In the last legislative session, this newsletter warned about the dangerous precedent legislators would set if they passed a tax incentive package tailored for a specific industry, in this case a single company, Manchester’s Advanced Regenerative Manufacturing Institute (ARMI). New Hampshire doesn’t do industrial tax incentives, we warned, and if the state starts, other industries will come, hat in hand, to explain how their critically important industry deserves special tax treatment too.

Behold, on Wednesday, before the House Ways and Means Committee, Rep. Tim Lang, R-Sanbornton, presented his bill (House Bill 234) to create a film industry tax credit. To sell it, he noted that it was based on the ARMI bill. 

“The wording is almost identical to the regenerative tissue bill,” he said.

That taxpayer giveaways for the $43 billion (in revenue alone) Hollywood film industry is the first  successor to the ARMI subsidies is a perfect illustration of the bonkers nature of state industrial incentives.  

As if to emphasize that point, Oscar himself came to ask for a handout. 

Oscar is made of bronze and plated with gold. And he wants a subsidy.  

Preceding Oscar were a few people who had been connected to the film industry at some point in their careers. They mentioned the generous tax credits other states offer. They dropped  names of celebrities they had encountered. Then, just as in a movie, a tall, handsome man dressed in black, with flowing silver hair, who spoke with the unmistakable timber of an actor’s voice, stepped up to make an unexpected presentation.

He reached into his black backpack, withdrew its hidden passenger, and placed the well-worn statuette on the desk before him. 

The sounds of soft gasps and impressed whispers floated through the air. 

The man was Ernest Thompson, author of New Hampshire’s single greatest claim to Hollywood fame, “On Golden Pond.” In 1982, that screenplay won Thompson a Golden Globe and the lifelong companionship of the little golden man who accompanied him to Concord on a cloudy Wednesday tucked into the dark hollows of a nondescript hiker’s backpack.

Charming and captivating, Thompson regaled the committee with tales of Hollywood glory, all of which could be New Hampshire’s again if only the state would subsidize film production.  

Production executives tell him, he said, that they won’t film the sequel to “On Golden Pond” in New Hampshire because Massachusetts offers incentives and New Hampshire doesn’t. 

All the while, Oscar glowed in silent, golden testimony of his own.

In a movie, this would’ve been the rousing scene, with soaring music and a closeup of someone brushing away a tear, that preceded a unanimous vote to pass the bill, thus validating the hero’s journey and confirming the value of “investing” in “the arts.”

But Concord is a practical, not a dramatic, place. Instead of cheers and tears, there was only the voice of the committee chair as she interrupted the tales of celebrities gracing New Hampshire’s hills and valleys, cut off the testimony, and firmly braved the cold, golden glare of the little bald man on the desk. 

In the people’s House, even Oscar has only five minutes to testify, and there was one last witness to call. 

That witness was from the Josiah Bartlett Center for Public Policy. Instead of a celebrity, we had data. 

Among the points we made to the committee were:

  • Massachusetts’ own study of its tax credit program concluded that the credit returns only 14 cents on every dollar spent. 
  • A North Carolina study of its tax credit program concluded that it returned only 19 cents on the dollar. 

It’s not easy following Oscar. But someone had to present the case that an industry that hands out gold-plated statues even to the nerds who make cool spaceship sound effects shouldn’t get taxpayer subsidies. 

We presented the only testimony against giving New Hampshire taxpayer money to Hollywood producers. It was Josiah Bartlett vs. Oscar. 

Come to think of it, that might make a pretty good movie, provided “Oscar” is a giant bear or an alien or a sinister British commander during the Revolutionary War. 

A heroic Josiah Bartlett fighting some powerful enemy would be fine with us, just as long as the movie came with the disclaimer: “No taxpayer dollars were harmed in the making of this film.”

The incoming chairman of the House Ways and Means Committee wants New Hampshire to go from having the second-lowest corporate tax rate in New England to the second-highest (based on Tax Foundation rankings). The incoming House speaker initially expressed opposition to the idea, only to backtrack in an interview with the New Hampshire Union Leader. 

The message is clear: Expect the House to pass a large business tax increase in 2019. 

