North Dakota lawmakers will use interim study on incentives to improve oversight, policy

In 2015, lawmakers in North Dakota passed legislation (SB 2057) requiring the legislature to undertake an evaluation of 21 of the state’s tax incentive programs at least once every six years. According to Pew’s Business Incentives Initiative, North Dakota is one of 21 states (four in the Midwest; see map at right) that have passed laws since 2012 requiring regular evaluations of tax incentive programs offered by the state.

North Dakota’s evaluation assesses whether the program is achieving intended goals, such as job creation. It is conducted by a legislative committee, which then makes recommendations to legislative leadership. In assessing the effectiveness of incentives, lawmakers are also asked to compare the incentive with alternatives for achieving the same goals.

In 2016, the Interim Political Subdivision Taxation Committee conducted the first-ever formal review of 18 of North Dakota’s 36 tax incentives. The reviewed incentives included tax credits for energy projects, agriculture, telecommunications, manufacturing automation, and seed capital and angel fund investment.
According to the North Dakota Tax Department, the state’s incentive programs result in more than $30 million in exemptions to businesses annually. Rep. Jason Dockter, chair of the interim committee charged with reviewing the incentives, says the panel wanted to make sure taxpayers are getting value for their investment, especially in light of the state’s recent budget problems.
In response to this first round of evaluations, the committee approved several draft bills for consideration by the full legislature in 2017. Three of those bills would repeal three incentives due to a lack of use. The committee also drafted a bill that would repeal the state’s Angel Fund Investment Credit because of what Dockter calls a lack of transparency and what he says is considered a “misinterpretation of the law.” In recent months, this tax credit has fallen under scrutiny after lawmakers learned that nearly half of the funds intended to help start-up businesses in the state were actually going to out-of-state companies. 
The draft bill to eliminate the angel fund credit would also expand the state’s seed capital investment credit from $3 million to $15 million annually. Throughout the evaluation process, the committee addressed eight questions or criteria. These included whether the program had unintended consequences, whether the program can be improved, whether the incentive had a positive influence on business behavior that would not have occurred without the incentive, the effect of the incentive on the state economy, the employment opportunities generated by the incentive, and whether the incentive is the most effective use of state resources.
However, the committee sometimes found that its analysis was hampered by a lack of data and empirical information on the costs and benefits of the state incentives, Dockter says. As a result, the committee also has drafted legislation that would authorize the state to purchase REMI (Regional Economic Models Inc.) software that would help lawmakers conduct fiscal impact analyses of the incentive programs.
Two more interim committees will review the remaining incentives that need to be evaluated in the required six-year period established under the 2015 legislation.
“With budget constraints in many states, analyzing incentives has occurred and will be more popular in the future,” Dockter says.


Stateline Midwest: January 20174.53 MB