INSIGHT: As governor, Romney picked winners and losers of his own

WASHINGTON Wed May 30, 2012 11:07am IST

Mitt Romney, U.S. Republican presidential candidate and former Massachusetts governor, shakes hands with supporters during a memorial day ceremony held at the Veterans Museum & Memorial Center in San Diego, California May 28, 2012. REUTERS/Denis Poroy

Mitt Romney, U.S. Republican presidential candidate and former Massachusetts governor, shakes hands with supporters during a memorial day ceremony held at the Veterans Museum & Memorial Center in San Diego, California May 28, 2012.

Credit: Reuters/Denis Poroy

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WASHINGTON (Reuters) - It would be a triumphant moment for any governor: A cutting-edge company announces plans to build a new plant that will create hundreds of high-paying jobs and bolster one of the state's most prominent industries.

For Mitt Romney, the June 2006 announcement by drugmaker Bristol-Myers Squibb served as a signature accomplishment as his four-year stint as Massachusetts governor drew to a close and a U.S. presidential bid beckoned.

The new facility came with a price tag: Romney and other state officials agreed to $67 million in tax breaks and other inducements to ensure the New York-based company picked Massachusetts over rival states like North Carolina.

Now as he mounts his second White House bid, Romney is hammering President Barack Obama for playing favorites with green-tech companies rather than letting businesses succeed or fail on their own. Romney is the presumptive Republican challenger to face Obama, a Democrat, in the November 6 election.

"Obama is giving taxpayer money to big donors and then watching them lose it," Romney's campaign said in an Internet video released on Tuesday.

It's a powerful line of attack that connects failed ventures like Solyndra, the bankrupt California-based solar panel maker that defaulted on a $535 million loan from the U.S. Energy Department, with the trillion-dollar budget deficits and sluggish U.S. economy of the past four years.

But it might invite unfavorable comparison with Romney's tenure as governor of Massachusetts from 2003 to 2007. During that time, Romney pursued a hands-on approach to economic development that favored some industries over others and, in some instances, singled out individual firms for special favors.

Romney, a former private equity executive, backed tax breaks for film makers and biotech and medical-device manufacturers. His administration promoted venture capital-style funds that extended loans to start-up companies, some of which subsequently went out of business.

As the state's top salesman, he led the effort to lure desirable employers through tax breaks and other incentives.

"That's what governors do - they have to pick winners and losers," said Boston University professor Fred Bayles. "It's a calculated risk that governors and state politicians take in an effort to get jobs."

Sometimes, as with Bristol-Myers Squibb, Romney's efforts panned out. Other times they did not.

A $2.5 million state loan helped lure Rhode Island biotech firm Spherics Inc across the state line to Massachusetts in 2005. Romney's economic development secretary, Ranch Kimball, touted the move as "a tangible result of the combined and coordinated efforts of the public and private sectors to highlight the benefits of locating in Massachusetts."

The company shut down three years later, laying off all of its employees and defaulting on $1.5 million of the loan, according to MassDevelopment, the state development authority.

Critics on the left say Romney would have been better off investing in education and transportation to boost the state's business climate over the long term. Critics on the right say he should have concentrated on lowering business taxes overall, rather than aiding selected industries or companies.

'MAKES NO SENSE'

"It makes no sense to give tax breaks to some companies and not others when the solution lies in making the tax code m ore investment friendly," said David Tuerck, who heads the Beacon Hill Institute, a conservative Massachusetts think tank.

American Bridge 21st Century, a Democratic research group, noted that while Romney the candidate opposes government intervention in business, many of the companies he owned during his time as head of private equity firm Bain Capital took advantage of government subsidies.

"In many ways Romney's whole approach to the economy is hypocritical," said American Bridge president Rodell Mollineau.

Romney's defenders say he was just doing his job as governor. Though a hub of innovation and research, Massachusetts has a high cost of living and a reputation for being hostile to business that often put it at a disadvantage compared with other states.

In such an environment, incentives are sometimes needed to lure marquee employers, but they were never the primary emphasis of Romney's salesmanship, Romney backers say.

