-year NMTC-style “new jobs” tax-credit program, a mid-April Associated Press news story revealed that years of rosy job-creation forecasts by the program’s advocates had proven false.
“Missouri has authorized more than $120 million of tax credits through a program intended to entice wealthy investors to pour money into businesses in low-income areas,” said the AP story, “but the initiative has yet to produce even half the jobs that were anticipated.”
Moreover, it was Missouri’s state Department of Economic Development that had documented the failure — compiling the results, at AP’s request, of every authorized New Markets Tax Credit into a spreadsheet.
While 9,679 jobs had been “anticipated” to flow from the tax credits, only 823 “actual new jobs” had resulted, according to the state-created spreadsheet.
That equaled only 8.5 percent of what had been forecast when lobbyists were selling the program to lawmakers.
This raises the question: If anticipated state revenue fell short by the same proportion, what would be the real financial cost to Missouri taxpayers?
Program proponents had provided multiple forecasts of the amount of direct new state tax revenues that the program, over its entire nine years of life, would bring in. Those forecasts varied as the maximum tax-credit charge set by the law was increased.
According to the ratio projected by the proponents’ economist, however, for every $1.00 of state tax credits, the state would reap $1.40 of state tax revenue. Thus, with the tax credits costing the State of Missouri $120 million, that ratio would mean it should reap $168 million in tax revenue.
However, if tax revenue fell short by a proportion similar to the job shortfall, actual state revenue produced by the program, at 8.5 percent, will have only totaled some $9.18 million — up against the $120 million that the program cost.
Which means that Missouri taxpayers may very well be stuck with making up the $110.8 million shortfall.
Actually, the failure of such “economic development” tax-credit schemes is an old story in Missouri. While many states regularly suffer such losses, Missouri — with its ever-growing profusion of tax-credit programs (up to 61, as of 2012) — appears unable, notwithstanding taxpayer losses, to refuse lobbyists from the tax-credit-middleman industry.
Back in February 2001, Claire McCaskill — currently a U.S. Senator, but at the time Missouri’s state auditor — assigned her agency do an impact analysis of some 33 different state tax-credit programs operated by the state Department of Economic Development.
The announced goal was to allow state policymakers to evaluate each program’s effectiveness.
What the office found, however, was a slew of state programs that essentially handed out lots of money while exercising virtually no accountability to taxpayers.
“No data is maintained on 16 of the 33 tax credit programs,” reported McCaskill. “The limited data maintained on the remaining 17 credits often does not include key information such as the number of jobs created per project, average wages, total investment, affected industry sectors, or even project street addresses.
Consequently, the audit teams “found a thorough review difficult due to the lack of data” and also due to the lack of clearly defined goals originally set for the programs by lawmakers.
Which would suggest that the primary goal of the tax-credit programs may have been simple: To facilitate the routing of taxpayer dollars into private hands.
Over a year later, in April 2002, the Auditor’s Office released another report on the same subject. It noted that Missouri still “does not track tax credits outstanding,” and that “the data collected on many of the [now] 35 tax credits administered by the Department of Economic Development” remained too incomplete to allow economic-impact analysis.
By 2004, however, McCaskill’s office had enough data to be able to produce impact analyses for at least two tax-credit programs, both of them ostensibly intended to spur economic activity in Missouri and thus very similar, in key respects, to the New Markets Job Act passed by the Nevada Legislature in 2013.
One was the Missouri Certified Capital Company Tax Credit, a version of the CAPCO programs that for many years — before they had become, in Wikipedia’s words, “widely criticized as inefficient and ineffective for their stated purposes” — conducted essentially the same lobbying campaigns that now go under the heading of “New Market Tax Credit programs.”
In short, the CAPCO firms would find politician-sponsors for legislation under which states would give taxpayer funds, in the form of salable tax credits, to the CAPCOs. Those firms, in turn, would first construct and then sell financial instrument based on those tax credits to insurance companies. Then a certain percentage of those proceeds would — during a pre-specified time frame — be lent to or invested in certain selected small businesses.
Established in 1996, Missouri’s CAPCO program was scheduled to run for 15 years. By 2004, McCaskill’s auditors found the program would use $140 million in tax credits, but only generate $23.6 million in state tax revenues — for a net reduction in state revenue of $116.4 million.
Vogel’s story also says he was shown a document stating that the office of Florida’s governor had “requested a report that found their program cost $17.5 million and produced $52.85 million in economic activity in 2009-12.”
A report with those numbers appears to have been shown to certain Nevada legislators by Advantage Capital, as it lobbied for passage of SB 357 during the latter part of the 2013 session.
Although never made part of the official hearings on record, Nevada Journal found the report and it can be downloaded here.
Titled “The Economic Impact of Florida’s New Markets Development Program: Interim Analysis of Florida NMDP Investments, 2010-2012,” the report is one of a number that the Florida Coalition for Capital, written about by Nevada Journal on June 1, regularly commissions from the Washington Economic Group (WEG), a Florida consulting group, to support legislative proposals from CAPCO and New Markets firms.
This WEG report illustrates how consultants are able to forecast that states approving the CAPCO and New Markets legislative proposals will soon see significant increases in new jobs and new state revenues — notwithstanding the long history of failure of such forecasts.
Step one appears to be selecting the necessary assumptions, upon which to write the reports.
One such assumption — never overtly acknowledged and not immediately apparent to non-industry readers — is that the small businesses receiving the CAPCO and New Markets investments would have ceased to exist without those investments.
In other words, industry-sponsored consultant reports habitually ignore that many of those small firms are already viable and would have continued operating regardless of receiving the CAPCO and New Markets tax-credit loans or investments.
Indeed, firms that are already receiving private investor capital are eagerly sought out by the tax-credit-monetizing companies.
The reasons are that such independent investment is 1) independent evidence of firm viability and 2) the surfeit of capital virtually ensures no real risk to the capital temporarily loaned out by the CAPCOs and NMTC companies — for which those companies still get credit under the state legislation they lobby into law.
Because many of the small businesses that get the tax-credit-based loans and investments were already viable beforehand, genuine impact analyses of the CAPCO and NMTC programs would acknowledge that reality. Then the true impact on jobs and tax revenue would be calculated by subtracting that pre-existing economic reality from what exists after the activities of the tax-credit-monetizing companies.
Instead, as evident in the Florida WEG report and other sponsored-consultant reports, that pre-existing economic reality is not acknowledged, and the financial impact is presented as merely the jobs and tax revenue from businesses that received tax-credit-based investment, minus the cost of the tax credits.
This is a major reason for the big gap — year after year and decade after decade — between the initially glowing forecasts from lobbyists and the hard reality later reported by independent auditors, such as those in Missouri Office of Audit.
Nevada Journal sought to interview WEG Founder and Principal J. Antonio Villamil regarding this issue, but was told he was traveling and unavailable. Nevada Journal sent specific questions to Villamil via his personal email address, but received no response.
Steven Miller is managing editor of Nevada Journal and senior vice president at the Nevada Policy Research Institute