Legislation to evaluate economic development incentives

Governor Lincoln Chafee of Rhode Island signed a bill last week requiring evaluations of state tax credits and other incentives to determine whether the incentives “are fulfilling their intended purposes in a cost-effective manner.”  The Pew Center for the States has been advising state leaders on this effort and recently reported on it on the Stateline blog.

The bill lists 12 elements (44-48.2-5) that each analysis should include (but not be limited to): 

  • Number of aggregate jobs and aggregate annual tax revenue associated with taxpayers receiving the incentives
  • Goals and intent of the incentives
  • Number of taxpayers granted the incentive during the previous 12 months
  • Value of the tax incentive granted and claimed by NAICS code
  • 5-year projection of the potential impact on the state’s revenue stream
  • Estimate of the economic impact of the tax incentive
  • Estimated cost to administer the tax incentive
  • Estimate of the extent to which benefits remained within the state
  • Determination if better data is needed to allow better analysis
  • Assessment of whether clarification of the incentive’s goals and intended purpose is needed
  • Recommendation for the incentive to be continued, modified or terminated
  • Description of the methodology and assumptions used to conduct the above analyses

The Office of Revenue Analysis (within the Department of Revenue) would work with the Department of Labor and Training, the Economic Development Corporation and the Office of Management and Budget to conduct the evaluations.

The RI Department of Revenue has prepared some tax credit reports in the past, including a Unified Economic Development Report released in March 2013.   Many, but not all, of the required data points in this report are included above.  It appears that the new law supplements, rather than overrides, this required report.

The Office of Revenue Analysis has a tremendous task on its hands, and it will be interesting to see how the evaluation methodology develops.  Some of the complex issues include obtaining and verifying data (especially tax data), assessing which economic benefits stay within the state, timing of jobs (when to count, when to end), and, even, defining and then quantifying the goals of the different incentive programs.  

Rhode Island has taken an important step in requiring regular, rigorous evaluations, but the specific decisions it makes in implementing the evaluation will be just as important to generating a meaningful analysis.

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