"States are different from the federal government in that we are absolutely competing for businesses with other states," said Jim Stergios, who worked to streamline regulations as a member of Romney's administration. "Do you go back to Bristol-Myers Squibb and say, 'I know North Carolina is offering you $70 million and we're not going to offer you anything?' You've got to be in the game."

Campaigning for governor in 2002, Romney said he would not rely on special breaks or other "corporate welfare" to stem an exodus of manufacturing jobs.

"There are some companies that are only interested in tax breaks. Let them go to Alabama," Romney said at a news conference in October 2002.

Less than three weeks after taking office in 2003, Romney announced a new $15 million green-energy fund to help renewable-energy businesses in the state. A solar-panel company, two fuel-cell firms, a methane-gas facility and another firm got a total of $9 million in state funds in help.

'MAJOR ECONOMIC SPRINGBOARD'

In remarks at Konarka, a Lowell solar-panel firm that got a $1.5 million state loan, Romney said he hoped the green-energy fund "can become a major economic springboard in the renewable energy sector," according to a news release at the time.

Romney also signed off on a $12.5 million Emergency Technology fund for the state to help high-risk technology startups. The program since then has aided companies like E Ink (8069.TWO), which developed the technology used in Amazon.com's Kindle e-reader, but has also lost money on some of its investments.

Along with Spherics, the program lost an undisclosed amount of money on a $2 million loan to biotech firm Acusphere (ACUSD.PK), according to MassDevelopment.

Romney campaign officials say it is inaccurate to compare either fund with the Obama administration's loan program that backed Solyndra and other green-tech companies. Republicans have criticized Obama's program as a costly boondoggle that rewarded politically connected businesses and interfered with market forces.

Romney campaign officials point out that both funds were overseen by independent agencies, not political appointees. Romney used existing money from an underused trust to set up the green-energy fund, and he vetoed the venture-capital portion of the technology fund before it was restored by the Democratic-controlled state legislature.

"Governor Romney is proud of the record he had of making Massachusetts a pro-business environment that added jobs," said a Romney campaign official who spoke on condition of anonymity.

Romney also centered a 2003 economic-development bill around tax credits for biotech and medical-device manufacturers that create jobs. It is hard to tell if they had an impact.

Employment in the biotech sector rose 25 percent from 2002 to 2006, according to the Massachusetts Biotechnology Council, a trade group. But federal statistics indicate that the state lost 4 percent of its pharmaceutical-manufacturing jobs and 20 percent of its medical-equipment manufacturing jobs during that period.

Overall, Massachusetts ranked 47th out of 50 states in job creation under Romney's tenure.

Romney's economic-development efforts did not move the needle much one way or the other, said Leigh McIlvaine, an analyst with Good Jobs First, a left-leaning research group that tracks economic-development subsidies.

"He was betting just as blindly as anyone else was during that time," McIlvaine said.

Romney backed a much bigger tax break for the movie industry in November 2005, signing a bill that would give tax credits of up to $7 million for productions that film in the state.

Subsidies like these have been criticized as inefficient, while backers say they are needed to support a home-grown film industry and can boost tourism.

The program had generated about 1,700 in-state jobs through 2010, costing the state $142,500 in lost tax revenue for each job, according to the Massachusetts tax office. The state had gotten back 13 cents for every dollar it gave up in tax revenue.

In the case of Bristol Myers-Squibb, backers can point to tangible results. The $750 million facility, completed in 2011, now employs 350 people. It employed 1,000 contractors at the height of construction, according to the company.

The state issued $34 million in bonds to build new sewage facilities at the site, a former Army base, and agreed to modify an existing tax credit so the company could get back $33 million from the state. Labor leaders agreed to build the facility at reduced rates. The town where the plant was built agreed to allow it to be taller than local limits would have permitted.

Robert Lynch, an economics professor at Washington College in Maryland, said that broadly speaking these types of incentives have not been shown to make a difference.

"They probably could have spent the money more effectively in other ways," Lynch said.

(Editing by Alistair Bell and Will Dunham)

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