Rep. Susan Almy, D-Lebanon, told New Hampshire Business Review that she plans to introduce two business tax bills early next year. One would repeal the rate reductions, started in 2016, which cut the Business Profits Tax from 8.5 percent to 7.9 percent this year, and the Business Enterprise Tax from 0.75 percent to 0.675 percent. The BPT is scheduled to fall to 7.5 percent and the BET to .05 percent in the tax year ending in 2021. 

New Hampshire’s overall business climate is strong, but the state ranks 45th on the Tax Foundation’s corporate tax ranking. Even after the cuts, our business tax rates remain high. Making them once again higher than those in all of our neighboring states would hurt New Hampshire’s economic competitiveness and discourage economic growth. 

It also would hurt small business formation. A Federal Reserve study earlier this year found a strong negative relationship between high corporate tax rates and entrepreneurship. 

More than half of New Hampshire employment comes from small businesses, which comprise 99 percent of all businesses in the state, according to Small Business Administration data. Raising the corporate rate would not only make New Hampshire less competitive among Northeastern states, but it would suppress new business startups.

Speaker Steve Shurtleff seemed to have a good sense of the negative effects of higher corporate tax rates when he told NHBR, “I don’t see why we wouldn’t maintain the status quo…. We’ve got a good robust economy in New Hampshire. We don’t want to do anything to jeopardize that.”

That’s exactly the right attitude, and New Hampshire businesses would be reassured had the incoming speaker stuck to that position. Unfortunately, he later told Kevin Landrigan that he must have misspoken and that Almy’s plans were “on the right track.”  

Almy’s other bill would let the Legislative Fiscal Committee increase the BPT if revenue declines to the point that the rainy day fund is put in jeopardy.

The only track Almy’s bills are on is the one to slower economic growth. Almy thinks the Legislature would have a veto-proof majority to raise business taxes. If that’s true, the state economy is at risk of taking a sudden and entirely preventable downturn next year. 

Merry Christmas, New Hampshire. 

The strong economy has brought gifts for all the girls and boys of the Granite State. It has been dropping jobs and money like Santa dropping misfit toys.

The New Hampshire Department of Employment Security reported on Monday that the state’s unemployment rate fell to 2.5 percent in November. The state added 16,570 jobs from November 2017 to November 2018. From October to November, the state added 1,170 jobs. 

The national unemployment rate in November was 3.7 percent, a full 1.2 percentage points higher than New Hampshire’s. 

The government sector is being showered with gifts too. 

The Department of Administrative Services reported that total state revenues in November were above budget by $3.8 million (3.5 percent) and above the prior year by $2.8 million (2.6 percent).

The department reported that business tax revenues for November “totaled $16.2 million, which were $5.6 million (52.8%) above plan and $1.1 million (7.3%) above prior year.” Year to date, “business tax collections are above plan by $63.8 million (37.6%) and $43.9 million (23.2%) above the prior year.”

From state fiscal year 2016, when the first round of state business tax cuts took effect, to the end of fiscal year 2018, business tax revenue exceeded expectations by $319.5 million, as we reported in the fall. With business tax revenues coming in $63.8 million above plan so far this year, the total in unanticipated business tax revenue since the tax cuts took effect has reached $383.3 million. 

That’s effectively found money. New Hampshire’s business tax cuts are not solely responsible for this windfall. The Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, reported on Monday that U.S. states enjoyed a significant revenue boost in fiscal year 2018. The 7.8 percent increase in state revenue came primarily from individual income and business taxes and is thought to have been driven in large part by the federal tax cuts. 

As we prepare to enter 2019, a state budget year, there will be some pressure to repeal the business tax cuts. Those cuts will be portrayed as a giveaway to wealthy businesses. In fact, they contributed to a long period of economic growth that created thousands of jobs and sent state revenue soaring.  

Concord is abuzz with speculation about the newly elected Democratic majority’s legislative agenda. It’s no mystery. At a panel sponsored by The DuPont Group and New England College on Friday, incoming Senate President Donna Soucy reminded the audience that Democrats campaigned on an agenda (called the Granite State Opportunity Plan), and they intend to govern by it. 

The priorities outlined in the plan are clear: Higher state spending on health and social services, education and infrastructure; increased subsidies for favored energy producers; more regulations on businesses; and higher business taxes.

