Wisconsin

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Wisconsin

Rating: Making progress

Key points:

  • Wisconsin is making progress because the state has adopted a plan for regular evaluation of tax incentives.
  • The evaluations have documented shortcomings in the management of incentives and, in response, officials have acted to make improvements.
  • The state could improve by including rigorous economic analysis in the evaluations.

Wisconsin evaluation law

Year enacted: 2011.a

Who evaluates: Legislative Audit Bureau.

Length of review cycle: Two years.

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In 2011, Wisconsin made a fundamental change to the state’s approach to economic development. In place of the Wisconsin Department of Commerce, the state created the Wisconsin Economic Development Corp. (WEDC), a nonprofit managed by a board of state appointees, to administer most of the state’s primary incentive programs.b Under a 2011 law, the Wisconsin Legislative Audit Bureau (LAB) is required to regularly evaluate WEDC-administered programs.c Annual audits from 2012 to 2015 found substantial shortcomings in WEDC’s operations and its management of incentive programs.d

For example, the 2015 audit found that WEDC was administering incentives based on program policies that were in place at the time it initially struck deals with businesses, rather than the policies in place when the incentives contracts were executed. Since many months sometimes pass between the initial deal and contract execution, LAB argued that WEDC was operating the programs in ways that were inconsistent with current state law or policy.e

These evaluations are making a difference. In some instances WEDC has disagreed with LAB’s findings, but WEDC also reports that it is acting to implement many of LAB’s recommendations. For example, WEDC reported to lawmakers that as of July 1, 2016, it had shifted to administering incentives based on the policies in place at their execution date.f

To become a leader, Wisconsin may need to redesign this effort to yield robust measures of economic impact. Like most state audits offices, LAB has far more experience studying whether government programs are being administered efficiently than measuring economic impact. As a result, it is not surprising that, while the audits have produced dozens of recommendations for improving the administration of incentives, they have included comparatively little information on the economic and fiscal results of the programs. Wisconsin policymakers could follow the example of Washington, where the legislative auditor’s office has been tasked with evaluating incentives for a decade.g Staff have gradually built up expertise in measuring economic impact and are now producing rigorous analyses.

Wisconsin could also improve the scope of its review of economic development programs. While WEDC administers many of Wisconsin’s major incentives, some, such as the $36 million Research Expenditures Credit, are the responsibility of other agencies.Broadening the Legislative Audit Bureau’s mandate to include studies of these programs would help ensure that lawmakers have comprehensive information on the results of the state’s incentives.

Endnotes

  1. Wisconsin Stat. Ann. § 13.94, https://docs.legis.wisconsin.gov/statutes/statutes/13/IV/94/1/dr.
  2. Wisconsin S.B. 6 (January 2011 special session), https://docs.legis.wisconsin.gov/2011/proposals/JR1/SB6.
  3. Wisconsin Stat. Ann. § 13.94.
  4. Wisconsin Legislative Audit Bureau, “State Economic Development Programs” (June 2012), https://legis.wisconsin.gov/lab/reports/12-11full.pdf; Wisconsin Legislative Audit Bureau, “Wisconsin Economic Development Corporation” (May 2013), http://legis.wisconsin.gov/lab/reports/13-7full.pdf; Wisconsin Legislative Audit Bureau, “Wisconsin Economic Development Corporation” (September 2014), http://legis.wisconsin.gov/lab/reports/14-11full.pdf; Wisconsin Legislative Audit Bureau, “Wisconsin Economic Development Corporation” (May 2015), 15–16, http://legis.wisconsin.gov/lab/reports/15-3full.pdf.
  5. Wisconsin Legislative Audit Bureau, “Wisconsin Economic Development Corporation” (May 2015), 4–5, 39.
  6. Mark Hogan, secretary and CEO, Wisconsin Economic Development Corp., to state Senator Rob Cowles and state Representative Samantha Kerkman, letter, Aug. 1, 2016, http://legis.wisconsin.gov/lab/reports/follow-up/15-3_WEDC_8_1_16.pdf.
  7. Washington Joint Legislative Audit and Review Committee, “Performance Auditing in Washington State,” accessed Feb. 1, 2017, http://leg.wa.gov/jlarc/Pages/default.aspx.
  8. Wisconsin Departments of Administration and Revenue, “Summary of Tax Exemption Devices” (February 2017), 35, https://www.revenue.wi.gov/DORReports/17sumrpt.pdf.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.