Credits and incentives related to economic development in Florida now face a three-year rotating review schedule to ensure the programs are providing effective results, according to a new article by State Tax Law Editor Rebecca Helmes in this week’s issue of the Weekly State Tax Report.   

Florida's review and analysis of each program must include the economic benefits of the program for the previous three years, including the number of jobs created, the increase or decrease in personal income, and the impact on state gross domestic product from the direct, indirect, and induced effects of the state's investment in the credit and incentive program. The review program was implemented by S.B. 406, enacted on May 20, 2013.

The first round of incentives evaluations are due by Jan. 1, 2014. Some of the programs that will be analyzed include the capital investment tax credit, the qualified target industry tax refund, and the brownfield redevelopment bonus refund, among others.

The Office of Economic and Demographic Research and the Office of Program Policy Analysis and Government Accountability (OPPAGA) must submit a work plan for completing the Economic Development Programs Evaluation to legislators by July 1, 2013. Completed evaluations will include information about the incentives' effectiveness and recommendations on each program for the legislature to consider.

Not Just Giving Out Dollars

Florida state Sen. Dorothy Hukill, who saw the bill through conference committee, said the legislature made the three-year rotating review schedule in the interests of accountability and transparency. Hukill noted that many times the state outgrows certain credits or incentives because the needs of education, the workforce, or the market change.

The law requires that credit and incentive information—such as who received state tax money, and what they're supposed to be doing with it—be put on a state website so that the public can review the information. The state organizations that provide the reviews are to determine and adhere to a uniform model evaluation method.  

According to Hukill, the state has to strike a balance in making businesses jump through hoops to get tax incentives but not tie their hands.

The state has to be able to show people there was a reason that the state structured the credits in a certain way, Hukill said. “The best of intentions may fall short. If it's not working, why? Do we rehabilitate it or do we get rid of it?”

Returns on Investments   

States want to make sure that the credits and incentives they provide are commensurate in value to the company's investment, said Don Roveto, managing director at Alvarez & Marsal Taxand in New York. At the same time, there is mounting pressure with states falling under tight budgets to question whether they should be offering credits and incentives and whether they are worth it.  

The states that are perceived to do a good job with incentives have strict and clear requirements that are easy to understand, Roveto said, including clawback provisions, which provide some kind of restitution for states if the incentive recipient does not hold up his end of the bargain.

As the public questions the effectiveness of tax credits, states are forced to be more accountable, according to Alejandro Joya, managing director at Alvarez & Marsal Taxand in Florida.

Joya said increased oversight of credits and incentives is a trend that is going to “pick up steam.” Some oversight provisions were already in place in Florida, and he thinks this law may help the general public understand credits and incentives and to fight the perception that they are awarded in back room deals or to special interest groups.   

“I think at the end of the day everybody has to have these programs,” Joya said, to stay competitive with other states.