Bipartisan, widespread support for regular, rigorous evaluation of economic development tax incentives seems to be sweeping the country, according to recent analysis by the Pew Charitable Trusts. During the 2016 legislative session, Alabama, Colorado, Hawaii, Virginia and Utah passed laws requiring regular evaluation of tax credit programs. While each state’s law addresses its own unique needs, the five new laws bear key similarities:
- professional staff such as legislative auditors are responsible for conducting the analyses;
- evaluations are due on a rotating, multi-year cycle; and
- public hearings are incorporated into the evaluation processes.
About half of the states currently evaluate their tax incentive programs regularly, reports Pew. The article cites Maryland has a successful example:
Using evaluations to improve incentive policy is the ultimate objective of each of these laws. Some states with longer-standing evaluation processes are already doing just that. For example, Maryland lawmakers this year extended the state’s historic preservation tax credit for another five years, while also modifying the scoring system used to determine which projects qualify. That action directly followed the findings of an evaluation that described the credit as a model incentive program overall but also identified weaknesses in the scoring system.
As Maryland’s example shows, tax incentive evaluation can help policymakers ensure that incentives are working well for businesses, workers, and taxpayers. The states that are adopting and implementing regular evaluation processes are well on their way to achieving similar successes.
Maryland first required tax credit evaluations under the Tax Credit Evaluation Act of 2012, which established a legislative process for evaluating certain credits. The Department of Legislative Services (DLS) is required to publish a report evaluating the tax credit. The report submitted by DLS must discuss (1) the purpose for which the tax credit was established; (2) whether the original intent of the tax credit is still appropriate; (3) whether the tax credit is meeting its objectives; (4) whether the goals of the tax credit could be more effectively carried out by other means; and (5) the cost of the tax credit to the State and local governments. The evaluation committee must hold a public hearing on the evaluation report, and is required to submit a report to the General Assembly that states whether or not the tax credit should be continued, with or without changes, or terminated.
Last session, the General Assembly passed and Governor signed Senate 843, Tax Credits – Evaluations, which altered the tax credits to be evaluated and the process and timelines for the analysis. While earlier iterations of the bill would have repealed the property tax components of the Enterprise Zone and Regional Institution Strategic Enterprise tax credit programs, these programmed remained in existing law following MACo advocacy for their continuation.