The plan criticizes recent business tax cuts as tax giveaways to wealthy, out-of-state corporations. Democratic candidates from gubernatorial nominee Molly Kelly on down used similar rhetoric when campaigning. The state Democratic Party’s website is full of attacks on Gov. Chris Sununu for supporting business tax cuts. 

Yet when Soucy outlined the party’s agenda on Friday morning, she did not mention tax increases. That’s a good sign because the business tax cuts that were so much maligned during the campaign did not reduce state business tax revenue. Since the cuts, business tax revenue has risen far beyond expectations. 

As we pointed out in October, in the three full fiscal years since 2016, when the first round of the tax cuts took effect, business tax revenue exceeded budget expectations by $319.5 million.  

That trend has not subsided. In the current fiscal year, which started July 1, business tax revenues are $58.2 million (36.6 percent) above plan and $42.8 million (24.5 percent) above the prior year.

More than 1/3 of $1 billion in unanticipated business tax revenue has funded a lot of additional state pending. And that puts the new legislative majority in an interesting situation. 

They campaigned hard against those tax cuts. Yet the record shows that the cuts coincided with a sustained increase in business tax revenue that continues to fill state coffers with enough money to fund a host of new spending priorities. 

Will the new majority risk that revenue by raising rates, or will leadership decide to leave well enough alone?

Business tax cuts have helped raise New Hampshire to No. 6 on the Tax Foundation’s Business Tax Climate Index. No other New England state is in the top 25. Vermont is a lowly 41. New Hampshire is a lone outpost of business tax sanity in New England, which is clearly helping our economy. 

Next week, Americans will indulge in the fine New England tradition of consuming a large fowl fattened for the purpose of providing us sustenance. It’s a tradition that symbolizes the bounty of our land and our market economy. We should remember, though, that there are birds to eat and birds to leave alone.

Plump American turkeys? Tasty. Geese that lay golden eggs? Best to let them keep laying. 

Recently retired U.S. Supreme Court Justice Anthony Kennedy, a dedicated follower of passions, enthusiastically fell for the fiction that the South Dakota vs. Wayfair case was actually about “leveling the playing field” between online and traditional retailers through expanded sales tax collections. It wasn’t. 

Under the “physical presence standard” that existed before June’s Wayfair decision, states could collect 75-80 percent of the sales taxes that were possibly collectible from online transactions, a 2017 GAO report found. It isn’t clear how much of the remainder could be collected given the safe harbor and other limitations endorsed in the Wayfair ruling.

Though the Supreme Court didn’t rule South Dakota’s law constitutional, it strongly suggested that any law set up in a similar way would be. Among the provisions the court seemed to endorse were safe harbors, simplified tax rates, and collection software provided by the state.

South Dakota’s safe harbor provision states that taxes will be collected only when an out-of-state business has $100,000 or more in sales or 200 or more transactions. The tax simplification standard means that states would have to ease their definitions of taxable goods and minimize rate differences among localities. 

These provisions, along with the fact that most large retailers were already collecting state sales taxes, suggest that states would collect some new sales tax revenue but not nearly as much as previous estimates of available revenue had predicted.

If the argument was that Amazon kills downtowns and shopping malls because people avoid sales taxes, well, Wayfair wasn’t a very good remedy. Amazon was already collecting state sales taxes prior to Wayfair. And, obviously, states could just cut their sales tax rates to make their local retailers more competitive.

But the point of this court case was not to make brick-and-mortar stores competitive. It was to expand state tax collections across state borders. And not just for sales taxes, but most critically for income taxes.   

We can feel your eyes rolling. Income taxes? Really? 

We call your eye roll and raise you one emergency rule issued by Wisconsin on October 1. The Wisconsin Department of Revenue issued the rule to clarify its tax policies post-Wayfair. Buried in the rule is this sentence:

“Retailers with sales and use tax nexus in Wisconsin may also have nexus in Wisconsin for franchise or income tax purposes.”

And there it is. This is the game. Wayfair opens the door to cross-border collection of multiple state taxes — personal and corporate income, franchise, gross receipts, etc. 

By eliminating the physical presence standard, Wayfair gives new meaning to the term “the long arm of the law.” Any “nexus” that can arguably connect a business or individual to another state can create a tax liability in that state.

