Washingtonians are at risk of being party to an elaborate business tax break scam that could cost the state millions of dollars in future tax revenues that would otherwise support schools, health care, infrastructure, and other investments that build thriving communities.

Three certified capital companies (CAPCOs) located outside of Washington state – Advantage Capital Partners, Enhanced Capital, and Stonehenge Capital – are actively lobbying lawmakers in Olympia to approve a complex tax break scheme they claim will create jobs and investment in struggling rural communities in Washington state.

Under House Bill 1324, which was recently approved by the state House of Representatives, these CAPCOs would be given a total of $60 million in credits they could use to offset future state business taxes. In exchange for the upfront tax credits, they are supposed to make contributions to a fund dedicated to investing in businesses in rural areas with high rates of unemployment.

“This program is smoke and mirrors at the taxpayers’ expense.” Julia Sass Rubin, Rutgers University

But experience in other states shows that the CAPCOs don’t meaningfully invest in communities or create jobs; they merely create the illusion of investment by cycling money through complicated networks of subsidiaries and affiliates. In recent years, state auditors in Alabama, Colorado, Missouri, New York, and Washington, D.C., recommended that lawmakers terminate these tax breaks, as they failed to produce the economic and job-growth benefits promised by the CAPCOs.

Washington state lawmakers should pay particularly close attention to how the CAPCOs bilked the state of Maine out of $16 million in tax subsidies without creating a single job (see video produced by the Portland Press Herald).

It’s important to note that the CAPCOs have very sophisticated lobbying operations in multiple states. They know lawmakers are rightly concerned about ensuring tax breaks produce new jobs and investments in their communities. To assuage these concerns, the CAPCOs offer legal provisions that are designed to make it appear as though they would be held accountable if they fail to deliver new jobs and investments. These provisions are mostly toothless and offer little real protections for lawmakers and communities.

Julia Sass Rubin, a professor at Rutgers University who has conducted extensive research on state tax breaks for CAPCOs and similar entities, thoroughly reviewed HB 1324 and found that it lacks meaningful accountability.

According to Professor Rubin, “The CAPCO business model is based on selling legislation like House Bill 1324 to states with promises of job creation and economic development. Right now, these firms are pushing very similar bills in Kentucky, Texas and Massachusetts. What lawmakers don’t realize is that the legislation is written so that only the handful of CAPCO firms who travel the country selling this program are able to take advantage of it. The language of the legislation also ensures that, once the CAPCO legislation is signed into law, there is nothing a state can do to force these handful of firms to deliver on the promises of job creation and economic development that they made during the selling period. This program is smoke and mirrors at the taxpayers’ expense.”