Deal vetoes $110 million tax break

Other vetoed legislation

  • House Bill 86 would have created a new state Adult and Aging Services Agency to cater to the state's growing elderly population. The veto statement said it attempts to merge two agencies with "diverse missions."
  • House Bill 510 would have created the Georgia Sports Commission Fund to help cities and counties who want to attract sporting events to Georgia. The governor said there's already a similar mechanism in place to fund sports bids, and that he sees a "lack of necessity" for a new state-run fund.
  • Senate Bill 76 would have allowed motorcyclists to scoot through some red lights when their bikes don't weigh enough to trigger sensors. Deal said the legislation is "confusing" to motorists.

Editor's note: The Georgia General Assembly this year bought in to a plan to create a Georgia New Markets program, saying it would spur development in low-income areas of the state. But the AJC found that the plan would cost the state treasury $100 million in tax credits to insurance companies and others. What’s more, critics told the AJC that similar projects across the country largely seems to line the pockets of big banks and private investors. Gov. Nathan Deal vetoed the bill.

Gov. Nathan Deal vetoed a controversial plan Tuesday that would have offered $110 million worth of tax investment credits amid concerns that it would tear a costly new hole in Georgia’s state budget.

The veto of House Bill 439 came after The Atlanta Journal-Constitution and public policy analysts noted the spotty record of similar programs across the country. It was one of 11 vetoes the governor issued at the end of the 40-day bill-signing period, but it was by far his most politically fraught decision.

The measure was championed by Lt. Gov. Casey Cagle, a Republican ally from Deal’s hometown of Gainesville, and backed by finance industry heavyweights and the Metro Atlanta Chamber. About half of the credits would have gone to a “New Markets” program that state and national officials have called a windfall for banks and out-of-state capital investment firms. The other half would have gone to Invest Georgia, a venture capital fund that’s one of Cagle’s top priorities.

The legislation was passed on the final day of the 2015 session, with supporters saying the program would boost small businesses and help keep high-tech startups from bolting Georgia. Opponents countered that it too closely resembled proposals elsewhere that wound up making huge profits for a few large capital firms, or CAPCOs, that handled the investments.

In a veto statement, Deal said the two tax break proposals “merit serious discussion on their own,” but he questioned why lawmakers combined them into one broader package.

“The prospect of implementing these initiatives at the same time under our current budget environment would have too much of an impact on the general fund,” Deal said in a veto statement. “It is my opinion that these initiatives require further study.”

The decision came the same day Deal gave his final approval to another controversial incentive. The new law, House Bill 308, will increase the tax credit available to developers who rehabilitate projects in historic districts. It was drafted with a proposal in mind to convert a decaying Savannah power plant into a luxury hotel, but other projects would also benefit. It could ultimately cost a total of $125 million in lost revenue through 2022.

A troubled past

This isn't the first time a version of the "New Markets" tax credit surfaced in Georgia. Some of the same high-profile lobbyists who worked unsuccessfully to pass similar legislation in 2011 were hired to pass the "New Markets" program this year. Three out-of-state capital firms had successfully gotten similar bills passed in about a dozen states.

The proposal would have provided insurance tax credits to companies that invest in low-income areas using banks or capital companies. The investor then would get the tax credit while the companies earn interest on the loans and returns on investments in the small business.

But the program has a checkered past. At least one state — Missouri — chose not to renew it in 2013 after state officials concluded the state’s $120 million investment created only 823 jobs. One Arkansas official reported having trouble tracking where the money went in his state, and a bill to kill the New Markets program was filed this year.

And lawmakers in Maine called for changes after a five-month Maine Sunday Telegram examination showed that nearly half of what was invested in low-income communities was used instead to pay off old loans or stayed on the books for less than 24 hours.

The program has come under renewed federal scrutiny as well. The U.S. Government Accounting Office last year said better controls and data were needed to ensure New Markets was effective, and at least one top Republican U.S. senator said the companion federal program lined the pockets of big banks and private investors.

One of the capital companies, Advantage Capital Partners, contributed about $36,000 to state candidates and parties over the past few years. It gave $3,500 to the re-election campaigns of Cagle, Deal and Senate President Pro Tem David Shafer, R-Duluth. The company contributed $20,000 to the state Republican Party just before the 2014 election, and among its lobbyists is Pete Robinson, a Deal fundraiser.

A parade of tax breaks

The decision is a devastating blow to Invest Georgia, which was launched in 2013 with hopes of using state money to attract venture capital for new tech firms. The fund is designed to eventually pump $100 million into young businesses, but it has struggled to get off the ground and so far has secured only $10 million in state funding.

State leaders for months delayed naming the members of the panel that would oversee how the money is spent, and the fund's operators reported in January that it had made no significant investments. The organization said on its website that it is now "actively" vetting potential investments. But it's unclear now how the fund will reach its $100 million goal.

“We will continue to work with the governor’s office and other stakeholders to find solutions that will drive innovation and entrepreneurship across the region and the state,” said Marshall Guest, the vice president of business climate at the Metro Atlanta Chamber.

Deal's veto was an anomaly of sorts. The governor signed into law more than $250 million of election-year tax breaks in 2014 that included credits for causes ranging from food banks to the customers of luxury jet-maker Gulfstream. This year's package included about $150 million worth of breaks that benefit the expansions of Zoo Atlanta and the Georgia Aquarium, construction projects at private colleges, video game developers, and staffers at Mercedes-Benz's new headquarters.

The annual parade of special-interest breaks makes it harder for political leaders to make broader changes to the tax code, such as making deep cuts in state income taxes for all Georgians. And the lengthy fight to end a 10-year tax break on aviation fuel that benefited Delta Air Lines showed how hard it is to repeal a tax cut once it’s on the books.

The governor said in a recent interview that it is becoming increasingly difficult to reconcile the competing goals of overhauling the tax code with the push to sign off on special incentives.

“Any time that you do create carve-outs, you make it more difficult for comprehensive reform,” Deal said. “We try to be very selective with the tax credits we do sign. But we always try to look at whether or not those tax credits are actually going to produce enough new jobs to offset the tax credits themselves.”