Evaluating Tax Credits

Tax credits are in the public eye more and more these days, promoted as the way to get state economies back on track and grow jobs. Yet too often credits are not evaluated to see if they deliver on their promise.  Previously I blogged about a series of reports on tax credit evaluation from Good Jobs First.  Now the Pew Center on the States has released a report titled Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth. 

Pew used four criteria to evaluate how well states evaluate tax credits:

• Are the evaluation results built into policy and budget deliberations?
• Are all major tax incentives evaluated regularly?
• Does the evaluation ask and answer the right questions using good data and analysis?
• Does the evaluation draw clear conclusions about the tax credit?

So, how does Maryland fare?  Not well.  Pew found that Maryland failed to meet any of the four criteria for good tax credit oversight.  Maryland thus fell into the category of states trailing behind national trends in evaluating tax credits. 

The General Assembly moved in the right direction this session by passing two bills improving oversight of tax credits.  The Tax Credit Evaluation Act (SB 739/HB 764) establishes a periodic review process for some tax credits, which sets a precedent for evaluating other tax credits in the future.  Senate Bill 1086 (HB 1456) requires taxpayers claiming certain business tax credits to do so electronically, thus making oversight and data analysis easier for the Comptroller's office and others.  MBTPI supported both bills, and both now await the Governor's signature.

Maryland subsidy programs score B- in national study

Maryland is fourth in the nation when it comes to enforcement mechanisms for economic development projects that fail to meet their performance objectives, according to a report out today from Good Jobs First (GJF).  However, there is still work to be done as Maryland only achieved a B- grade.  This new report comes a month after GJF ranked Maryland fifth in terms of subsidy performance and job quality standards.

Subsidy enforcement mechanisms are a timely topic in Maryland, as several programs have been in the news recently.  Officials with the Department of Business and Economic Development (DBED) testified yesterday in front of the Senate Budget and Taxation Committee about two programs, InvestMaryland, and the Job Creation Tax Credit, which are intended to spur innovation and job growth.  On Monday, Lieutenant Governor Brown highlighted a proposal that will be in Governor O’Malley’s budget released later today; Health Enterprise Zones (HEZ’s).  Similar to Maryland Enterprise Zones, HEZ’s would provide financial incentives to doctors and clinics that set up shop in areas with poor health outcomes (usually poor rural or urban areas).  The House Ways and Means Committee may also revisit the Tax Credit Evaluation Act, which would require tax credits to undergo a cost-benefit review every five years.  The bill died in the Senate last year.

Narrowing the health outcome gap is a laudable goal, as are job creation and spurring innovation.  However, as the GJF reports highlight, accountability standards and enforcement mechanisms are key to the success of any subsidy program.  DBED is rolling out a database that is a step in the right direction, and passing the Tax Credit Evaluation Act would be another.  Maryland should continue to improve its subsidy programs, to the benefit of all Marylanders