In 2017, the last yacht produced by the Palmer Johnson Yacht Company floated out of its Sturgeon Bay shipyards before the company moved its operations to Europe. If the loss of at least 100 jobs wasn’t enough of a blow to Wisconsin, there was also this: Because of a wrinkle in state law, the company was able to lower its state tax bill by deducting its moving expenses. Now, a group of Democratic and Republican lawmakers have introduced legislation to prevent that from ever happening again.
Assembly Bill 10, which received a hearing on Wednesday, March 6, before the Assembly Committee on Federalism and Interstate Relations, would eliminate tax breaks for a series of moving-related expenses for companies that leave Wisconsin or the country. It comes as the latest attempt by lawmakers to adjust Wisconsin’s business incentives in response to a series of scandals at the state’s economic development agency and questions about the enormous amount of money being offered Foxconn Technology Group in return for its plans to build a massive factory in Mount Pleasant.
On the surface, at least, this latest proposal looks as if it will have no trouble getting adopted. Twenty-eight representatives, Democrats and Republicans, have signed on Assembly 10, and 17 Senators, once again a bipartisan group, are sponsoring a companion piece of legislation moving forward in the State Senate.
Among outside interests, the only ones to have taken official stances on the bills are supporters. Wisconsin Property Taxpayers and Wisconsin Realtors Association have joined the American Federation of Labor of Wisconsin in coming out in favor of the bills.
For John Jacobson, government and member relations director for the Wisconsin Property Taxpayers, it all comes down to common sense. “Why should Wisconsin taxpayers have to pay in the form of lost revenue for somebody to pick up and move their company out of the state?” he asks.
Just how much money is at stake is difficult to say. A fiscal estimate drawn up for Assembly Bill 10 by the Department of Revenue found there is no reliable way to estimate how many companies claim tax breaks for moving out of the state or country in any given year.
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Meanwhile, not everyone is enamored with the legislation. The chief sponsor of Assembly Bill 10, Adam Neylon, a Republican from Pewaukee, said it’s almost never the case that proposals cracking down on incentive abuse enjoy universal support, even if no one’s outspoken in their opposition. Neylon declined to name any groups or people he might have spoken to in private, but he said one concern that’s almost always expressed anytime lawmakers try to hold business to account is that there will be a “chilling effect” on economic development. Neylon’s response is that lawmakers are still trying to strike the right balance. “I understand where people are coming from,” Neylon says. “I think it’s still a bit misunderstood. We are not trying to scale back any benefits we are offering. We are trying to make sure they aren’t being misused.”
The sponsor of the senate version of the bill, Sen. Dan Feyen, a Republican from Fond du Lac, has much the same thought. Emelia Rohl, a spokeswoman for Feyen, said it was through Feyen’s work on the board of the Wisconsin Economic Development Corp. that the senator learned about Wisconsin’s tax breaks for moving expenses and that “we were, in a sense, rewarding companies with taxpayer money for moving out of the state.”
Recouping Taxpayers’ Investment?
The Wisconsin Economic Development Corporation (WEDC), which oversees many of the state’s development incentives, has long been at the center of lawmakers’ attempts to make sure the state both isn’t being overgenerous with loans and grants and has a means of recouping taxpayer money obtained under false premises. Along with the hiring and spending targets companies must often hit to receive tax breaks, the state has added “claw back” provisions to many of the incentive contracts it signs with private companies.
Ideally, these provisions would let the state recoup money it had awarded to a company that then went on to fall short of its promises. In reality, though, they can be difficult to enforce, often because whatever business is being targeted has declared bankruptcy and is thus shielded from all sorts of claims for payment. With its lack of opposition and bipartisan support, Assembly Bill 10 stands a fairly good chance of getting through the state legislature this year. The way forward isn’t likely to be so smooth, though, for other attempts to make sure Wisconsin’s business incentives don’t trample over taxpayer interests.
Neylon noted lawmakers tried unsuccessfully in the state’s previous legislative session to pass bills that would have made it a felony to defraud the WEDC. Their bills came in response to well-publicized cases in which businessmen had used spurious information to obtain grants and loans backed by taxpayer money. In one instance, a man from De Pere allegedly obtained more than $9 million from the WEDC and investors for a plant operation that he claimed could recycle fast-food wrappers.
As is now true for the moving-expenses proposal, there was bipartisan support for making it a felony to defraud the WEDC. But unlike the latest legislation, the fraud bill was weighted down by public opposition from groups like the Wisconsin Economic Development Association, which predictably warned of a “chilling effect.”
Neylon says he and other lawmakers are willing to have another try at making it a felony offense to defraud the WEDC. But even should that attempt fail, at least they will have eliminated a moving-expense loophole that was only too ripe for abuse. “If companies want to leave Wisconsin for any reason, that’s their prerogative,” he says. “But taxpayers shouldn’t have to pay for it.”
