Here’s why NH won’t land Amazon
In an ever-escalating interstate subsidy war, the Granite State lacks the firepower
In 2013, when Sturm, Ruger & Co., the gun manufacturer with a major facility in Newport, decided to build another plant, it chose North Carolina, and it did so for a variety of reasons. But it certainly didn’t hurt that North Carolina gave the company more than $10 million in subsidies to locate there.
And Keene-based C&S Wholesalers, one of New Hampshire’s biggest companies, got $8 million in subsidies to expand — in places like Vermont and New York.
New Hampshire has a General Electric facility in Hooksett and had one in Somersworth. The state actually gave the company $250,000 in job training grants over the years, but the company also collected $13 million from Vermont and reaped a $145 million award by relocating its headquarters from Connecticut to Boston.
New Hampshire officials are putting together a package to land Amazon’s planned second headquarters, so-called HQ2, but not many observers think that the state has a chance at landing that giant prize.
Consider that the mega-retailer’s criteria include having a city with a million people (New Hampshire only has 1.3 million, and our largest city has 110,000) as well as public transportation — not exactly the state’s strongest selling point.
But Amazon is also used to getting generous state government subsidies. It has pocketed some $733 million from various states since 2000, mostly during the last four years, according to the Good Jobs First subsidy tracker (the source for the above three incentives).
“Taxpayers should watch their wallets as the trophy deal of the decade attracts politicians to a hyper-sophisticated tax-break auction,” said Greg Leroy, the watchdog organization’s executive director.
Millions from other states
It’s unlikely that New Hampshire could prevail in a bidding war with other states, but what incentives could New Hampshire offer other businesses to move here or remain and expand here?
Most states, including our neighbors, have spent tens, or even hundreds, times more in luring companies to their state, sometimes even from our state. New Hampshire has spent $8 million over the past few decades, mostly in job training grants, the fifth lowest total in the nation and the lowest in New England, according to the subsidy tracker. Over the same period, Vermont has spent $235 million; Maine, $717 million; Massachusetts, $1.1 billion; and New York — which leads the nation — $26.3 billion.
Actually, the Granite State spent a bit more than the database reveals and most people realize. Still, there is no denying the state is not even in the same arena when it comes to providing economic incentives.
“We don’t have huge programs,” said Taylor Caswell, the commissioner of the NH Department of Business and Economic Affairs. “But we have enough different tools in our box to get the job done.”
Of course, the state’s biggest advantage — the “New Hampshire advantage” — is the lack of a broad-based income or sales tax.
For example, the lack of a sales tax, said Caswell, doesn’t just increase border sales, it lowers expenses when businesses buy things locally, and those small purchases “add up.” Similarly, the lack of an income tax doesn’t just mean that New Hampshire employers can pay a little less and still remain competitive, but it also means less paperwork.
However, this also means that without the revenue from “a lot of taxes we are not going to have a lot to give away,” said Caswell.
Or as Peter DelGreco, president of Maine & Company — a privately funded economic development organization based in Portland, Maine — put it: “New Hampshire collects less revenue than Maine, so it has less to give away. We collect more and share it with the company.”
Nimble and accessible
Take Maine’s Pine Tree Development Zones program. Through it, businesses in high-paying sectors like biotech, precision manufacturing and information technology that move to or expand in Maine don’t have to pay sales and corporate taxes for five years, and 8 percent of what their workers pay in income taxes goes to them. Some 240 businesses were participating last year.
Or take Vermont’s VEGI (Vermont Employment Growth Incentive) program, under which businesses get cash rewards for increasing their payroll. The program has authorized nearly $40 million in incentives over a period of 13 years, but it figures it will get back over $100 million in revenue.
“If you don’t meet the target, you don’t get the cash,” said Joan Goldstein, commissioner of Vermont’s Department of Economic Development. “If you create high-paying jobs, you get more. It has been very good. Most companies have over-performed.”
One thing all three northern New England states brag about is that they are small, nimble and accessible, and eager to sell their state.
“Things happen here in weeks, where other states it takes months and months,” said James Key-Wallace, executive director of the NH Business Finance Authority. “Other places, there is no one to talk to. When you call me, I pick up the phone.”
Officials from the Massachusetts Office of Business Development, for instance, didn’t pick up the phone.
When asked for an interview about the state’s incentives business, it would only provide two websites, which included the Economic Development Incentive Program.
According to the EDIP 2016 annual report, this one program gave out $16.3 million in tax credits to 28 companies, not to mention local tax credits to some 31 other projects. All this led to nearly $1 billion in private investment, creating 3,000 jobs and retaining another 6,000 jobs, according to the report.
New Hampshire operates on a much smaller scale, and it is for all companies, not just those that are moving and expanding in the state.
Even one of the state’s biggest incentives, the research and development tax credit, is capped at $7 million, and that only started last year after the Legislature raised that cap from $2 million. More than 200 business filed for $7.6 million in credits, meaning that they will only get 92.5 percent of the amount to which they are entitled. Most states don’t cap their R&D tax credit.
