Should Alaska Measure Results of Tax Incentives When it Gives Them?

Many states give tax incentives to industries and companies to entice them to move to their state and hire locally and invest in their state. For example, there was much talk about film industry tax credits during the last legislative session. Many of these discussions centered around what do they bring to the state, how many jobs are created for Alaskans, and are we really giving money to an industry that fights resource development. The real question should be: do credits of this type really work and do they provide good jobs for Alaskans? How do we connect policy (legislation) with a return on the taxpayers’ investment?

The Pew Center on the States has recently completed an evaluation of all 50 states and the District of Columbia and rated them according to the following criteria: (1) is evaluation of the incentives built into legislation and budget decisions, (2) are all tax incentives reviewed regularly for impact on economic development, (3) is the economic impact measured by using proper data and analysis, and (4) are these incentives achieving the desired goals. Unfortunately, Alaska meets none of these criteria and is rated as “falling behind”.

Many times, the economic impact is exaggerated by both the tax credit beneficiary and the state doling out the credit. For example, in Minnesota the Department of Employment and Economic Development estimated that each job created through an incentive program cost the state about $5,000. However, the Legislative Auditor’s Office estimated the cost to the state somewhere between $26,900 and $30,800. As one can see, the economic impact should be based on evaluation of objective data by an office removed from the department responsible for the tax incentive. (read more…)