Pennsylvania

This page was updated on May 9, 2019, to reflect Pennsylvania’s improved rating after the publication of new tax incentive evaluations.

Rating: Leading

The following information was current as of May 3, 2017.

Pennsylvania lacks a consistent process for studying economic development incentives, which cost the state more than $700 million a year.^a However, multiple offices within state government have experience producing high-quality ad hoc evaluations of incentives.

For example, a 2013 report by the Legislature’s nonpartisan Independent Fiscal Office (IFO) rigorously analyzed the fiscal and economic implications of a proposal to remove the $60 million-a-year cap from the state’s film tax credit.^b One strength of the IFO’s analysis was that it compared the economic impact of increased spending on the credit to other ways the state could have spent the money.^c Considering these “opportunity costs” is a key part of economic analysis. Since any use of state dollars will have some economic benefits, evaluations need to compare incentives to policy alternatives.

In addition, the professional staff of Pennsylvania’s Legislative Budget and Finance Committee published evaluations of Pennsylvania’s Keystone Opportunity Zone (KOZ) program and film credit in 2009, as well as a comprehensive report on the state’s tax credit programs in 2010.^d The KOZ study found that the state lacked basic information on the results of the program, such as the types of businesses receiving incentives, their activities, and the number of jobs they created.^e In 2012, Pennsylvania lawmakers required the Department of Community and Economic Development (DCED) to monitor the performance of KOZ participants in more detail to help address these issues.^f

More recently, in 2014, the state’s auditor general studied grant and loan programs administered by DCED.^g The audit stated that the department did not set any performance goals or measure the success of its job creation programs during the period reviewed by the auditors.^h DCED also did not verify whether 46 businesses that were awarded $16.9 million in loans actually created or retained jobs.ⁱ

The auditor general, the Legislative Budget and Finance Committee, and the IFO are potential candidates to regularly evaluate incentives should lawmakers create a process to do so. Such a process would ensure that lawmakers have the information they need to improve the effectiveness of economic development programs on an ongoing basis.

Endnotes

1. Pennsylvania Independent Fiscal Office, “Economic Development Incentives” (March 2016), 13, http://www.ifo.state.pa.us/download.cfm?file=/Resources/Documents/RB-2016-02.pdf.
2. Pennsylvania Independent Fiscal Office, “Uncapping the Film Production Tax Credit: A Fiscal and Economic Analysis” (May 31, 2013), http://www.ifo.state.pa.us/download.cfm?file=/Resources/Documents/Film_Production_Tax_Credit_Report_Final.pdf.
3. Ibid., 25–26.
4. Pennsylvania Legislative Budget and Finance Committee, “An Evaluation of the Keystone Opportunity Zone (KOZ) Program” (June 2009), http://lbfc.legis.state.pa.us/Resources/Documents/Reports/316.pdf; Pennsylvania Legislative Budget and Finance Committee, “Pennsylvania’s Film Production Tax Credit and Industry Analysis” (May 2009), http://lbfc.legis.state.pa.us/Resources/Documents/Reports/322.pdf; Pennsylvania Legislative Budget and Finance Committee, “Pennsylvania’s Tax Credit Programs” (June 2010), http://lbfc.legis.state.pa.us/Resources/Documents/Reports/382.pdf.
5. Pennsylvania Legislative Budget and Finance Committee, “An Evaluation of the Keystone Opportunity Zone,” 27–58.
6. Pennsylvania S.B. 1237 (2012), http://www.legis.state.pa.us/cfdocs/billInfo/BillInfo.cfm?syear=2011&sind=0&body=S&type=B&bn=1237.
7. Pennsylvania Auditor General, “Performance Audit: Department of Community and Economic Development, Job Creation Programs” (Dec. 9, 2014), http://www.paauditor.gov/Media/Default/Reports/DCEDFinal12914.pdf.
8. Ibid., 6–9.
9. Ibid., 22–25.