Rating: Making progress
- Alaska is making progress because the state has adopted a plan for regular evaluation of tax incentives.
- The first evaluations, published in 2015, have already helped shape legislative conversations about incentives.
- Selectively studying major incentives in greater depth might lead to more detailed evaluations.
Alaska evaluation law
Year enacted: 2014.a
Who evaluates: Legislative Finance Division.
Length of review cycle: Six years.
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In 2014, Alaska approved a law that requires evaluation of tax incentives on a six-year cycle. Under the law, the Department of Revenue works with other state agencies to report basic information on each incentive, including a description of the program, its goals, and its cost. Nonpartisan analysts in the Legislative Finance Division then use that information to assess whether the programs achieved their goals and to make policy recommendations.b
One strength of Alaska’s law is how the review schedule is organized based on the administering agencies for the incentives. For example, the Legislative Finance Division studied every incentive administered by the Department of Commerce, Community, and Economic Development in 2015.c This approach ensures that lawmakers have information on similar programs in the same year, which helps them compare the results of incentives to one another.
The evaluations are already helping to shape conversations about incentives. For example, based on its evaluations, Legislative Finance recommended that lawmakers end some programs. Legislation to do that passed the Alaska House in 2015, but the Senate did not approve the bill.d
Alaska could improve the evaluation process by analyzing the state’s largest incentives in more depth. Under the law, state officials are not only reviewing economic development tax incentives, but also studying hundreds of other “indirect expenditures,” including tax credits, tax deductions, tax exemptions, and fee waivers—everything from fuel tax exemptions for charities to programs that allow seniors to receive free fishing licenses.e As a result, Legislative Finance reviewed more than 100 indirect expenditures in 2015. The report provided only limited rationales for its recommendations and generally did not include analysis of the economic impact of the programs.f
Producing detailed analysis of every indirect expenditure would be a herculean task. Other states have set priorities in their evaluation process to help deal with this challenge. Like Alaska, both Maine and Washington have evaluation laws that apply to hundreds of tax credits, exemptions, and deductions. In both states, some provisions receive full evaluations with detailed quantitative analysis, while others receive “expedited” reviews that rely more on descriptive information.g In 2016, Washington also exempted from evaluation dozens of tax preferences that the state determined were consistent with basic principles of tax policy such as avoiding double taxation.h Selectively studying major tax incentives in more depth would allow Alaska lawmakers to have the information they need to improve these programs.
- Alaska Stat. § 24.20.235, http://www.legis.state.ak.us/basis/statutes.asp#24.20.235.
- Alaska Legislative Finance Division, “Indirect Expenditure Report” (January 2015), http://www.legfin.akleg.gov/IEBooks/2015IndirectExpenditureReport.pdf.
- Alaska H.B. 155 (2015), http://www.akleg.gov/basis/Bill/Detail/29?Root=HB%20155.
- Alaska Stat. § 43.05.095, http://www.legis.state.ak.us/basis/statutes.asp#43.05.095.
- Alaska Legislative Finance Division, “Indirect Expenditure Report.”
- Maine Rev. Stat. tit. 3, § 999 to 1000, http://www.mainelegislature.org/legis/statutes/3/title3sec1000.html; Washington Rev. Code Ann. § 43.136.045, http://app.leg.wa.gov/RCW/default.aspx?cite=43.136.045.
- Washington Joint Legislative Audit and Review Committee, Issue Papers #1 and #3 (April 2016), http://www.citizentaxpref.wa.gov/documents/ meetingmaterials/April2016/JLARCStaffIssuePapers.