Legislative Audit Finds Nearly $1 Million Worth of Mismanaged Tax Credits

Josh Elliott-Traficante

June 2014

As reported in the Nashua Telegraph, a Legislative audit of the Division of Economic Development, within the Department of Resources and Economic Development found that in 2011 and 2012, $875,750 was improperly given out as tax credits, while an additional $121,000 worth of tax credits were not given to business that were eligible to receive them. This mismanagement accounts for nearly half of all the tax credits granted by the Division. The specific programs in question are the Economic Revitalization Zone (ERZ)[i] tax credit and the Coös County Job Creation (CCJC) tax credit, both administered by the Department of Resources and Economic Development (DRED).

The ERZ tax credit is awarded to businesses that make capital improvements and create new jobs in specifically designated areas. Each year a total of $825,000 worth of credits are available. If there are more applications for credits then there are available, each applicant gets a proportional share. The Coös County Job Creation tax credit is designed to encourage full time, year round jobs in said county.  The applying company is eligible for up to $1000 per job created, and there is no cap on the total number of credits issued each year.

The audit found irregularities a total of 23 of the 29 applications for ERZ tax credits. 19 were found to not have qualified to receive the credits, while a further 4 should have received more. Of the infractions detailed:

• 4 were awarded to businesses located outside of Economic Revitalization Zones, totaling $237,400.
• 4 were awarded for employees who were not hired in the applicable year, totaling $81,000
• 4 were awarded due to basic calculation errors, totaling $17,400
• 3 were awarded based on incomplete paperwork, totaling $305,100
• 3 were awarded the limit of $200,000, when the limit should have been $240,000
• 1 application missed the deadline, but was awarded $188,200 in credits for the following tax year, in violation of the law.

For the 28 applications for the Coös County Job Creation tax credit, 7 were found to not be qualified to receive credits.[ii]

• 1 was awarded $11,800 for employees retained during a takeover, which is not permitted
• 6 were awarded for part time employees totaling $6,500. The credit explicitly requires employees to be full time.
• 2 were awarded $1,500 for employees making below the minimum wage, in violation of the terms of the credit.

According to the auditors, one employee was responsible for reviewing and approving all of the applications.

From the report, it appears that these issues are due to a lack of oversight and competence rather than corruption. The auditors noted several problem areas, including a lack of controls over the application and award process, as well as a lack of safeguards to ensure compliance after the credit has been issued. For example, if a business was received a credit, but ended up cutting jobs, or moving out of state, there is no recourse for the state to get that money back.

The final recommendations include developing administrative rules for regulations, standards and forms relative to the tax credits and implementing policies that ensure adequate controls over calculating and awarding tax credits, consistent application of the same criteria, reviews, and obtaining supporting documentation to calculate tax credit awards.

The Division, to their credit, agreed with the recommendations and is taking steps to correct the problems with the tax credit programs highlighted by the audit.