1. Questions to Ask When Designing New Tax Incentives
Josh Goodman
The Pew Charitable Trusts
10/19/2017

3. Why to 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

4. Three steps to effective evaluation
Step 1: Make a plan
Step 2: Measure the impact
Step 3: Inform policy choices

5. State tax incentive evaluation ratings

6. Evaluation example: Alabama

7. Group activity
You’re presented with a proposal for a new tax incentive. The sponsor of the proposal says it will create high-quality jobs. What do you want to know before you decide whether to vote for it?

8. Three questions to answer before creating new tax incentives
Does the incentive have a clear and measurable goal?
Is the incentive designed to meet the goal?
How will we know if we are making progress toward the goal?

9. #1: Does the incentive have a clear and measurable goal? Goals should…
Be placed in the context of existing incentives
Be placed in the context of the state’s economic development strategy
Explain the logical link between the tax incentive and the desired economic outcomes

10. #2: Is the incentive designed to meet the goal
#2: Is the incentive designed to meet the goal? Research suggests incentives are more effective when…
Businesses create high-paying jobs
Benefits are targeted to export industries
Local unemployment is high
Customized job training is included

11. #2: Is the incentive designed to meet the goal? Considerations include…
Due diligence
Performance standards
Performance monitoring
Fiscal protections

12. #3: How will we know if we are making progress toward the goal
#3: How will we know if we are making progress toward the goal? Lawmakers can…
Require that the incentive be examined regularly
Ensure evaluators have data and other resources
Establish legislative hearings on evaluations

13. “Sunrise” process options
Detailed analysis of particularly significant proposals
Committee policies for new tax incentives
Performance statements or questionnaires

14. Detailed upfront analysis: Arkansas

15. Committee policies: Virginia

16. Committee policies: Virginia (cont.)

17. Questionnaire: Georgia

18. Questionnaire: Georgia (cont.)

19. Discussion questions
What are your sources of information when considering new tax incentives? Do you have the information you need to make decisions?
Do your committees have specific policies for considering tax incentives? What has worked well and what hasn’t?
Are there particular characteristics of incentives that you’ve found leads them to succeed? Are there pitfalls that should be avoided?