States are already pursuing this, which has the potential of eroding, if not destroying, the New Hampshire Advantage. People move here to avoid income taxes and shop here to avoid sales taxes. If Wayfair creates a de facto national income and sales tax, New Hampshire loses a major competitive advantage over other New England states. 

As Americans for Tax Reform President Grover Norquist put it at the Wayfair tax panel you should have attended in Concord on Wednesday, the ultimate goal of the high-tax states that spout the “level playing field” line is the destruction of interstate tax competition. 

This is why it’s so important for New Hampshire to pass what legislation it can to protect its businesses and residents from cross-border tax collections. Without a state law that blocks such collections, it likely would be too risky for an individual or small business to sue a foreign state. Paying the tax would be much cheaper. 

But with a law to stymie such collections, a business or individual would have firmer ground on which to stand. And the law might discourage many states from even trying to collect in the first place, as New Hampshire’s 2009 Town Fair Tire law did. 

The Wayfair decision really does threaten New Hampshire’s unique tax structure and the competitive advantage that structure gives us over our neighboring states. Legislators cannot let it stand unchallenged. 

Making exceptions to general rules can seem harmless or even essential in the moment. When exceptions are made to achieve a short-term goal, the argument is that this one little violation of our collective standards or norms will quickly fade into history and everything will soon return to normal. 

Life doesn’t always work that way. The first exception becomes a precedent, the basis for further exceptions, and before you can say “Jesse Ventura” it can become a norm. Casual Friday spread throughout the United States in the 1990s as an experimental employee perk. U.S. necktie sales peaked in 1995, and 21 years later the New York Post declared the necktie dead. It’s now impossible to tell a tech CEO from a high school slacker unless they’re both standing beside their cars. 

Setting precedents matters. As a major directional shift in state tax policy, Senate Bill 564 sets a bad precedent for New Hampshire. 

The bill exempts regenerative manufacturing businesses (those that manufacture organic human body parts) from state business taxation. That not being considered enough aid, it also creates a state “regenerative manufacturing workforce development program.” 

The development program involves the state business finance authority taking over the student debt of regenerative manufacturing industry employees. 

As President Obama would say were he a writer for this newsletter, let’s be clear. The target of the bill is Dean Kamen’s Advanced Regenerative Manufacturing Institute. We admire Kamen, and the ARMI project is an exciting, potentially pivotal development for Manchester’s Millyard. This biotech business could — could — be the celebrity anchor tenant Manchester officials have long sought: a magnet tech firm that finally turns Manchester into a center of tech innovation. 

But no one can predict the future. Earlier this century, Kamen’s Segway was supposed to have been a transformative tech business, while Southern New Hampshire University was all but ignored as a small college in Hooksett. Today, SNHU is transforming the Millyard while Segway has moved to a small campus in Bedford. 

In seeking to help this one company, SB 564 creates, for the first time, an economic development incentive for a specific type of business. New Hampshire has for decades firmly and wisely rejected this wasteful and costly tax policy that has wasted so much taxpayer money in other states. 

Until now, New Hampshire has always been able to reject corporate requests for special tax breaks by noting that we just don’t do that in this state. Instead, we encourage economic development by keeping tax rates low for everyone. 

This approach limits rent-seeking and keeps politicians from being able to distribute favors via the tax code to friends or politically favored industries. Allowing no exceptions to the rules is the only way to ensure equal opportunity for all, from the obscure and unconnected to the rich and famous. 

SB 564 breaks with that tradition and grants favored status to a specific type of business. It seeks to justify this by predicting regenerative manufacturing’s benefits to New Hampshire.

“Regenerative manufacturing, the creation of new tissue for medical purposes, is an example of an emerging technology that will change current medical practice, advance the health of the citizens of New Hampshire and the United States, and create a new industry,” the bill states.

Any emerging medical technology could be described the same way. 

The bill asserts that subsidizing this industry will lead to numerous benefits, including “providing new, high paying jobs…attracting highly skilled professionals… fostering the development of a new industry… contributing to the sciences… increasing tax revenues….”

Almost any emerging industry would bring similar benefits.

