Economic Development Incentives Under Fire as Local and State Government Budget Deficits Grow

Reprint from the International Economic Development Council (IEDC)

Ashtabula County must use public tax dollar incentives carefully! Please read this national overview on incentives.

Economic development tax incentives continue to grab headlines, especially in states where their use is contributing to sizable budget deficits(Wall Street Journal). This is due in part to uncertainty about how much will be paid out and when. Michigan, for example, is currently facing a $325 million shortfall in its general fund after tax credits were cashed in unexpectedly.

The situation in Oklahoma is similar, as the state issues approximately $1.7 billion in incentives yearly (according to the state speaker of the house) and now faces a $300 million budget gap.

The Governmental Accounting Standards Board (GASB) has received mixed feedback on its recent proposal which would compel states to report corporate incentives as lost income (Governing). Much of the feedback favored increased scrutiny; however, several organizations representing state and local governments, such as the International City/County Management Association, the National League of Cities, and the National Association of Counties, objected to the fact that GASB’s proposed standards do not take into account incentives’ return on investment. These echo IEDC’s comments to GASB (PDF), which also noted that the new guidelines single out economic development incentives and do not provide equal scrutiny to other forms of tax credits state and local governments offer.

Ellen Harpel of consultancy Smart Incentives argues that a single omnibus report is not ideal for disclosing incentive information and instead offers three alternative ways in which incentive disclosure could be improved: 1) Make basic information easily accessible to the public and update on a regularly scheduled basis; 2) provide an annual report summarizing incentive costs and achievements; and 3) conduct program evaluations to generate dialogue between government and stakeholders.

Other Incentives News: Washington and Boeing’s mega-deal to build the 777X widebody aircraft in Everett is being challenged by the World Trade Organization, which argues the deal creates a “massive disadvantage” for European aircraft makers (Seattle Times).

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