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Patrick’s business aid welcomed

But states can’t drive recovery on their own

By Robert Gavin
Globe Staff / February 9, 2010

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Job creation proposals floated by Governor Deval Patrick and Beacon Hill Democrats were welcomed by small business advocates as a good start, even though economists said the mix of tax breaks and loans is unlikely to have much impact in turning around the overall economy.

While state economic policies can add to job growth over the longer term, states just don’t have the fire power to reverse national and global trends, economists said. In other words, significant job growth won’t return here until the US economy strengthens further.

The $75 million in tax credits and loans that the Patrick administration is proposing to spur hiring by small businesses is tiny, even compared with the state economy, which generates more than $300 billion a year in goods and services, said Gus Faucher, director of macroeconomics at Moody’s Analytics in West Chester, Pa. The US economy generates more than $14 trillion a year in economic activity.

“You’re talking pretty small potatoes here,’’ Faucher said. “It’s just a drop in the bucket.’’

Administration officials, however, said tax credits and loan programs, coupled with state measures to lower business costs and federal job creation programs, could provide the catalyst for small businesses to expand and hire.

“A lot of small businesses are in a place now where they need a little extra help, and this is what this bill is about,’’ said Jay Gonzalez, state secretary of administration and finance. “These additional incentives may get those small businesses that might be waiting to hire to do so now, when we really need the jobs.’’

Patrick is set to unveil the details of his proposals tomorrow at a Greater Boston Chamber of Commerce breakfast meeting. With the November state election looming, the economy has taken center stage on Beacon Hill as Massachusetts continues to shed jobs and the unemployment rate, 9.4 percent, is the highest in more than 33 years.

Patrick’s plan includes $50 million in tax credits for firms that hire employees, $25 million for small business loans, and a freeze in unemployment insurance taxes to prevent a large increase. Senate President Therese Murray is proposing the consolidation of economic development agencies to improve services to businesses looking to expand or relocate here.

Tax incentives for job creation have long been controversial because it’s often unclear whether businesses would hire the workers anyway. Under the governor’s proposal, small businesses that hire and keep workers on the payroll for at least a year would receive a $2,500-per-job tax credit, which they could claim in the fiscal year that begins July 1, 2011.

Nick Perna, an economist and adviser to Webster Bank, a Connecticut bank with operations in Massachusetts, said such a tax credit could help the economy if it convinces employers to hire sooner, much as the federal cash-for-clunkers program got car buyers to accelerate their purchases.

Perna added that providing the credit before 2011 might provide a greater incentive to businesses.

Jim Tenner, president of Broadleaf Services Inc., a Burlington data storage and management firm, said Patrick’s proposals wouldn’t be enough for his company to increase its staff of 11.

Tenner said an expanding economy and solid increase in sales, not a tax credit, will lead him to add employees.

“I need to be confident that I’ll be able to bring someone on and pay them for the next couple of years,’’ said Tenner.

Bill Vernon, state director of the small business group the National Federation of Independent Business, said the governor’s proposals don’t seem to go far enough to address the high costs of doing business in the state. For example, while the unemployment insurance tax freeze is welcome, the proposals don’t tackle benefit structures and other elements that make Massachusetts unemployment insurance taxes among the highest in the nation.

But Robert Baker, president of the Smaller Business Association of New England, said the governor’s proposals could indeed help spur job growth, particularly by expanding state lending programs to give small businesses access to credit.

The fallout from the recent financial crisis has made it difficult for many to find financing as skittish banks restricted lending.

Last year, Precix Inc. of New Bedford, which makes components for the automotive industry, couldn’t find the financing it needed to get through the downturn, and its creditors pressed the owners to sell, with the likelihood the plant would be shut, and jobs moved out of state.

But a $750,000 loan from a quasi-public state fund called the Economic Stabilization Trust helped provide the bridge financing Precix needed to survive. With auto sales improving since summer, the company has added about 50 jobs, bringing its total employment to about 240.

“Without Economic Stabilization stepping into the breach,’’ said John McDonough, managing director of Precix’s majority owner, Endurance Capital of Framingham, “we wouldn’t have been able to put together the plan that allowed us get through a very difficult period.’’

Robert Gavin can be reached at rgavin@globe.com.