After Taking a Curt Schilling Pitch to the Face, Rhode Island Mulls Future of Business Subsidies

Blighted neighborhood. Better throw some money at it.Source: Kingdoms of AmalurRhode Island appears to be taking the hit for Curt Schilling’s doomed video game venture, budgeting $112.6 million to pay off a failed loan that lured Schilling’s company, 38 Studios, to the state. The video game company subsequently went bankrupt without having produced the game the loan was intended to help fund.

In the wake of this disaster of crony capitalism, Rhode Island has passed a bill calling for a study of tax incentives to see if they actually accomplish much. Pew Charitable Trust’s Stateline notes:

The study addresses an area of growing concern among states — whether the popular tax breaks that state governments give businesses are worth the investment. States regularly provide companies with tax incentives to boost economic development within their borders.

For example, Maryland is breaking new ground this year with a $3 million offer of tax breaks to be distributed among cybersecurity startups already in the state and those that agree to locate there, to cash in on the cybersecurity boom. The trade group Council for Community and Economic Research, which tracks tax incentives across 50 states, notes that there are more than 1,600 current tax incentives sponsored by states and localities.

Recently, the effectiveness of some of the incentives has been called into question. According to a study in April 2012 by The Pew Charitable Trusts, Stateline’s parent organization, states don’t always track the results of their incentives. The report found that Rhode Island was among the 25 states “trailing behind” in evaluating its tax incentives, because it had not taken enough steps to determine whether its agreements were effective.

This bill won’t actually explore the circumstances behind the loans provided to Schilling’s group, though arguably coverage of the studio’s collapse showed everybody enough red flags to arm a color guard.  

In any event, the sooner cities start realizing these incentives often don’t pay off for their communities the better (Okay, the people behind them probably already know this but you don’t win elections with the platform of “No, we didn’t give X tax incentives to bring jobs to our town because taxpayers will end up holding the bag if it fails). For example, Peter Suderman pointed out in March the state of Michigan subsidized the filming of Disney’s terrible Wizard of Oz prequel to the tune of $40 billion million, $18 billion million of which came through municipal bonds backed by state worker pensions. Then the production studio skipped its payments, leaving the state to have to make it up. We could fill several pages with similar stories of municipal governments using tax breaks to try to pick winners and losers and manipulate economic development, only to have the chosen "winners" end up losing anyway.

For those who missed out on the entire 38 Studios scandal, Reason TV’s Anthony L. Fisher has all the highlights below:

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  • Paul.||

    In the wake of this disaster of crony capitalism, Rhode Island has passed a bill calling for a study of tax incentives to see if they actually accomplish much. Pew Charitable Trust’s Stateline notes:

    Try this: instead of asking if a loan to a company is successful or not, ask if the state should be in the business of funding any company, period.

    /wasting my time.

  • Sevo||

    "Try this: instead of asking if a loan to a company is successful or not, ask if the state should be in the business of funding any company, period."

    Mo betta:
    No government should be loaning money to any private enterprise, period.
    Politicos as a group, are too dumb to run their own checkbooks; they have no business selecting who is worthy of a loan.

  • Gozer the Gozerian||

    Please tell me that you had this in mind when you wrote that.

    (I apologize for any and all joke 'splainin'.)

  • Aresen||

    We're agreed on that, but the politicians want to say "Look at the jobs my government created by bringing X to our state/city/province."

    You can argue all you like that it is a net cost and loss, but your opponent and the news media are going to whack you if X corp goes to another jurisdiction.

  • Sevo||

    "but the politicians want to say "Look at the jobs my government created by bringing X to our state/city/province.""

    We're agreed on that also; pandering is oh, so valuable just prior to election day!

  • PapayaSF||

    It's so much more fun for them than simply cutting all business taxes and luring business that way.

  • Pro Libertate||

    I dunno, how about a free market, low-tax state?

  • Sevo||

    "I dunno, how about a free market, low-tax state?"

    How do I get people to vote for me if I just let 'em do what they want? I mean, they want FREE SHIT!

  • Gozer the Gozerian||

    If for some reason that wasn't a rhetorical question, here is your answer:

    You take Bastiat, invert the normative shit, and read it as a Machiavellian manual for political accomplishment.

    * "Negative railroad? Find me an engineer!"
    * "Candlemakers' petition? Get me those signatures!"
    * "That which is unseen? Keep it under a bushel!"

  • PapayaSF||

    Exactly. Better from a politician's point of view to get a bunch of tax money, preferably from people you don't like, and disburse some of it to people you do like. That way you are "doing good."

  • Fist of Etiquette||

    ...Disney’s terrible Wizard of Oz prequel...

    Spoiler alert! I haven't seen it yet.

    Obviously creating a generally business-friendly environment is out of the question, as it can't be targeted to specific business owners. So what's left but tax subsidies?

  • Paul.||

    I've said it before, tax subsidies are the goal. Creating a space without power is... well, we'll not even go there, because if government can't hand out favors, why even have it?

  • Agammamon||

    "Spoiler alert! I haven't seen it yet."

    No fuck that - the movie's been out for at least 3 months already. If you haven't gotten off your arse to see it then you don't get to cry 'spoiler alert'.

  • Aresen||

    Would it merit a "Spoiler Alert" to say that Avatar 2 is going to be a piece of shit?

  • Red Rocks Rockin||

    It might be worth it if we get to see crying smurfs after another Giant Magic Tree gets blown up.

  • UnCivilServant||

    Actually the proper response from human forces after the first movie (which was bullshit from a tactical perspective) would be to nudge an asteroid into a collision course with Pandora and mine the debris field left in the wake. No fuss, no muss, gets rid of that pesky death world and its toxic atmosphere, replacing it sith an environment where humans can operate (with the aid of SCIENCE) and the smurfs can't.

  • Pro Libertate||

    I've been smart about Cameron movies. Watched Aliens, skipped Titanic and Avatar.

  • Paul.||

    You never saw Terminator?

  • Gozer the Gozerian||

    True Lies?

  • Pro Libertate||

    I didn't think it was terrible. I liked the monkey.

  • rhofulster||

    Let's not get carried away - it was only $40M

  • Scott S.||

    Bah, that's what happens when I spend so much of my time writing about state budgets and pension obligations. Fixed it.

  • Sevo||

    ONLY $40M

    Oh, well, in that case...

  • UnCivilServant||

    In that case, can I get a mere $20 Million?

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