Evaluate State Job Incentives

Are Georgians getting a good return on the millions of state tax dollars spent each year on economic development incentives?

Opinions on that question are plentiful, but missing from the debate is the evidence needed to determine the answer. That's because the state does not evaluate the many tax credits, deductions, and exemptions meant to spark the growth of businesses and jobs.

Georgia's situation is common. A 2012 study by The Pew Charitable Trusts shows that the Peach State and 24 others had not taken even basic steps to assess the economic consequences of their tax incentives. The prevailing practice across the nation is for lawmakers to rely on incomplete, conflicting, or anecdotal information when they make decisions about these policies.

Fortunately, Georgia lawmakers can borrow proven practices and tools used to generate answers about which incentives are working, which ones are not, and how these programs may be improved. State lawmakers could start by requiring regular evaluations of all economic development incentives.

Washington State adopted such a process in 2006. The state established a 10-year schedule to review every tax incentive it offers. Nonpartisan analysts work with a citizen commission to examine a particular set of incentives each year and make recommendations to the legislature on whether to continue, reform, or end them.

Another key step is ensuring that the evidence gets considered in policy and budget debates. Even in states that have conducted thorough evaluations, lawmakers often are unaccustomed to examining the results and costs of tax incentives alongside other spending in the state budget.

Oregon devised a way to focus attention on evaluation findings. Under a state law, most tax credits expire after six years unless lawmakers act to extend them. In 2011, legislative leaders set a spending cap on the expiring incentives, driving policymakers to rely on evaluations to make tough choices about which investments should continue and in what form. Notably, their decisions to end certain incentives while reforming and extending others were nearly unanimous.

A third important ingredient is making sure evaluators ask the right questions and draw clear conclusions about policy changes the state should consider. Simply counting jobs at businesses that received incentives can paint a misleading picture.

Take Louisiana, where businesses benefitting from the state's Enterprise Zone program reported creating a total of 9,000 jobs. An evaluation by the state's economic-development department found that the new jobs in hotels, restaurants, retail, and health care were mostly displacing existing jobs. The agency estimated that the program was netting only 3,000 new jobs—and identified several ways the incentive could be strengthened.

It's understandable that lawmakers want to encourage businesses to create jobs, especially in challenging economic times. But it's also reasonable for voters to expect that state officials measure the outcomes of these policies with rigorous evidence, not with a tally of ribbon-cutting events. Georgia's leaders can—and should—achieve both goals.

Jeff Chapman is an expert on economic development tax incentives at The Pew Charitable Trusts.

This article was originally published on The Atlanta Journal-Constitution on May 28, 2013.