SB 564 not only grants favors that others will cite when seeking special treatment in the future, but it attempts to justify those favors with language that other industries can easily copy and paste into their own lobbying efforts.  

With this bill, New Hampshire has waded blindly into the economic development incentive swamp. The economic research is quite clear that incentives are harmful at worst, useless at best. They don’t improve state economies. They do create two groups of businesses — insiders and outsiders. Insiders get state aid while outsiders are disadvantaged by having to subsidize their competitors. 

This is not the New Hampshire way. By getting New Hampshire into the incentive game, the precedent set by SB 564 threatens to undermine the foundation of the New Hampshire Advantage.

Why a constitutional amendment is needed to restore taxpayer standing
to challenge illegal spending

By Andrew Cline

On Sept. 1, 2015, Manchester’s Board of Mayor and Aldermen approved a contract with the city’s teachers union that included a pay raise. Three aldermen with immediate family members employed as city teachers voted for the contract, in direct violation of the city charter’s conflict of interest provision. (1)

Just five years earlier, taxpayers would have been able to challenge such an illegal vote at the state Supreme Court. For 147 years, New Hampshire taxpayers had the right to petition the court for opinions on the legality of alleged unlawful government expenditures.

As the court put it in Clapp v. Jaffrey (1953), “it is plain that every taxpayer of a town has a vital interest in and a right to the preservation of an orderly and lawful government regardless of whether his purse is immediately touched.” (2)

In Green v. Shaw (1974), nine members of the Portsmouth City Council had sought a judgement against the mayor and 291 municipal officials for numerous alleged violations of law that included the illegal expenditure of taxpayer funds. After making the initial complaint, six of the nine petitioners went off the council, so they brought the case to the court as taxpayers. (3)

“It is well settled in this State that plaintiffs, as taxpayers, have standing to seek redress for the unlawful acts of their public officials,” the court ruled in allowing the petition.

But in a 2010 case called Baer vs. New Hampshire Department of Education, the state Supreme Court summarily threw out a century and a half of established practice and its own legal precedents. It declared that ”taxpayer status, without an injury or an impairment of rights, is not sufficient to confer standing to bring a declaratory judgment action” under the state statute that had long authorized exactly what the court suddenly decided it no longer authorized. (4)

After Baer, legislators amended the statute to clarify that it allows taxpayer standing, but in 2014 the court ruled in Duncan v. State of New Hampshire, struck down that amendment, arguing that it violated Part II, Article 74 of the New Hampshire Constitution, which states that the court can issue advisory opinions to other branches of government. Though that provision doesn’t forbid the court from issuing those opinions to individuals, the court interpreted it as allowing opinions to be given only to the Legislature, governor and Executive Council. (5)

That interpretation, however, ignores the plain language of Part II, Article 4, which grants the Legislature the “full power and authority to erect and constitute judicatories and courts of record, or other courts, to beholden, in the name of the state, for the hearing, trying, and determining, all manner of crimes, offenses, pleas, processes, plaints, action, causes, matters and things whatsoever arising or happening within this state.…” (6)

The Legislature clearly has the “full power and authority” to “beholden” the courts for hearing “all manner of…things whatsoever….” That is not ambiguous. The Legislature can task the court with hearing any case, plea, action, etc.

Consistent with the Legislature’s constitutional authority, RSA 491:22 tasks the court with hearing taxpayer petitions for relief from illegal government acts. It states that “any taxpayer in the jurisdiction of the taxing district shall have standing to petition for relief under this section when it is alleged that the taxing district or any agency or authority thereof has engaged, or proposes to engage, in conduct that is unlawful or unauthorized, and in such a case the taxpayer shall not have to demonstrate that his or her personal rights were impaired or prejudiced.” (7)

RSA 491:22 is a remarkable statute. In it, legislators voluntarily checked their own power. They granted taxpayers a means of holding state and local government officials accountable should they break the law.

With the Baer and Duncan decisions, the New Hampshire Supreme Court eliminated a vital check on government power that had been used numerous times over the course of nearly1.5 centuries.

