Audit Shows Lax Tracking of Business Tax Breaks
Companies in Maryland are getting millions in taxpayer dollars without being subject to adequate scrutiny, according to a recent audit report.
Among other concerns, auditors found that the Maryland Department of Business and Economic Development was unable to verify that companies receiving tax credits through the One Maryland program actually created the jobs that they promised. The One Maryland tax credit is intended to promote job creation in areas such as Baltimore and western Maryland.
Nine companies received credit for creating 473 jobs, even though 427 of the hires did not take place within the appropriate time period. These workers were hired before the tax credits were awarded, according to the report.
The department, which was renamed the Maryland Department of Commerce October 1, responded by saying it would rewrite the rules governing the tax credit program to make them more flexible (presumably so that jobs created before the company received tax credits could be counted toward future certifications) and promised to conduct more of its own audits to verify companies’ employment claims.
The report also found that the department’s handling of a 2012 tax credit auction potentially cost the state over $1 million.
The auction involved $100 million worth of tax credits under the Invest Maryland Venture Capital Program, which was intended to help startup businesses. This program allowed insurance companies to purchase credits to reduce their tax liability by a percentage that the auction determined.
Department leaders were unable to explain to auditors why they chose the method used to determine the cost of the tax credits. “The department never gave auditors that explanation in the months they were examining the program,” said Thomas J. Barnacle III, the General Assembly’s chief auditor and leader of the audit team.
Auditors found that, using a different method, the auction would have raised an additional $1.1 million.
When Maryland chooses to spend taxpayer dollars by giving tax credits to businesses it is essential that the state also have strong mechanisms in place to ensure that these tax credits are meeting the state’s goals. This audit is yet another example of the importance of tracking how Maryland spends its tax dollars. Properly executed program audits are beneficial to not only the agency, providing impartial recommendations for improvement, but also the public, through the release of details that would typically be difficult to access.
Like other states, Maryland offers a number of tax breaks to companies, with the stated aim of promoting hiring and economic growth. Across the nation, when more scrutiny is applied, it often turns out that the tax breaks – which take money away from schools and other essential services — rarely are evaluated as to their effectiveness, and often aren’t as important as supporters claim in companies’ decisions about where to locate. This latest audit report makes clear that Maryland needs to look more closely to make sure taxpayers are getting their money’s worth.
