Throughout 2020, state governments re-evaluated their economic development incentive programs, sometimes replacing them entirely.
States who looked hard at their programs ended up improving their effectiveness at creating economic activity, according to Pew:
Even as the pandemic forced states to shift their policy priorities and grapple with the economic downturn during the 2020 legislative session, governments continued to enact major reforms to economic development tax incentives. And as more states across the country implement processes to regularly produce high-quality, rigorous evaluations of such programs, lawmakers increasingly use findings from these reports to inform policies that ensure that incentives are effective, accountable, and fiscally sound.
For example, New Jersey previously lacked a process to regularly evaluate its flagship economic development incentives. One-time incentive reviews published in 2018 and 2019 identified design, administration, and cost issues that guided several years of debate among policymakers and stakeholders. In December, lawmakers reached an agreement on how to replace these programs. The legislation creates and amends incentives for job creation and retention, real estate development, and other activities while addressing two weaknesses of the state’s old programs. First, it places an annual cost limit, or cap, on yearly award amounts for each program and limits their total costs for a six-year period. If the limit is not reached in the first six years, uncommitted credits may be authorized during a seventh year. Second, the largest programs are subject to biennial independent evaluations to study their effectiveness.
New Jersey’s preliminary reviews led to substantive reforms to the state’s incentive portfolio. In addition to the new incentive programs, legislators implemented a recurring evaluation process, taking initial steps to ensure that lawmakers have current information about how well incentives are achieving their intended goals. Experiences in other states can help New Jersey plan for its first evaluation under the newly established process, proactively address common issues, and build on its early success in connecting findings to policy change.