Incentives Watch: Best Practices for Evaluating State Economic Development Incentives Being Developed As Part of Pew Initiative

In this interview, Jeff Chapman, Manager of the Economic Development Tax Incentives Project at The Pew Charitable Trusts, discusses the recently launched Business Incentives Initiative.  The Pew Charitable Trusts is working with the Center for Regional Economic Competitiveness, an independent nonprofit organization, on this initiative to develop methods to effectively evaluate state economic development incentives. 

Mr. Chapman notes the current lack of data necessary to properly evaluate state incentives; thus, a goal of the initiative is to increase data collection and reporting overall.  In the end, the results of the initiative will “pave the way for the development of a set of best practices that can be put to use by states around the country,” says Chapman.

Seven states were selected to participate in the initiative, including Indiana, Louisiana, Maryland, Michigan, Oklahoma, Tennessee and Virginia.

Indiana recently enacted legislation requiring the Commission on State Tax and Financing Policy to review all of the state's tax incentives every five years.  The purpose of the review is to ensure that the tax incentives are meeting their intended goals and that their costs are being included in the budget process, so that the legislature can make more informed policy decisions about them.

Other states, including Maryland, Rhode Island and Washington, also review the tax incentives offered in their jurisdiction, notes The Pew Charitable Trusts.  Despite these efforts, states continue to struggle with accurately measuring the effectiveness of their incentives. 

Bloomberg BNA:  What is the purpose of the Business Incentives Initiative?

Chapman:  The initiative will enhance states’ capacity to collect, analyze, and report data on their business incentives.  This will greatly improve the ability of decision-makers to craft policies that deliver the strongest results at the lowest possible cost.
This initiative builds on the Pew’s ongoing project to help state policymakers implement ongoing evaluation of economic development incentives.  As states work to measure the effectiveness of these programs, they often find they lack the data needed to determine whether an incentive is producing the expected outcome.  Further, there is currently no source that has identified and compiled the best practices on how to overcome this obstacle.
Pew joined with the CREC’s team of economic development experts to fill that gap.  We will first work intensively with key decision-makers in seven leading states and then hope to apply what we have learned to help other states across the country.

Bloomberg BNA:  How was it determined which states would be participating in the initiative?

Chapman: The seven states we will be partnering with are Indiana, Louisiana, Maryland, Michigan, Oklahoma, Tennessee and Virginia.  These states have committed the time and creativity of top decision-makers, including those that manage economic development programs, oversee revenue collection, and direct the state budget process.
In order to develop best practices for business incentive data, we knew it would be essential to work with key decision-makers from state government.  We invited all states to submit proposals to be part of the initiative.  Each proposal outlined innovative efforts the state is currently undertaking, as well as recognized opportunities for improvement.  States were selected on the basis of their commitment to the initiative as well as their ability to contribute to the development of a roadmap for other states.

Bloomberg BNA:  How will the initiative’s results be used?

Chapman:  We will be working intensively with the seven selected states to develop and implement tailored solutions to the challenges they face in this arena.  In addition, there will be a heavy focus on cross-state dialogue throughout the initiative.  This work will pave the way for the development of a set of best practices that can be put to use by states around the country.

Bloomberg BNA:  What is the time line for the initiative?

Chapman: We will work with the seven states through 2014 to identify best practices and potential reforms.  In 2015, we will provide technical assistance as they seek to implement these reforms as well as provide training to additional states.  Beyond this initial phase, we anticipate continuing to work with states to ensure economic development policies are based on evidence.

*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn : Should a review of tax incentives be required in all 50 states?

For more information about state tax credits and incentives, check out Bloomberg BNA’s Credits and Incentives Portfoliosby signing up for a free trial of the Bloomberg BNA Premier State Tax Library.

Interviewed By: Kathleen Caggiano

Follow Kathleen on Twitter at:  @katcaggiano .

Follow Bloomberg BNA on Twitter at: @BBNATax .