Just a few weeks ago, Hillsborough County Superior Court Judge Charles Temple cited the Duncan case in ruling that Nashua taxpayers didn’t have standing to challenge a city action that violated the tax cap. (8)

Legislators have proposed restoring the original understanding of taxpayer standing by passing a constitutional amendment, CACR 15. (9)

It would amend Part 1, Article 8 of the New Hampshire Constitution by adding the following language:

“The public also has a right to an orderly, lawful, and accountable government  Therefore, any individual taxpayer eligible to vote in the State shall have standing to petition the Superior Court to declare whether the State or political subdivision in which the taxpayer resides has spent, or has approved spending, public funds in violation of a law, ordinance, or constitutional provision.  In such a case, the taxpayer shall not have to demonstrate that his or her personal rights were impaired or prejudiced beyond his or her status as a taxpayer.  However, this right shall not apply when the challenged governmental action is the subject of a judicial or administrative decision from which there is a right of appeal by statute or otherwise by the parties to that proceeding.”

This clarifying language is not radical. It would restore the constitutional status quo that existed from 1863-2010 and gave taxpayers the ability to challenge illegal government expenditures.

Without a constitutional amendment to restore taxpayer standing, the public will have no recourse when the state or a local government spends money illegally. A vital check on government abuses of power will remain lost, and illegal spending will become more common as government officials learn that they can break the law with impunity.

Andrew Cline is president of the Josiah Bartlett Center for Public Policy.

 

Endnotes

  1. Manchester City Charter, Section 9:03 (e): “Conflict of interest.  No city official shall participate in the decision-making process of any matter in which the official or a member of the official’s immediate family has a direct personal or financial interest. Any official who believes such an interest exists shall disclose such interest and shall not participate in the matter further.”
  2. Clapp v. Jaffrey, N.H. Supreme Court, Oct. 9, 1952.
  3. Green v. Shaw, N.H. Supreme Court, April 30, 1974
  4. Baer v. New Hampshire Department of Education, Sept., 24, 2010.
  5. Duncan v. The State of New Hampshire, Aug. 24, 2014.
  6. How the Supreme Court got the Duncan case wrong and eliminated taxpayer suits — part 2,” New Hampshire Trial Bar News, Fall 2017.
  7. RSA 491:22
  8. Judge declares plaintiffs in Nashua spending cap suit have no standing,” New Hampshire Union Leader, Feb. 13, 2018.
  9. CACR 15, 2018 Session, New Hampshire General Court.

CONCORD — U.S. Sens. Jeanne Shaheen and Maggie Hassan should explain why they voted against ending the federal tax deduction for state and local taxes, which aids high-tax states at the expense of New Hampshire, Andrew Cline, interim president of the Josiah Bartlett Center for Public Policy, said.

“Through the state and local tax deduction, Granite Staters subsidize the high tax bills imposed by neighboring Vermont and Maine as well as other big-spending states,” Cline said.

“The deduction also reduces the incentive for business owners, investors, middle-class families, and others to move to a low-tax state. New Hampshire has benefitted from a steady influx of tax refugees from Massachusetts. Our booming economy has generated a 2.7 percent unemployment rate, which means we have a strong demand for more labor. Why would senators who represent New Hampshire want to continue a system in which Granite Staters essentially pay to make life more comfortable for our high-tax neighbors? Granite State taxpayers deserve an explanation.”

Sens. Shaheen and Hassan voted Thursday against an amendment to allow the federal government to reduce the state and local tax deduction. The vote is here.

The Josiah Bartlett Center for Public Policy, a 501 (c)(3) non-profit organization, is New Hampshire’s free-market think tank.

CONCORD — Under no circumstances should state officials offer special economic development incentives to try to land Amazon’s newly announced second headquarters (HQ2), Andrew Cline, interim president of the Josiah Bartlett Center for Public Policy, cautioned today. Granite Staters would fare better in the long run if the government focused instead on improving New Hampshire’s overall economic climate.

“Rather than join other states in a contest to see who can give the most taxpayer money to the world’s third-largest retailer, run by one of the three richest men on the planet, state officials should continue focusing on making New Hampshire a better place to live, work and do business for all,” Cline said.

“Amazon is an impressive company whose location here would be welcome,” Cline added. “Reaching out and talking up New Hampshire’s many charms is perfectly fine. But we should never cross the line between marketing the state and giving a big company special treatment that New Hampshire’s mom-and-pop businesses don’t get.”

