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pewtrusts.org/taxincentives
Tax Incentive Evaluation
NCSL Legislative Fiscal Directors Post-Conference 2017
Chaaron PearsonSenior Manager, The Pew Charitable Trusts
pewtrusts.org/taxincentives
pewtrusts.org/taxincentives
Why evaluate tax incentives
Tax incentives are one of states’ primary economic development tools
Tax incentives collectively cost states billions of dollars per year
Evaluation is a proven way to improve the effectiveness of incentives
Evaluations can lead to a more constructive conversation about incentives
pewtrusts.org/taxincentives
Year evaluation laws were adopted in states that are “leading” or “making progress”
Pre-2014
2014
2015
2016
WA
OR
IA
MO
LA
FL
AK
TX
OK
NE
NDMN
MS
TN
IN
ME
NH
RI
CT
MD
DC
WI
AL
VACO
OHHI
UT
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Three steps to effective evaluation
Step 1: Make a plan
Step 2: Measure the impact
Step 3: Inform policy choices
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State tax incentive evaluation ratings
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Make a plan: Who evaluates in states that are “leading” or “making progress”
CO
WA
OR
IA
MO
LA
FL
AK
TX
OK
NE
NDMN
MS
TN
IN
ME
NH
RI
CT
MD
DC
WI
AL
VA
Executive branch agency
Independent agency
Legislative staff
Legislators themselves
Outside experts
OHHI
UT
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Make a plan: Developing a strategic schedule
Include all major incentives
Use a rotating multi-year cycle
Study incentives with similar goals in the same year
Coordinate evaluations with sunset dates
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Measure the impact: High-quality evaluations include…
A description of the incentive, its history, and goals
An assessment of the incentive’s design and administration
An estimate of the incentive’s economic and fiscal impact
Policy recommendations
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Evaluation example: Indiana
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Evaluation example: Alabama
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Evaluation example: Minnesota
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Options to inform policy choices
Create new legislative committees
Utilize existing committee structure
Require the governor to make recommendations after evaluations
Establish expiration dates on incentives to encourage review
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With evaluations, states can…
Make subtle changes to incentives to increase their return on investment
Identify programs that are working well, so that the state can invest in them with confidence
Repeal or replace ineffective or obsolete incentives
Maine Legislature’s On-going Review of Tax Expenditures
Beth Ashcroft, DirectorOffice of Program Evaluation and Government Accountability
Purpose of Formal, On-going Review Process
To ensure that:
tax expenditures are reviewed regularly according to a
strategic schedule organized so that tax expenditures
with similar goals are reviewed at the same time;
reviews are rigorous in collecting and assessing relevant
data, determining benefits and costs, and drawing clear
conclusions based on measurable goals; and
reviews inform policy choices and the policymaking
process.
Levels of Review
Review process assumes that certain tax expenditures warrant more rigorous evaluation, while others warrant less involved review, or no review. The three levels of review are:
(A) Full Evaluation for tax expenditures that are intended to provide an incentive for specific behaviors, that provide a benefit to a specific group of beneficiaries, or for which measurable goals can be established;
(B) Expedited Review for tax expenditures that are intended to implement broad tax policy goals that cannot be reasonably measured; and
(C) No Review for tax expenditures with an impact on state revenue of less than $50,000 or that otherwise do not warrant either a full evaluation or expedited review.
Full Evaluation Objectives
The extent to which those actually benefiting from the tax expenditure are the intended beneficiaries;
The fiscal impact of the tax expenditure, including past and estimated future impacts;
The extent to which the design of the tax expenditure is effective in accomplishing its purposes, intent or goals and is consistent with best practices;
The extent to which the tax expenditure is achieving its purposes, intent or goals;
The extent to which the desired behavior might have occurred without the tax expenditure;
The extent to which there are other tax expenditures, state spending or other government programs that have the same purposes, intent or goals as the tax expenditure and whether those additional programs are appropriately coordinated with the tax expenditure and are complementary or duplicative;
Any opportunities to improve the effectiveness of the tax expenditure in meeting its purposes, intent or goals; and
The extent to which the tax expenditure is a cost-effective use of resources compared to other options for using the same resources or addressing the same purposes, intent or goals.
