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Tax break can't seem to find a home

Posted: October 17, 2012 - 12:07am

It’s become the tax break for developers that no one in state government can figure out how to give away.

On the last day of the 2011 session, the General Assembly passed legislation, HB 234, to give the developers of “tourist attractions” a tax credit equal to 25 percent of their construction costs.

Developers of amusement parks, resorts and other tourism destinations would be able to recoup their expenses by holding on to 25 percent of the sales tax revenues generated by the tourist attraction.

One of those who stood to benefit from the tax break was Rep. Earl Ehrhart, R-Powder Springs, who was part of a development group proposing to build a baseball/entertainment complex in Bartow County. There were discussions that the complex would cost as much as $1 billion to develop, which would have meant a $250 million tax payback.

Ehrhart and his colleagues never did get that tax break – nor has anyone else.

Within a few months of HB 234 becoming law, Rep. Ron Stephens, R-Savannah, the bill’s primary sponsor, asked the governor’s office about the possibility of the tax break being granted to the developer of a proposed convention hotel on Hutchinson Island near Savannah.

One of Deal’s aides sent a letter to Stephens indicating that the governor had some “concerns” with the hotel proposal and the tax break was not granted.

More recently, the developers of a Westin hotel at Jekyll Island state park inquired with the governor’s office about the tax break. Once again, it was no sale.

“A hotel will be very successful there on Jekyll Island,” Deal spokesman Brian Robinson said. “But that investment needs to be made on a level playing field with other competing hospitality businesses on the island and in the area. The governor has said we’re not going to use this sales tax rebate in instances where the new entity competes with existing Georgia job providers.”

With this piece of legislation, the devil is in the details. Tax experts with two state agencies – the Revenue Department and the Department of Community Affairs (DCA) – have tried to draft regulations for administering the tax rebate but have been unable to come up with a workable solution.

Several provisions of HB 234 raised concerns that still have not been resolved. One is the low threshold of eligibility for the exemption: you could qualify for the tax break if your project cost as little as $1 million to build.

Another concern was that the final decision to award the tax break would be made by the governor. That’s an unprecedented requirement for a tax incentive – in all other cases, a business either qualifies for an exemption or it doesn’t, and approval doesn’t depend on the governor’s say-so.

Critics of the bill pointed out the obvious: giving any governor the final authority to grant a lucrative tax break could result in decisions being made because they benefit political cronies and campaign contributors.

Another bill may be introduced next session to try to fix the problems with the tourist tax credit, but it could have just as tough a time getting through the General Assembly as the original bill did.

Legislation similar to HB 234 was passed during the administration of Gov. Sonny Perdue, but Perdue vetoed the measure because he said it would set a bad precedent.

HB 234 barely made it to final passage at the end of the 2011 session. It passed in the House by a 91-73 margin only after Speaker David Ralston cast a rare vote to give it a constitutional majority.

The bill ran into vigorous opposition among some lawmakers during floor debate.

Rep. Mark Hatfield, R-Waycross, described HB 234 as “legalized extortion,” while Rep. Jason Spencer, R-Woodbine, a tea party member from Camden County, said the tax break was a handout by state government to big businesses that don’t need subsidies from taxpayers.

Their comments angered the House leadership, but on this issue Hatfield and Spencer were correct.

This puts the governor and legislators in a strange position. They’ll usually hand out tax breaks and financial incentives to any lobbyist who comes along with a halfway-plausible proposition. On this one, they can’t figure out how to give taxpayers’ money away.

A special note: This past week saw the death of Dick Pettys, who covered the capitol for nearly 40 years, mostly as a reporter for the Associated Press. Dick was a hard-nosed journalist who often sniffed out the kinds of tax giveaways I’ve described here. His death is a real loss for Georgians who believe in good government.

(Tom Crawford is editor of The Georgia Report, an Internet news service at gareport.com.)

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