Economic development incentives are one of the primary tools that states use to try to strengthen their economies. Every state uses a mix of tax incentives, grants, and loans in an effort to create jobs, encourage business expansions, and achieve other goals. Collectively, states spend billions of dollars a year on incentives, which can significantly affect their budgets, businesses, and economies.
To make these programs work as well as they can, states need good data, especially for three discrete tasks that are necessary to design and administer effective incentive programs. First, state officials must determine which companies should receive incentives. Then they need to monitor the performance of participating companies to ensure that they are meeting their commitments in exchange for the incentives. Finally, states should analyze the results of incentive programs to identify ways to make these policies more effective.
There are multiple sources of these data. Relevant information can come from businesses, federal records, and other third-party databases. In fact, states already possess, in some form, much of the data they need. But they must ensure that the right people have access to these data; in addition, the information needs to be of high quality and analyzed effectively.
Many states have struggled with these challenges. Different departments of state government may not collaborate effectively with one another. Both the information and responsibility for analyzing it are diffuse: Numerous agencies have a role in administering incentives, studying them, and collecting relevant tax and economic data.
Likewise, much of the information is sensitive—such as the business plans or tax records of specific companies—so state agencies are sometimes reluctant to share it even with one another. As a result, officials often lack the information they need to administer incentives well, leaving policymakers unsure whether the programs are working as intended.
To identify solutions, The Pew Charitable Trusts partnered with the Center for Regional Economic Competitiveness (CREC) to create the business incentives initiative in 2014. Through this initiative, cross-agency work groups from Indiana, Maryland, Michigan, Oklahoma, Tennessee, and Virginia worked closely with Pew and CREC to provide in-depth access to their economic development oversight and management procedures. While the initiative focused primarily on these six states, Pew and CREC also convened stakeholders from 22 additional states. The initiative built on Pew’s ongoing work to help states establish processes to regularly and rigorously evaluate the results of their tax incentives.
From March 2014 to December 2015, Pew conducted numerous interviews and site visits with participating states’ elected lawmakers and economic development, tax, and budget officials in the legislative and executive branches. The six states reviewed their incentive policies and practices to identify possible strengths and weaknesses and received technical assistance from Pew to design and implement policy improvements.
These states’ experiences illustrate how others can:
To explore how different states have utilized these strategies and how others can learn from them to help make their economic development incentives more effective, please read Pew’s new issue brief, “Better Incentive Information.”
Josh Goodman is an officer and John Buhl is a senior associate with The Pew Charitable Trusts’ economic development tax incentives team.
Three strategies for states to use economic development data effectively