Expenditures by Review Level and Rationale
Rationale
Review Category*
A B C Total
Business Incentive 13 5 18
Non-Business Incentive 7 11 18
Tax Relief 8 2 10
Charitable 33 43 76
Conformity with IRC 2 2
Tax Fairness 14 7 21
Necessity of Life 13 13
Interstate or Foreign Commerce 13 2 15
Inputs to Tangible Products 7 3 10
Specific Policy Goal/Mandate 2 5 7
Non-Taxable Services 2 2
Administrative Burden 1 3 4
Total 31 84 81 196
*Review Category – (A) Full Evaluation, (B) Expedited Review, (C) No Review
Initial Review Schedule – 6 Year Cycle
FULL EVALUATIONS EXPEDITED REVIEWS
Year Count Rationale Count Rationale
2016 4 ➢ Business Incentive• Job Creation
13 ➢ Necessity of Life
2017 5 ➢ Business Incentive• Equipment Investment• Research Investment
14 ➢ Tax Fairness
2018 4 ➢ Business Incentive• Financial Investment• Targeted Industry Support
14 ➢ Charitable• Elderly• Government• Veterans• Other
2019 5 ➢ Business Incentive• Targeted Industry Support
➢ Specific Policy Goal/Mandate ➢ Administrative Burden
19 ➢ Charitable• Education• Health & Safety• Low Income• Youth• Other
2020 6 ➢ Non-Business Incentive• Education• Financial Investment• Health and Safety
13 ➢ Interstate/Foreign Commerce
2021 7 ➢ Targeted Tax Relief• Individuals• Industry
11 ➢ Inputs to Tangible Products➢ Conformity with IRC➢ Non-Taxable Services
Schedule Challenges and Changes
Statutory deadlines for Committee approvals on evaluation parameters and for issuing evaluation reports did not provide enough flexibility in scheduling, completion and reporting and did not fit well with legislative schedules.
A six year cycle with a certain number of evaluations to be completed each year was not realistic for what comprehensive evaluations require and OPEGA’s capacity for conducting multiple evaluations in any given time period.
Schedule Challenges and Changes
Tax expenditure programs still grouped by Rationale but scheduled for full evaluation by group rather than by year. Committee sets the schedule according to the priority for each group and adjusts priorities annually as needed.
OPEGA commits to having at least two evaluations “in progress” at any given time, with one of the evaluations being given priority until it is complete. Once the priority project is complete, the other “in progress” project becomes the top priority and OPEGA begins evaluation of the next program in the current group – or moves to a program in the next group as appropriate.
GOC continues to approve Evaluation Parameters prior to OPEGA beginning an evaluation of any program. However, these would be presented to the GOC for consideration as a new evaluation is beginning rather than by a particular date each year.
OPEGA presents each report to the Committee at the time the evaluation is completed. By July 1st of each year, the Committee transmits the reports on evaluations completed in the past year to the Taxation Committee for consideration of recommendations.
Georgia:
Administrative Data
Challenges
NCSL/Pew Tax Incentive Evaluation, Boston 2017
Laura Wheeler, Senior Research Associate
Center for State and Local Finance/
Fiscal Research Center
Georgia State University
Administrative Data Challenges
▪ Gaining access
• It’s about relationship and trust.
• Do your administrative and technical systems play
well with others?
▪ Using administrative data is
• Messy
• Typically too large for Excel or Access
• Usually not well documented
• May not be easily linked to other data sources
• May require geocoding
• Not designed for evaluation purposes
NCSL/Pew Tax Incentive Evaluation, Boston 2017
Administrative Data Challenges
▪ Reporting results
• Nondisclosure concerns
• Can the data be made available to others?
• Allow the data’s home department to join the
review process
▪ Protecting administrative data
• Who can see the data?
• Where can it be used? If offsite, how is it
transferred to another location?
• Once offsite, how is it protected and accessed?
• After project ends, how is the data treated?
NCSL/Pew Tax Incentive Evaluation, Fall 2017
pewtrusts.org/taxincentives
Chaaron PearsonSenior Manager, The Pew
Charitable Trusts
Questions?
Beth AshcroftDirector, Maine Office of Program
Evaluation and Government Accountability
Laura WheelerSenior Research Associate,
Georgia State University
Fiscal Research Center