PhillyInc: Sniffing at the sorry state of tax incentives

Posted: April 16, 2012

A new report by the Pew Center on the States takes aim at how states use tax incentives to convince and cajole businesses to expand, relocate or just plain hire more people.

It’s like shooting marlin in a coffee can.

The point Pew makes is a familiar one: Officials in all 50 states spend billions of dollars annually on tax incentives, but half cannot say with any precision whether it’s money well-spent.

Researchers identified 13 states, including New Jersey, as “leading the way” in assessing their economic-development programs and evaluating their impact. Still, no state was held up as the beacon of transparency for all to emulate.

As for Pennsylvania and Delaware, both placed in a 12-state group seen as having “mixed results” in matching intent with reality. Not great, but better than being labeled as “trailing behind” by Pew.

Delaware got kudos for being one of just nine states to undertake regular reviews of all of their incentives. The First State performs its review every two years, while Arkansas, California and Nebraska do so annually.

Despite Pennsylvania’s not-horrible ranking, the Pew report, called “Evidence Counts,” didn’t have much good to say about the state’s review process. It focused on the state’s Keystone Opportunity Zone program, which was begun during the Ridge administration and provides up to 12 years of tax relief to companies that locate in often-blighted areas.

The state Department of Community and Economic Development (DCED) said in 2007 that the KOZ program had created “nearly 64,000 jobs” since 1999. A year later, the agency lowered that estimate to “less than 35,000,” the Pew report says, and quotes a legislative committee report that said neither figure was reliable.

An Inquirer analysis in 2011 of the original KOZs in the Philadelphia area found little rejuvenation in blighted neighborhoods and just $6.3 million in added property tax revenue. The article also noted that there was very little hard data on whether the program was effective.

A December 2010 report, called “Show Us the Subsidies” by the nonprofit Good Jobs First, also criticized the reporting by states on their economic development programs, noting that it often omits information that could help determine if they’re effective.

Finally, a 208-page report in June 2010 by Pennsylvania’s Legislative Budget and Finance Committee highlighted one Stone Age problem: The DCED still relies on paper files rather than a computer-based record-keeping system. Another hitch is that nearly all job creation and retention data is self-reported by companies, with no effort made by state officials to verify the information.

Because states are showing no inclination to reduce their economic development incentives, the least we as taxpayers should expect is a clear accounting of the outcomes — good or bad — from such investments.

Earnings

We’re just at the start of earnings season, so not many companies either based locally or with significant operations here are scheduled to report. On deck this week are:

Monday: M&T Bank.

Tuesday: Fulton Financial, Johnson & Johnson.

Wednesday: Crown Holdings, eBay, Harleysville Savings Financial, PNC Financial Services Group, Quest Diagnostics, SLM.

Thursday: Bank of America, DuPont, Gardner Denver, Penn National Gaming, Southwest Airlines, Verizon Communications.

Friday: General Electric, Kimberly-Clark, National Penn Bancshares.

Annual meetings

Spring is also the time for annual shareholders meetings. Here are the handful of local companies set to hold theirs this week:

Monday: Prophase Labs.

Tuesday: Public Service Enterprise Group, Univest Corp. of Pennsylvania.

Wednesday: Innovative Solutions & Support Group.

Contact Mike Armstrong at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, “PhillyInc,” at www.phillyinc.biz.

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