Big job ahead for state economists in assessing business incentives
The University Research Center and its economists are accustomed to analyzing the effectiveness of incentives for specific economic development projects.
They are about to enter some more challenging analysis territory. The Legislature is on the verge of requiring periodic evaluations of the value of tax credits, sales tax rebates and other incentives the Mississippi Development Authority uses to bring business into the state, retain other business and help ones already here expand.
“We’ve already done quite a bit of analysis but it’s on a case-by-case basis,” said Bob Neal, a senior state economist with the University Research Center.
“We’ve also looked at some of the incentives before they’ve become law,” he added. “We’ve had input into changing the structure of some of the incentives.”
“But regular appraisals of the costs and benefits of the individual incentives? We’ve never done that.”
It’s a practice the Pew Center on the States recommended Mississippi adopt after the center in spring 2012 released a state-by-state review of methods for assessing the effectiveness of tax incentives for economic development. The Pew Center report put Mississippi in with 28 other states it described as “trailing behind” other states in the scrutiny given tax incentive packages.
The 29 states, Pew contended, had made no effort to determine the true returns their states are gaining from tax incentives granted businesses in exchange for promises of jobs and capital investments.
Neal said he doesn’t think the Pew report was entirely on target in assessing Mississippi. “It sounded like they were unfairly indicting the model we were using.”
That model is used for the project-by-project evaluations the state performs, he said in an April 2012 interview.
Neal at the time said he looks to ensure the state is not providing more incentives than the economic activity the new business is providing.
“I do an initial run on the project absent any incentives,” he said, and noted he next adds up the incentives based on their expected cost to the state.
The bills that have unanimously passed the House and Senate — Rep. Brad Mayo’s HB1365 and Sen. David Blount’s SB2640 — largely mirror a bill Blount introduced last year that passed the Senate but died in the House. Early versions of the bill were so broad “we can’t actually do it,” Neal said his department told House leaders.
“We would have had to double our staff here to do that job. They rewrote it (for this year) to be specific enough we could actually do it. We have worked with the sponsors since then,” Neal said in an interview last week. “They have further addressed some of our concerns…. We’re on board.”
Neal said a challenge will be to overcome the problem of determining the value of an individual incentive when packaged with other incentives. “By evaluating individual incentives you are assuming no other incentives were offered at the same time.”
But if two incentives were put in place, one may have provided all the benefits and the other none of the benefits, Neal said.
The job is made even more challenging by the mix-and-match approach Mississippi uses in its incentives packages, a method that gives the MDA flexibility to design incentives for a specific company’s mission and operation, according to Neal.
The economist said he thinks credible assessments can be made, nonetheless.
“If the bill is passed and implemented, I think we can find a way to proxy the division” of incentives,” he said.
“Even if it is an imperfect evaluation, it’s still a good idea.”
Blount, a Jackson Democrat, said he is confident the conference committee will pass a version of a final bill.
The idea, Blount said, “is to make sure the incentives awarded by the state are in the best interest of taxpayers.”
He said the bills should lead to more public information on the effectiveness of specific incentives – something “which is not being done.”
Mayo said he expects the final legislation will be an effective way “to ferret out” incentives that are no longer worthwhile or that were not worthwhile in the first place.
The Mississippi tax code, Mayo said, is littered with incentives for businesses that maybe were smart at the time but we have gone through evolutions” as businesses and industries change.
“I hope this shines some light on” the outdated incentives in the state’s tax code, the Oxford Republican said.
“My expectation,” Mayo said in an email follow-up to an earlier interview, is that the evaluations “will validate our large projects and allow for modernization of our tax code.”
Voters ultimately hold Mississippi’s governor and legislators accountable for incentive agreements, Mayo said. “This legislation would bring another level of confidence to lawmakers who are putting their votes on the line for projects.”
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