Before the R&D cap expansion, the state’s largest tax credit program was the Community Development Investment Program, which encourages investment not in the company, but in community nonprofit projects. Businesses that donate to an approved project receive 75 percent of the amount back in a business tax credit. In 2016, some 172 firms utilized the program and got back $3.2 million, according to the NH Department of Revenue Administration.
Job Training Fund
The state also has the Economic Revitalization Zone tax credit, a program to encourage job creation in certain economic areas — underutilized industrial parks or vacant land structures that formerly were used for commercial purposes. But it too is capped, at $825,000. In 2016, 30 companies requested $1.2 million in credits in three communities — Brookline, Claremont and Lebanon — but they received less than 70 percent of that, resulting in the creation of 818 jobs, according to the NH Bureau of Economic Affairs. (So far this year, four more new zones were established — in Milford, Portsmouth, Salem and Sunapee.)
The state’s Job Training Fund — the only subsidy counted by the subsidy tracker — covers half of the cost of an employee training program, but the total award can’t exceed $100,000 per company. New Hampshire has given out $9.2 million in grants over the last decade, as of last September, or slightly less than $1 million a year.
The only other state tax credit is limited to Coos County. That too is a job credit for companies that hire at 150 percent of the current minimum wage (about $10.90 per hour). Those credits are limited to $750 to $1,000 for each qualified employee. In 2017, the state gave out a total subsidy of $113,500 to 28 qualified businesses, which it claims created 35 jobs and retained 85.
There was another program that was limited to Coos County. It enabled communities to suspend taxes on improvements made on commercial or industrial development, but it is no longer limited to Coos. The Legislature took that program statewide in a law that went into effect in August. Communities like Dover and Claremont are considering it, but apparently no municipality has adopted it yet.
There are a number of other local incentives already in place.
Perhaps the most widespread, but little known outside economic development circles, is the Community Revitalization Tax Relief Incentive, or 79-E, program, which encourages investment in downtowns and village centers, though mainly for rehabilitation of older buildings, not construction of new ones.
The law was adopted primarily as a conservation measure, but many communities are using it to revitalize their downtown. Some 33 communities have adopted 79-E, according to the New Hampshire Preservation Alliance, but it is unclear how many businesses are using it.
New England Sweetwater Farm and Distillery in Winchester, for instance, used the program to help convert its building into a tasting room and, in Claremont, Ink Factory Clothing Co. used it in conjunction with federal tax credits to convert an abandoned warehouse into a new workshop, according to the alliance.
Tax increment financing (TIF) is another local program that steers revenue from property taxes generated by new development to finance infrastructure improvements.
This is not unique to New Hampshire. It is used widely around the country, including Vermont. But that state subsidizes the municipality’s share. In exchange, the state must approve each program. In the Live Free Or Die state no such permission is needed, but the towns shoulder the entire cost.
The state doesn’t keep track of subsidies involving only local dollars, but it is unlikely that they add up to much.
New Hampshire lawmakers are considering a much larger program, the Small Business Jobs Fund Act — which would provide companies with a total of $60 million in credits to invest in projects that are too risky for banks. Lawmakers retained the bill last year and it is getting a skeptical once-over by the House Ways and Means Committee, partly because it would be a quantum leap for the state in size and scope and partly because several agencies, including the BFA, already provide some alternative financing without any tax credits.
The BFA has a number of other initiatives, ranging from the Capital Access Program, with loans of less than $200,000, to the Guaranteed Asset Program, through which the BFA (and therefore the state) guarantees loans ranging from $500,000 to $10 million, to tax-exempt bonding, a federal program under which the IRS agrees to forego taxes on the profits, reducing the cost of the loan for the borrower.
Other states have similar financing programs. What distinguishes New Hampshire, said Key-Wallace, is the relative lack of paperwork. Many states, for instance, add local requirements on the tax-exempt bonding, but New Hampshire doesn’t, he said.
And the BFA can get creative. It used some stimulus money back in 2010 to partner with Borealis Ventures to invest in high tech companies, getting a share of the companies’ gains. BFA’s $4.6 million investment attracted $25 million in private capital.
There is also a $3 million investment in the $50 million Vox Health Fund, similar to the Borealis investment but aimed at biotech digital health and life sciences firms. It hopes to capitalize on the interest in the field sparked by ARMI, the Advanced Regenerative Manufacturing Institute, spearheaded by inventor Dean Kamen and setting up shop in the Manchester Millyard.
“I don’t know any other state that has combined public investment with local venture capital, this public-private partnership, in the way we’ve done it,” Key-Wallace said.
“How much did the state put into that deal?” said Caswell, referring to ARMI. “Zero, but now we have advanced companies coming to the state, excited to be near that.” It’s proof that the state’s “customized approach” works, Caswell said.
And that, for better or worse, is the New Hampshire way: less public money, more private flexibility.
But Mike Scala, executive director of the Coos Economic Development Corporation, questioned whether it is enough “to trot out the New Hampshire advantage. I think that’s being eroded by the aggressive competition from our neighbors, especially New York and Vermont. We have to give them something else that will attract them here.”