With state revenue levels just beginning to recover from the Great Recession, responsibly stewarding every public dollar is imperative and ensuring state incentive programs – especially tax incentives – are garnering a return on investment is increasingly a concern for state officials. New research out by the Pew Center on the States finds that 13 states are leading the way when it comes to examining and evaluating their business incentive programs.

States use a number of strategies to make sure their investments are paying off, like specifying qualifications for benefits, maintaining a rigorous approval process, instituting clawback provisions, using sunset rules, and performance audits, but some states have more sophisticated oversight measures than others in place. Having a clear and comprehensive evaluation system in place is one of the most important components of a succesful oversight  program.

Pew reviewed nearly 600 documents and interviewed more than 175 government officials and experts in an effort to gauge how well states evaluate and oversee the effectiveness of their tax incentive programs. When ranking the states, Pew examined the effectiveness of each state’s evaluations, focusing on whether, and to what degree, they do the following:

1. Inform policy choices
2. Include all major tax incentives
3. Measure economic impact
4. Draw clear conclusions

According to Pew, no state does a perfect job of overseeing their business incentive programs. Some may regularly and rigorously test and evaluate certain programs, but not on a regular basis. Others may do so regularly, but fail to take steps to integrate what they learn from evaluations into policy and budget deliberations or only evaluate a few programs. Other states have only the most basic oversight or evaluation systems in place.

Pew took both scope and quality of states’ evaluations into consideration in their program assessments. Evaluating scope meant looking at whether the state evaluated all its major incentives (instead of only a select few programs) and whether the state sought to ensure that the evaluation results informed policy decisions.  When Pew reviewed quality, it assessed whether a state’s evaluation thoroughly examined the economic impact of an incentive and if the evaluation drew clear conclusions about whether it achieved the state’s goals and how it could be improved.

Based on these areas of assessment, Pew identified 13 states that are “leading the way” at meeting both criteria for scope of evaluation and/or both criteria for quality of evaluation, 12 states that have mixed results and 25 states plus D.C. that are falling behind. To learn more about these rankings, visit the Pew report, Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth.  To see an overview of state business incentives, visit CSG’s report, State Business Incentives: Trends and Options for the Future. 

Graphic Source: The Pew Center on the States