Site Selection Magazine: Return on Investment

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Businesses participating in Louisiana's Enterprise Zone program reported creating more than 9,000 jobs in 2009. Yet after an evaluation, Louisiana's economic development agency said the program had only created 3,000 jobs that year.

When it took a closer look at the Enterprise Zone program — which rewards companies that grow employment — the agency noted that many of the jobs were not really new at all. Instead, they were merely displacing existing jobs.

What Louisiana's study of the Enterprise Zone program shows is that there is a big difference between a thorough evaluation of a state's return on investment and simply reporting the number of jobs companies are creating or the dollar value of their investments.

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When states engage in this kind of rigorous analysis, they often find some incentives that are achieving the state's goals and others that are not. Evaluations frequently identify ways that incentives in both categories can work better.

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Policymakers and agency officials in more than 10 states have reached out to us for help on how to best evaluate their tax incentives. Louisiana formed a new legislative commission to study the economic results of all of the state's tax incentives and report back by February 2013. A Massachusetts commission that included many of the state's top policymakers recommended last spring that the state regularly evaluate its tax incentives.

So the momentum for change is building. Policymakers remain committed to bolstering their economies but are realizing that that they cannot afford to give businesses a blank check. They need evidence of results.

Read the full column at siteselection.com.