Last Friday, the Democratic Party leadership in the state Legislature wrote to Gov. Chris Sununu to urge him to pursue Amazon’s second headquarters. “We know there is nothing either Connecticut or Utah can offer that we cannot,” they wrote.

In fact, both Utah and Connecticut offer financial incentives in the form of grants and state tax breaks that New Hampshire does not. Connecticut even offers business loans. Luring big businesses by giving them special tax breaks is not the New Hampshire way.

In its HQ2 request for proposals, Amazon expressed a strong desire for financial incentives that New Hampshire does not offer. “Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process,” the RFP states.

New Hampshire must never start playing the incentives game. Granite Staters will be better served if the state stays focused on policies that help all businesses — small, medium and large — instead of giving special treatment to the biggest companies.

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March 9 , 2016

Broadband Boondoggle is Risky Proposition

Charles M. Arlinghaus

 

Changing state law to allow towns to borrow money to run their own internet companies is not about bringing service to the remarkably small number of consumers without access to broadband. It is a mistake that would expose property taxpayers to the same financial problems that plague government-owned networks across the country.

 

Today, in New Hampshire, there is a small list of purposes for which towns are allowed to borrow money. This government-limiting statute makes clear that long term debt is to be used sparingly and for core functions like government buildings and snowplows.

 

There is no legitimate government purpose in borrowing millions of dollars to be paid by taxpayers simply to compete with existing companies. However in the very few spots that don’t have access, town government is currently authorized to build infrastructure if they choose.

 

A proposed law would change that limited purpose. It would allow municipalities to build broadband for any purpose — not limiting it to those without access. The only possible excuse for the change is to allow government officials to use your money to build their own government-run company to compete with current providers.

 

Today, 93% of the state has access to broadband even under the new higher speed definition of broadband. Further, more than 98% of the state has access to mobile broadband. The number of those without service will decline as the federal Connect America Fund spends $25 million in New Hampshire to increase access.

 

For the last decade local government officials across the country have racked up huge debts running mediocre systems with high overhead and few subscribers. Locally, we are very familiar with the taxpayer-nightmare in Burlington, Vermont. The government-knows-best plan was a disaster from the beginning and ended its run in virtual bankruptcy settling a $33 million debt to the banks for $10 million and leaving taxpayers holding an additional $17 million default bag.

 

The best-named silliness is Utah’s UTOPIA. This plan, appropriately named after a fantasy world, saddled taxpayers in 11 Utah towns with $350 million in debt. To bail out the failed network, towns wanted to assess users and non-users a $240 per year tax — they fail, you pay.

 

I doubt any local official would be quite so blind as the local officials in Vermont, Connecticut, North Carolina, Utah, Tennessee, Louisiana and dozens of other communities across the country. But opening up that possibility creates an incentive for the official to think about empire building with no risk except to the taxpayer.

 

When a private company risks its capital, the potential for success is weighed against the possibility of going bankrupt, losing everything without recourse to your and my property taxes. The largest broadband companies in America spend between $35 and $50 billion each year to improve, expand, and upgrade their infrastructure.

 

High tech networks are continually updated at a rate towns can’t hope to compete with. The capital resources and incentives of a private company with national reach are probably greater than one town in one state.

 

Remember that the proposed change would allow towns to borrow money to build competing networks. They already have the power to borrow to serve the 7% of the population that has no service.

 

The question policymakers face is simple: does it make sense to allow government to borrow money which you and I have to pay back with our property taxes simply so they can attempt to compete with a business that invests hundreds of millions of dollars in our state to build state of the art networks in a high tech industry?

 

If we truly want to increase service coverage from 93% to closer to 99%, there are simpler, low-risk things we can do instead of repeating the mistakes of so many debt-ridden communities across the country.

 

Leave in the language allowing towns to serve unserved areas. Work with providers to target the $25 million the federal government wants to send here to ensure it goes to help someone instead of being wasted like the ridiculous “fast roads” project.

 

If a municipality has a proposal that current language doesn’t quite allow then the state can look at it and easily pass enabling legislation if it makes sense. What doesn’t make sense is to allow towns carte blanche to build their own doomed-to-fail internet companies on the backs of property taxpayers.