Friday, May 15, 2015

Oklahoma's new commission to evaluate economic development incentives: a potential model for other states?

As state and local government spending on economic development has ballooned in recent years (see the NY Times 2012 article on the subject here), there seems to be an increasing effort to encourage accountability.  One such accountability law is Oklahoma's "Incentive Evaluation Act," or HB2182, which was signed into law on April 27, 2015.  Full text here.  The Act defines an "incentive" as

a tax credit, tax exemption, tax deduction, tax expenditure, rebate, grant, or loan that is intended to encourage businesses to locate, expand, invest, or remain in Oklahoma, or to hire or retain employees in Oklahoma.

The Act has several notable provisions, but one I find particularly appealing is the establishment of a commission that is responsible for evaluating the effectiveness of economic development measures.  Here is the mandated evaluation required by the Act:

B. ...By December 15 of each year beginning in 2016, the Commission shall provide the results of each incentive evaluation in a written report to the Governor, President Pro Tempore of the Senate and Speaker of the House of Representatives. The report shall be made publicly available on the Oklahoma Department of Commerce website and

C. Each evaluation shall include the following:

1. An estimate of the economic and fiscal impact of the incentive. This estimate shall take into account the following considerations in addition to other relevant factors: a. the extent to which the incentive changes business behavior, b. the results of the incentive for the economy of Oklahoma as a whole. This consideration includes both positive direct and indirect impacts and any negative effects on other Oklahoma businesses, and c. a comparison to the results of other incentives or other economic development strategies with similar goals;

2. An assessment of whether adequate protections are in place to ensure the fiscal impact of the incentive does not increase substantially beyond the state's expectations in future years;

3. An assessment of whether the incentive is being administered effectively;

4. An assessment of whether the incentive is achieving its goals;

5. Recommendations for how Oklahoma can most effectively achieve the incentive's goals, including recommendations on whether the incentive should be retained, reconfigured or repealed; and

6. Recommendations for any changes to state policy, rules, or statutes that would allow the incentive to be more easily or conclusively evaluated in the future. These recommendations may include changes to collection, reporting and sharing of data, and revisions or clarifications to the goal of the incentive.

It will be interesting to follow how Oklahoma's commission evolves, what happens to incentives that receive a negative evaluation from the commission, and how the commission draws the lines on what is an "incentive" within the Act's broad mandate.  It will be especially interesting to see if the commission begins to consider land use-based incentives within its review, such as the creation of special districts, access to redevelopment funds for infrastructure improvements, and so on.

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