State-backed rural lending program back for another try

November 10, 2021 Atlanta - Rep. Bonnie Rich (R-Suwanee) speaks on behalf of HB 1 EX in the House Chambers during Day 6 of the Special Session at the Georgia State Capitol in Atlanta on Wednesday, November 10, 2021.  (Hyosub Shin / Hyosub.Shin@ajc.com)

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November 10, 2021 Atlanta - Rep. Bonnie Rich (R-Suwanee) speaks on behalf of HB 1 EX in the House Chambers during Day 6 of the Special Session at the Georgia State Capitol in Atlanta on Wednesday, November 10, 2021. (Hyosub Shin / Hyosub.Shin@ajc.com)

Despite a not-so-favorable audit, the Georgia House on Tuesday overwhelmingly approved legislation that would provide another $60 million in tax credits to people who invest in small, rural businesses through a state-sponsored program.

The House voted 153-11 for House Bill 500, which would provide a second round of tax-credit funding for the program.

The measure’s sponsor, Rep. James Burchett, R-Waycross, told colleagues recently, “In my district, this has been a wildly successful program,” including keeping open a small bag company that needed investment capital.

But during debate in the House on Tuesday, state Rep. Matthew Wilson, D-Atlanta, said the legislation didn’t include a means to determine whether the program is a cost-effective way of meeting its promise to create and retain rural jobs.

A bill to continue the program — first approved by one vote in 2017 during the waning minutes of the General Assembly session — passed the House last year, only to fail in the Senate.

There, Senate Finance Chairman Chuck Hufstetler, R-Rome, has called it a “bad investment scheme” that makes money for a few national capital companies. Those companies have hired top lobbyists at the Capitol to win another round of state funding.

The program has been around — under different names — for more than a decade. It failed to clear the General Assembly a few times, then passed and was vetoed by then-Gov. Nathan Deal before winning final approval in 2017.

The idea is to provide financing to small businesses that can’t obtain conventional loans from banks. Companies receive tax credits against what they owe the state for investing in the program.

“We don’t have enough incentives for rural Georgia,” said Rep. Ron Stephens, R-Savannah, a backer of the bill and one of the most proficient authors of tax break bills in the General Assembly.

House Ways and Means Chairman Shaw Blackmon, a Republican from Bonaire and co-sponsor of the bill, said: “We often incentivize private-sector investment in Georgia to expand and grow our economy. This happens to do so specifically in our rural Georgia counties where growth has been much harder to come by.”

Hufstetler has questioned where some of the money is going, and HB 500′s chances of passing his chamber are less certain.

A state audit that came out late last year said the program doesn’t come close to paying for itself.

From 2018 through 2020, the audit said 33 business in 23 counties — mostly in South Georgia — received money through the program. More than half of it went to small manufacturing companies.

The audit said the program generated between $580,000 and $630,000 a year in state tax revenue, so it would take 72 years for the state to see a financial payback on its investment.

It estimated the $60 million tax credit program directly or indirectly created or retained 290 to 415 jobs.

The audit looked at eight other states that have implemented similar tax credit investment programs — called certified capital company (CAPCO) investment programs. None of them are still in operation.

Danny Kanso, senior policy analyst at the Georgia Budget and Policy Institute think tank, called it a “wasteful tax credit designed to serve a select few corporate interests.”

“Rather than spending tens of millions to enact a convoluted tax break scheme that uses taxpayer dollars to enrich lobbyists and opportunistic corporate interests, lawmakers should pass targeted legislation that puts money back in the pockets of hardworking Georgians, like an earned income tax credit,” he said.