State tax loophole or smart policy?

AS MASSACHUSETTS wrestles with its fiscal crisis, Beacon Hill is working hard to find ways to balance next year's budget. At the same time, the state languishes 49th in the nation in job growth and its population is decreasing. Should taxes be raised to plug budget gaps? Can spending be cut? How do we grow jobs? What's the right answer for Massachusetts?

Payroll and sales taxes make up the bulk of the state's revenues. The state's course can't be reversed without economic and job growth.

One proposal that is counterproductive is the repeal of an investment exemption for telecommunications companies. It works like this: Certain communications network investments are exempt from property taxes in order to stimulate more investment in Massachusetts, and the state gets to collect taxes on business profits. (Banks and manufacturers enjoy the same property tax exemptions, and software companies were added last year.)

This longstanding tax policy encourages capital-intensive industries to invest in Massachusetts. In the communications industry, it's worked well. Telephony has moved from a luxury item in its infancy to a service that's universally available; and one that remains vital to the state's economy and, indeed, culture.

In today's broadband era, the need for new network investments -- and the huge sums of capital required to make those investments -- have not changed. Just last year, Verizon invested $600 million in Massachusetts to continue efforts to transform its network to a technologically advanced all-fiber network. At the same time, it generated $180 million in state and local taxes. Counting payroll for its 14,000 employees, pensions, healthcare costs, and almost $500 million spent with Massachusetts vendors, in 2006 Verizon alone poured over $2 billion into the state's economy.

Together, the major carriers generated almost $500 million in state and local taxes last year, including $221 million in sales taxes that are not assessed on other companies.

It's clear the telecommunications industry is holding up its end of the bargain.

So while it's true that some (but not all) of Verizon's property is exempt from property taxes, that policy generates an extremely good return for the Commonwealth. That is not a loophole but a deliberate state policy that encourages companies like Verizon to stay and build, create more jobs, and grow the economy.

Tax exemptions and other incentives aren't new; they're frequently created at the local and state levels to encourage investments. Local exemptions are granted to non profit education and healthcare institutions that bring jobs and contribute richly to the fabric of our communities. The City of Boston spearheaded legislative efforts last year to create incentives for real estate projects in targeted areas. State leaders used incentives to woo Bristol Myers Squibb to build a factory at Fort Devens.

These targeted incentives work for Massachusetts.

Yet some view the telecommunications industry and its massive investments not as critical technology infrastructure, but as a way to raise taxes. For national carriers that compete for capital investments within the respective companies, where's the incentive to stay and grow in Massachusetts?

Some politicians promise lower property tax bills by increasing taxes on businesses. The reality doesn't match the rhetoric. Consumers end up footing the bill as businesses raise prices to cover the new taxes. In Verizon's case, rural and suburban customers will pay higher bills to fund tax breaks for Boston. Where's the net gain for Massachusetts consumers?

Removing productive technology investment incentives will accomplish two things: Consumers will pay more and businesses will have another reason to avoid Massachusetts. Either way, it's a poor choice for Massachusetts.

Donna C. Cupelo is the regional president of Verizon in Massachusetts and Rhode Island.