Tax Credits are Bad Economic Development, Especially for Projects that Banks Won’t Fully Fund


The Providence Journal reports today,

The Commerce Corporation on Monday will consider three more projects for the state’s Rebuild Rhode Island tax credits: an affordable-housing project to renovate the public-housing complex Prospect Heights in Pawtucket, and two mixed-use projects in Providence with residential and commercial space, one in the historic Union Trust building at 170 Westminster St. and the other at 78 Fountain St., on the surface parking lot across from The Providence Journal offices.

The problem is that the criteria for receiving these particular tax credits, which the rest of us pay for, seems to be projects that couldn’t get fully funded by the private sector, leading to real questions about their viability.

The Rebuild Rhode Island Tax Credit is intended to help cover financing gaps for projects that might otherwise not go forward.

Broad-based tax and regulatory reform, not targeted tax credits, is a far more effective way to do economic development. Worse, though it is for only part of the funding, these particular tax credits make taxpayers the stopgap funding source of last resort. If banks didn’t think the project made sense to fully fund, that signals that the project is not financially viable. It is no help to anyone other than the individual developers for Rhode Island officials to put tax dollars at risk by funding financially precarious projects.

  • Rhett Hardwick

    It has to be remembered that tax credits are not cash. Usually, they are sold. Simple numbers, 100,000 project with 20% tax credit and 80% financing. The developer is still putting up 20$ cash, recovering later from the tax credit. The developer will not see a use for the tax credit until has has something to apply it against. So, the 20% credit is sold for a discount, let’s say 50%. So, the developer gets 10,000 cash, which hew applies to the project. The net result is he is in the project for 10% cash. If the developer can shave costs a bit, he may be in for nothing.