Having relayed an excellent pro-growth speech from Chris Christie, here’s a bit of criticism sent his way by the TEA Party of Miami, concerning a topic that arises whenever growth-oriented government policies are discussed:
Under New Jersey’s Democratic Governor Jon Corzine, the State initiated something called the Urban Transit Hub tax credit program, which creates tax credits to be used in urban areas to lure new companies to relocate in New Jersey to bring new jobs and to retain companies in urban areas who were considering leaving the state.
Despite the fact that Prudential Insurance – which insures thousands of people here in Florida – made $3.5 billion in profit last year and is one of the most profitable corporations in the country, Prudential applied for and got approval from the NJ Economic Development Authority for $250 M in tax credits to build a new corporate office tower under this program, even though the tax credits are ear-marked for companies moving to New Jersey and bring new jobs.
One reason why Prudential Insurance, a hugely profitable corporation, may be looking for tax credits to improve its balance sheet is because it has sustained giant losses on a bad real estate investment at 11 Times Square in Manhattan. More than a year after it opened, the 1.1 million square-foot building is still about 60% empty and un-leased.
Prudential has a $720 million loan Prudential Financial Inc must pay off for this real-estate investment. Prudential must pour more cash into 11 Times Square as for it’s million construction loan, held by a group led by PNC Financial Services Group. The loan must be repaid in May. Prudential says they will pay off the current loan using the fund’s ‘own capital’, however, given the building’s declining value, Prudential would only be able to refinance the current construction loan for no more than about $600 million, leaving them $120 million short.
It’s hard to fathom why Governor Chris Christie who has struggled mightily to get New Jersey’s fiscal house in order after decades of irresponsible spending and borrowing by Governors John Corzine and Jim McGreevy would approve a $250 million taxpayer’s subsidy to a company which doesn’t need it. If Prudential wants a posh new office tower for their executives they should pay for it themselves.
TEA Party Miami chairman Eric von Tausch says that vetoing this deal would be an opportunity “to see what Chris Christie is made of.”
Tax credits of this type are a perennial issue, from the local to the national level. A government looking to attract business or investment holds out the promise of favorable treatment, and often ends up producing perverse incentives. If the U.S. tax code was a Harlequin romance novel, it would be called “Perverse Incentives,” and the cover would show a muscular pirate ripping the bodice of a taxpayer, with empty office buildings filling the background.
This has always been a major Tea Party concern, as the media liked to remind us when they were trying to dress Occupy Wall Street in tri-corner hats. “Corporate welfare” is a very elastic term. As long as we have Big Government, it’s going to work on “managing” growth, which is quite different than getting out of the way and allowing growth to occur. On the journey back from suicidally unsustainable government bloat, we naturally pass through a phase when the State works to jump-start just enough stalled engines of growth to keep itself alive. The result of those efforts will, all too often, be tax shelters incarnated in cement, steel, and glass.