The Virginia General Assembly may have sworn-off handing out grants to private nonprofit groups, but when it comes to dolling out goodies to corporations, the worthies are still in a generous mood. One of their giveaways, though, is quite instructive, because it has uncovered just how tangled the state’s web of incentives, wealth transfers and subsidies has become.
The story begins last May, when Gov. McDonnell’s office announced an economic development deal with Orion Air Group. At the time, it was unclear how much taxpayer money was ponied-up to “retain” and/or “create” a handful of jobs. But at least five state and local economic development agencies were involved, plus the city of Newport News agreed to chip in “infrastructure” the company needed for its operations.
The story might have ended there. But then the General Assembly got involved, and that’s when the dollar amounts – and side effects – of this deal became clear.
The worthies crafted legislation to exempt Orion – and no one else — from the state’s sales and use tax on aircraft. According to this report, the tax exemption could save Orion up to $720,000 per aircraft. But in exempting Orion from the tax, legislators also managed to punch a hole in the special fund used to support small airports across the commonwealth and the Virginia Department of Aviation. These entities aren’t happy about losing the cash and say that the lost funds will have to be made up somewhere else – most likely out of the pockets of local taxpayers and aircraft users.
So…a tax deal to keep 57 jobs in Tidewater, and perhaps create a few more, could hobble local airports…which have been living off transfer payments from aircraft owners and manufacturers across the state. They may have to cut back services, and jobs, as a result. Meanwhile, neighboring states like Maryland don’t impose an aircraft tax at all. No wonder, then, that the bulk of Orion’s fleet is kept there.
How to make sense of all this? One way would be to scrap the tax entirely, as opposed to doing so for a single firm. This would encourage other manufacturers to locate to Virginia and create even more jobs (and tax revenues). As for the hit to local airports…perhaps by losing their subsidy, some might come to realize that there’s no market for their services and close. Others would survive, but charge users fees that reflect actual costs.
None of this is likely to happen, because the both the Governor and the General Assembly have made it clear they prefer picking favorites and using the tax code to give those favorites a huge leg-up on the competition.
And that’s a shame.
