Rating: Making progress
- Oregon is making progress because the state has adopted a plan for regular evaluation of tax incentives.
- The state’s reviews have led to sweeping changes to incentives, with some programs modified or allowed to expire.
- Oregon could improve by rigorously measuring the economic impact of incentives.
Ohio evaluation law
Year enacted: 2009.a
Who evaluates: Legislative Revenue Office.
Length of review cycle: Six years.
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Perhaps no state has gone further than Oregon to integrate consideration of tax incentives into the budget and policymaking process. As a result, Oregon lawmakers have made sweeping changes to tax credits over the last six years.
Oregon’s process has evolved gradually.b Under a 2009 law, most Oregon tax credits—including economic development incentives—expire every six years unless lawmakers renew them.c These “sunsets” encourage legislators to review credits, since they must act or else they will end. The sunsets were staggered so that different groups of credits would expire every two years.d In each legislative session during which lawmakers considered expiring credits so far—2011, 2013, and 2015—the process has resulted in substantial changes, with credits extended, modified, or allowed to sunset.e
For example, in 2015, lawmakers reviewed two sizable tax credits for child care expenses, each of which had separate eligibility standards. The Legislature decided to consolidate the credits into one means-tested program, with greater benefits for lower-income taxpayers.f Likewise, in 2011, lawmakers revised a tax credit for renewable energy projects, such as wind and solar farms, which had grown far more expensive than anticipated. In addition to increasing the program’s effectiveness, the changes are saving Oregon hundreds of millions of dollars.g
Starting in 2011, the Legislature created the Joint Committee on Tax Credits, a panel made up of members of the House and Senate revenue committees. Similar committees in other states sometimes meet only once a year, but Oregon’s joint committee holds numerous hearings during the legislative session. The joint committee also works with other relevant committees, which offer recommendations on changes to credits. Through this process, Oregon reviews tax credits much the same way it reviews direct spending programs, whereas in other states tax incentives often receive far less scrutiny.h
Initially, lawmakers lacked consistent information to consider these decisions, but a 2013 law has helped to change that. Under the law, the nonpartisan staff of the Legislative Revenue Office (LRO) studies credits before they are scheduled to expire.i The LRO’s first evaluation, published before the 2015 session, included detailed information on the history and rationale of each expiring credit. The LRO also described advantages and disadvantages of each credit and listed options for changes—an approach that allowed an office that does not traditionally make policy recommendations to nonetheless provide a starting point for lawmakers’ conversations.j The idea of consolidating the two child care credits was listed as an option in the LRO’s first report.k
While the LRO’s 2015 evaluation included useful information, the study also noted the lack of data available on some credits.l The office has not been able to produce the rigorous economic analysis that has become a common feature of evaluations in other states, such as Indiana and Washington. If the LRO can begin measuring the economic impact of incentives effectively, lawmakers will have even more valuable information for the legislative discussions of tax credits that are sure to follow.
- Oregon Rev. Stat. Ann. § 315.051, https://www.oregonlegislature.gov/bills_laws/ors/ors315.html.
- Oregon Legislative Revenue Office, “2016 Expiring Tax Credits” (February 2015), 7–9, https://www.oregonlegislature.gov/lro/Documents/RR%202-15%202016%20Expiring%20Tax%20Credits%202.pdf.
- Oregon H.B. 2067 (2009), https://olis.leg.state.or.us/liz/2009R1/Measures/Overview/HB2067.
- The Pew Charitable Trusts, “Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth” (April 2012), 12, http://www.pewtrusts.org/~/media/assets/2012/04/12/ pew_evaluating_state_tax_incentives_report.pdf.
- Oregon H.B. 3672 (2011), https://olis.leg.state.or.us/liz/2011R1/Measures/Overview/HB3672; Oregon H.B. 3367 (2013), https://olis.leg.state.or.us/liz/2013R1/Measures/Overview/HB3367; Oregon H.B. 2171 (2015), https://olis.leg.state.or.us/liz/2015R1/Measures/Overview/HB2171.
- Oregon Legislative Revenue Office, “Revenue Measures Passed by the 78th Legislature” (August 2015), 9, https://www.oregonlegislature.gov/lro/Documents/RMP%202015%20FINAL.pdf.
- The Pew Charitable Trusts, “Tax Incentive Programs: Evaluate Today, Improve Tomorrow” (January 2015), 8–9, http://www.pewtrusts.org/~/media/assets/2015/01/ statetaxincentivesbriefjanuary2015.pdf.
- Oregon Legislative Revenue Office, “2016 Expiring Tax Credits,” 7–9.
- Oregon Rev. Stat. Ann. § 315.051.
- Oregon Legislative Revenue Office, “2016 Expiring Tax Credits.”
- Ibid., 54.
- Ibid., 19, 30, 67.