The Mysteries of Public Financing

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Having reviewed dozens of public financing deals, I have a hard time believing that there isn’t some catch to this arrange:

Samuel Bradner, one of the principles of the East Providence-based Peregrine Group, which is developing the project, said the tax break, known as tax-increment financing, was needed to close a gap in financing for the $28.3 million project.

Gov. Gina M. Raimondo, who chairs the Commerce board, said the project would pose no risk to the taxpayers.

Commerce Secretary Stefan Pryor explained that the developers would receive the $3.5 million over 10 years only after they had paid taxes each year. If the project is a bust and never pays taxes, the state doesn’t give the developers any money, Pryor said.

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What Paul Edward Parker’s Providence Journal article gives one to understand is that the state returns taxes to the business only after having collected it and that this circular transaction somehow makes the developer a better investment for its debt.  How does that work?  The only obvious way this makes a difference is if the amount of tax creates such a margin that a too-risky project becomes palatable for lenders.  Put differently, the amount of taxation would be what makes Rhode Island businesses a bad investment.

If that’s the case, Rhode Islanders have yet another indication of how much healthier our state’s economy could be without so burdensome a tax and regulatory regime.



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