Policymakers Lack Firm Grasp on Business Incentives
KANSAS CITY, Mo.—A new report from The Council of State Governments has found many state policymakers don’t have an accurate accounting of the cost of their state incentive programs, even though states spend billions of dollars on tax and financial incentives with the hope of spurring job growth.
Policymakers also don’t have reliable evaluations of how those programs are performing, according to the report, released Sept. 22 during the 2013 CSG National Conference.
“Most states make significant investments in business incentives but we’ve found most states don’t have a good handle on what that investment is buying,” said David Adkins, CSG’s executive director/CEO. “For a state’s economic development strategy to succeed, we recommend plans that reflect both executive and legislative input. Governors should have clear goals and legislators should share ownership of a state’s business promotion strategy.”
The report is the result of discussions by a working group that met several times over the past year. Kansas Sen. Jay Emler, the 2012 CSG chairman, created the working group to take a closer look at how states are using business incentives and where they fit into a larger discussion about economic development.
“It is our desire that this document not become one of those reports that sits gathering dust on some shelf,” said Emler. “The working group hopes legislators, economic development practitioners and private sector companies make this a living document that provides guidance to everyone and helps to advance all economic development.”
The working group, which was designed to bring together a number of key stakeholders who represent a diverse set of perspectives, was tasked with investigating how states could move toward a more cooperative, informed approach to economic development.
The report provides a background of the current use of business incentives by states, as well as key observations of the working group. Working group members hope the insights found in this report will encourage state leaders to take a thoughtful, open look at their own state incentive programs and look for ways to improve.
“Far too often states are competing for a business whose relocation decision is not significantly impacted by the business incentives offered. Investments in education and cultural resources may actually do more to influence the decisions of CEOs,” said Adkins.
“Approaches in which states cooperate to promote the strengths of a region show greater promise than the ‘go it alone’ strategies many states pursue,” he said. “Most states recognize that the best business incentives are focused on growing firms in place. It is often easier to grow your own than lure a business to a state.”
Key findings from the report:
The cost of incentives—state leaders are in the dark: State policymakers don’t have an accurate accounting of the most basic of information about their state’s incentive programs—the cost.
Solid evaluation of existing programs is lacking: In addition to comprehensive cost estimates, reliable evaluations of the performance of existing programs are not available to policymakers, which are needed to make informed, data-driven decisions.
Missed opportunities: While a well-designed and well-evaluated incentive program may be effective, relying on incentives as a primary economic development strategy could mean alternative methods are ignored.
Bidding wars: Is there a better way? Given the potentially negative effects of bidding wars, finding alternatives should be a goal of state leaders.
Increasing interbranch communication: Regular conversations across the legislative and executive branches are needed to ensure that practitioners have the tools they need to effectively implement policies and so that legislators maintain real-time insight as to how their policies are functioning.
Public transparency: Just as policymakers need information about business incentives to make informed decisions, the public needs information about how its government is functioning to remain engaged in the democratic process.
Members of the working group are Georgia Rep. Katie Dempsey, Delaware Rep. Helene Keeley, Leigh Felton, assistant director of Business Services Division of the Washington Department of Commerce; Gynii Gilliam, chief economic development officer for the Idaho Department of Commerce; New Jersey Assemblyman Reed Gusciora, New York Assemblyman Robin Schimminger and Hawaii Rep. Kyle Yamashita. It also included members from the private sector, Daniel B. Garry, public affairs with 3M Company; Richard Leadbeater, Global Solutions manager of Esri, Inc.; Nathan Mick, vice president, StateBook International, and Charlie Williams, consultant with Intuit.
The Council of State Governments is our nation’s only organization serving all three branches of state government. CSG is a region-based forum that fosters the exchange of insights and ideas to help state officials shape public policy. This offers unparalleled regional, national and international opportunities to network, develop leaders, collaborate and create problem-solving partnerships.