State officials are slashing budgets and eliminating programs, but they aren’t cutting back on corporate tax breaks, at least not yet.
The Massachusetts Life Sciences Center, as promised in the life science legislation Gov. Deval Patrick signed into law in 2008, just handed out tax credits worth $25 million to 28 companies. Three very profitable firms — Genzyme Corp. of Cambridge and Shire Human Genetic Therapies and Cubist Pharmaceuticals of Lexington – were awarded more than half the tax breaks.
Top officials in the Patrick administration said the tax credits, which can reduce a company’s tax bill or even be sold back to the state for cash, will help create 918 jobs in Massachusetts over the coming year. The officials estimate the income taxes generated by the new jobs should cover the cost of the tax credits within five years.
“Even in a time of constrained resources, this is the type of thing we need to continue to do,” said Jay Gonzalez, Patrick’s secretary of administration and finance.
But there is also growing concern within the Patrick administration about the rising cost of state tax credits and whether they are being handed out in a consistent manner. Officials say the whole panoply of tax credits is being reviewed, with an eye to possibly recommending some changes during the budget process next year.
The life science industry and the film industry, for example, both receive tax credits from Massachusetts, but the state’s approach with the two industries is very different.
The life sciences industry is one of the state’s fastest growing economic sectors. The Massachusetts Biotechnology Council estimates the biopharmacy industry alone employed nearly 46,000 people in 2008, a 43 percent increase since 2001. State officials say the industry has continued to grow this year even through the depths of the current recession.
The life science law authorized the issuance of $25 million in tax credits a year for 10 years. Demand for the inaugural round of tax credits was far greater than $25 million. The Life Sciences Center said it received 88 applications for tax credits from companies seeking a total of $241 million in tax breaks.
The award process for life science tax credits lasted eight months. Applications were scrutinized and credits were steered to companies that pledged to generate jobs in 2010. Officials say companies that fail to live up to their job commitments will be subject to so-called claw-back provisions, effectively the withdrawal of the tax credits. The life science tax credits can be used by recipients to reduce dollar-for-dollar their state tax bill or can be sold back to the state to generate cash.
The film tax credit, by contrast, is far more open-ended. Any movie producer who shoots a film or commercial in Massachusetts is entitled to a credit equal to 25 percent of whatever they spend. The credit can be used to offset taxes owed or it can be sold to third parties or to the state to generate cash. Film tax credit recipients face no job-creation requirements and their identity or how many tax credits they are receiving is not revealed.
The blockbuster Tom Cruise-Cameron Diaz film “Knight & Day,” which filmed in Massachusetts during late summer and fall, is widely believed to be the most expensive movie ever shot here. If the budget in Massachusetts reached $100 million, the film’s producers could receive a credit of $25 million, the same amount of tax credits that the state set aside for the entire life science industry.
The film industry generates far fewer jobs than the life science industry. In fact, many employees are brought in from California to shoot some of the movies. But the film spending in Massachusetts can benefit a lot of businesses. The Massachusetts Film Office has posted a short video on YouTube featuring restaurant and hardware store owners who have seen their business shoot up when movies come to town.
Greg Bialecki, Patrick’s secretary of housing and economic development, said the film and life science tax credits are different because their purpose is different. He said life science is already a well established industry in Massachusetts so tax credits are needed to help businesses grow. He said tax credits also supplement other support programs for the industry. The movie business, by contrast, is an industry being grown from scratch in Massachusetts and needs tax credits generous enough to lure movie producers here, he said.
“It’s a different strategy,” Bialecki said. “I know Tom Cruise wasn’t here three years ago.”
Bialecki, who cochairs the Massachusetts Life Sciences Center board with Gonzalez, said the life science tax credits handed out this week were targeted at some of the state’s biggest life science companies because those companies were pledging to create the most jobs in the coming year. Many of the companies are already receiving significant state aid.
Shire, a division of a British company that reported $2.1 billion in sales and $317 million in profits through the first nine months of this year, received nearly $6.3 million in tax credits. Genzyme, with $3.4 billion in sales and $399 million in profits over the first nine months, received $6 million in tax credits. Cubist, with profits of $25 million through the first nine months, won $1.74 million in tax credits. Biogen Idec of Cambridge, which reported $671 million in profits for the first nine months, received $1.5 million in tax credits. Privately held Merrimack Pharmaceuticals of Cambridge received $1.5 million in tax credits.
Organogenesis, a Canton maker of synthetic skin tissue, received tax credits worth $245,000. The company earlier this year was awarded a $7.4 million grant by the Life Sciences Center.