Alabama

Tax incentive evaluation ratings

Fact Sheet May 3, 2017 Read time:

Projects: Economic Development

Rating: Making progress

Key points:

Alabama is making progress because the state has adopted a plan for regular evaluation of tax incentives.
This push for better information comes as lawmakers are engaging in major debates over incentive policy.
A Department of Revenue administrative rule could help ensure that the evaluations include consistent, high-quality information.

Alabama evaluation law

Year enacted: 2016.^a

Who evaluates: State agencies that administer incentives.

Length of review cycle: Four years.

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Lawmakers took an important step in 2016 toward regular, rigorous evaluations of tax incentives by passing legislation that requires evaluations on a four-year cycle. To ensure that lawmakers consider the findings, the House Ways and Means and Senate Finance and Taxation committees will hold hearings on the evaluations.^b

One potential weakness of this law is that agencies are responsible for evaluating incentives they administer. Most states that have been successful at evaluating incentives have designated one state office to review all these programs to help ensure that the information is consistent and of high quality. Alabama’s law attempts to ensure that the evaluations will be consistent by requiring the Department of Revenue to develop a standard format for the studies.^c

In late 2016, the department introduced a proposed administrative rule laying out requirements for the evaluations. Under the rule, the evaluations would include a range of quantitative information and qualitative analysis on the goals, design, administration, and economic and fiscal impact of incentives. They would also estimate the extent to which incentives are successfully influencing business behavior, a key step for accurately measuring the results of the programs.^d

In 2016, the Department of Revenue also hired a contractor to develop a set of best practices for evaluating incentives and to study four of the state’s incentive programs.^e Lawmakers requested the contract because they are debating major incentives and they have lacked reliable, independent information. For example, lawmakers allowed the state’s Historic Rehabilitation Tax Credit to lapse after efforts to renew the program failed in 2016.^f Supporters argued that the credit has helped boost redevelopment in Birmingham and other cities, but critics feared the state was making financial commitments it would struggle to afford.^g Now, through the evaluation, lawmakers will have information on the results of the program as they consider whether to renew it.