Texas

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Texas

Rating: Making progress

Key points:

  • Texas is making progress because the state has adopted a plan for regular evaluation of tax incentives.
  • Texas’ law does not specify how frequently each incentive program must be evaluated, but the board tasked with the evaluations could adopt a schedule that ensures lawmakers have timely information.
  • Texas could strengthen its process by creating a role for professional staff to formally study incentives.

Texas evaluation law

Year enacted: 2015.a

Who evaluates:Economic Incentive Oversight Board.

Length of review cycle:None specified in law.

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In 2015, Texas legislation created a commission known as the Economic Incentive Oversight Board to regularly evaluate incentives. The bill also revamped several of the state’s largest incentives amid concerns about the criteria state officials were using to determine which companies benefitted from the programs.b In creating the board, lawmakers acknowledged that they wanted more than just a one-time reboot of their incentives. Instead, the board has the potential to offer valuable information on these programs on an ongoing basis. The board is made up of members of the public who are appointed by various state officials: the governor, the lieutenant governor, the speaker of the House, and the state comptroller. After studying incentives, the board is responsible for publishing a report every two years with policy recommendations on each incentive that it has reviewed.c After delays filling some of the positions on the board, it held its first meeting in December 2016.d As the board ramps up its work, Texas could learn from the experiences of Washington and Oklahoma. Both states also have created citizens’ commissions to help evaluate incentives. The commissions receive formal evaluations from skilled professionals: the nonpartisan staff of the Joint Legislative Audit and Review Committee in Washington and a private consulting firm in Oklahoma.e As a result, the commissions in these two states have the data and analysis they need to make informed policy recommendations. Texas could strengthen its process by creating a similar role for professional staff or outside experts. While the Texas governor’s office will provide assistance to the board, the law does not require staff to formally evaluate the programs.f Several offices, including the Legislative Budget Board, the Texas Sunset Advisory Commission, and the comptroller’s office, have the skill set to potentially produce high-quality evaluations. Several of Texas’ largest incentives—such as the Texas Enterprise Fund—are cash grants rather than tax incentives.g For that reason, a strength of the law is that the board will review both cash incentives and tax incentives alike. In another way, however, the law’s scope is narrower than in many other states. The board is only required to study incentives for which a state agency has the discretion to determine which businesses qualify on a case-by-case basis.h As a result, the board may not be required to review major incentive programs that are available to all businesses that meet predetermined eligibility criteria, such as the state’s Research and Development Tax Credit.i

Unlike the laws in many other states, Texas’ law also does not specify how frequently each incentive program must be evaluated. Instead, the board has discretion to set the review schedule.j In many states—including Florida, Mississippi, Oklahoma and Tennessee—all major incentives are reviewed at least once every three to five years.k By adopting a similar schedule, the Texas board could ensure that lawmakers have reasonably up-to-date information to guide policy decisions on each tax incentive.

Endnotes

  1. Texas Gov’t Code § 490G, http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.490G.htm.
  2. Texas H.B. 26 (2015), http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=84R&Bill=HB26.
  3. Texas Gov’t Code § 490G.007.
  4. Texas Economic Incentive Oversight Board, “2017 Legislative Report.”
  5. Oklahoma Stat. § 62-7005, http://webserver1.lsb.state.ok.us/OK_Statutes/CompleteTitles/os62.rtf; Washington Rev. Code Ann. § 43.136.055, http://app.leg.wa.gov/RCW/default.aspx?cite=43.136.055.
  6. Texas Gov’t Code § 490G.002.
  7. Texas House Select Committee on Economic Development Incentives, “Interim Report to the 84th Legislature” (January 2015), http://www.house.state.tx.us/_media/pdf/committees/reports/83interim/House-Select-Committee-on-Economic-Development-IncentivesInterim-Report-2014.pdf.
  8. Texas Gov’t Code § 490G.005.
  9. KPMG, “Texas R&D Credit and Sales and Use Tax Exemption” (2013), https://assets.kpmg.com/content/dam/kpmg/pdf/2015/08/ texas-research-development-credit-slipsheet.pdf.
  10. Texas Gov’t Code § 490G.006.
  11.  Florida Stat. Ann. § 288.0001, http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_ String=&URL=0200-0299/0288/Sections/0288.0001.html; Mississippi Code Ann. § 57-13-107, http://law.justia.com/codes/ mississippi/2015/title-57/chapter-13/economic-development-programs-and-tax-incentives-evaluation-act-of-2014; Oklahoma Stat. § 62-7004, k; Tennessee Code Ann. § 67-1-118.
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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.