At first glance it looks like the New York government gave up a pile of cash to get
108 Norampac jobs but how much did this deal actually ‘cost’ New York?
The company got $60 million in brownfield tax credits, administered by New York State Department of Taxation and Finance. Cost to the taxpayer = zero. These are tax credits paid against actual taxes owed
– and the company wouldn’t be paying those taxes if they didn’t set up the facility.
The company got 10 megawatts of hydropower, from New York Power Authority. Cost to the state = zero. I believe the NYPA is charging industrial clients for this power at the full cost of production (including capital). It is just that it is cheap to produce hydro-electricity and the NYPA is not adding in all the overhead and other costs that make electricity in NY among the most expensive in the USA. I argue that NB Power should do the same. Making industrial customers pay their share of NB Power’s overhead and other other indirect costs was fine when the rates were relatively competitive. Now that the rates are becoming a serious competitive disadvantage, we need to look at other options. For example, convert Colson Cove to a Nat Gas fired facility and offer the power “at the full cost of generating the power and directly distributing it to the customer” without all the additional costs. There are those that would argue this is not ‘fair’ to other rate payers. That may be true in some sense but if these rates are contributing to businesses closing their doors or prohibiting new investments, I think it is something we have to take seriously.
The company got $5 million in Empire Zone tax credits. Cost to the state = ??. I think these tax credits are also based on taxes owed (http://www.tax.ny.gov/bus/multi/qeze.htm
). Again, if Norampac doesn’t set up in NY, the state doesn’t get the taxes anyway.
The company got $3.5 million from the New York State Energy and Research Development Authority to purchase/install energy-efficient systems (will conserve 31 million kilowatt hours of electricity annually). This is a cash benefit but it is part of state and federal programming to encourage energy efficiency.
The company got a $500,000 utility infrastructure grant, through National Grid’s Capital Investment Incentive program, and various resources from Niagara County Employment and Training, and the Niagara Falls Water Board.
It looks to me like if you back out the tax credits, there isn’t much taxpayer cash on the table here. The company makes a $400 million+ investment, creates over 100 jobs at $80k per job and the state forgoes some taxes for 20 years. Meanwhile, the state generates around $1.5 million per year in taxes off the employment income generated at the plant.
If that plant was in New Brunswick, they wouldn’t be paying HST on business costs (which they would be in NY but the tax credit program covers sales tax). Their corporate tax rate would be lower here (reducing the impact of the tax credits). They could receive energy efficiency programming (there are federal programs for this) and they could receive training support (there are programs for this).
It seems to me the only two roadblocks to NB being competitive for this NORAMPAC plant (aside from fibre issues – I don’t know the impact of this) would be the tax breaks and the cheap power. I argue we should look at tax breaks because the NB government generates over 90% of its tax revenue from a new industrial project such as this off employment income anyway. If the company sets up here and you waive all their taxes – income and property (the 10 percent) – the province loses nothing (over status quo) and gains (90 percent) a couple of million per year for 20 or 30 years in employment income-based taxation.
I know that a lot of folks don’t like this talk but please understand the important difference between cash grants (or forgiveable loans) and tax breaks. One is taxpayer dollars out the door and one is ‘foregoing a small part of a future tax stream – 10 percent or so – to get 90 percent). This risk burden is eliminated (no Atcons) and to the company a tax break is the same as cash (only spread out over a longer time horizon).
You get the same effect by dropping tax rates across the board but, as I have said before, you also lose the tax revenue from the 95% of businesses that are here because the market is here and they ain’t goin’ anywhere. Those guys should pay a competitive rate of taxes.