Tax Incentive Evaluations

O.C.G.A. § 28-5-41.1 (Senate Bill 6) provides for economic evaluations of tax benefits, such as credits, deductions, and exemptions. These evaluations may be requested by the chairperson of the House Ways and Means Committee or Senate Finance Committee.

FAQs

Why is the Department of Audits and Accounts (DOAA) evaluating tax incentives?

O.C.G.A. § 28-5-41.1 (Senate Bill 6) allows the chairpersons of the Senate Finance and House Ways and Means committees to request evaluations of tax provisions such as credits, deductions, and exemptions. The requests are submitted to DOAA, which has contracted with three universities to perform the evaluations.

What are the benefits of a tax incentive evaluation?

The evaluations are intended to provide objective information regarding an incentive’s impact on the state’s economy and budget. This information can help decision-makers and the public assess an incentive’s effectiveness and compare with other incentive programs.

Who determines which tax incentives are evaluated?

The chairpersons of the Senate Finance Committee and the House Ways and Means Committee select incentives to evaluate. Under O.C.G.A. § 28-5-41.1, each committee chair can select up to five tax incentives each year.

What types of tax provisions may be evaluated?

O.C.G.A. § 28-5-41.1 provides for analyses of tax exemptions, exclusions, deductions, credits, deferrals, rebates, abatements, and preferential rates. Each request shall address “one existing provision of law or proposed law.”

Who performs the tax incentive evaluations?

DOAA used the state’s standard Request for Proposals process to select the following contractors:

Georgia Southern University Center for Business Analytics and Economic Research (CBAER)
Georgia State University Fiscal Research Center (FRC)
University of Georgia Carl Vinson Institute of Government (CVIOG)

What is DOAA’s role in conducting the tax incentive evaluations?

In conjunction with the Department of Administrative Services, DOAA managed the identification and selection of contractors to perform the evaluations.

On an annual basis, DOAA defines potential conflicts of interest for contractors and secures an attestation of independence from each prior to assigning the incentives. DOAA also assists the contractors with data needs at state agencies as necessary.

With the contractors’ input, DOAA creates a general outline for the reports to improve consistency. DOAA reviews the research plan and report draft for each incentive and provides comments as needed. Final decisions about report methodology and report content are made by the contractors. Based on the contractor’s report, DOAA creates a one-page summary for each incentive evaluation.

What information is included in the contractor’s tax evaluation report?

O.C.G.A. § 28-5-41.1 requires the evaluations to include net change in state revenue, net change in state expenditures (including but not limited to costs of administering the bill), net change in economic activity, and net change in public benefit (if applicable). As part of these four items, contractors may include indicators such as cost per job or return on investment. Typically, the reports will also include a review of economic literature on the topic and similar provisions used by other states.

How do the contractors calculate economic impact/economic activity?

The models may vary by incentive, but the contractors frequently use IMPLAN. IMPLAN is an economic modeling system that estimates the impact, or ripple effect, of a given economic activity within a specific geographic area. If applicable, totals include the direct effect of the economic activity being incentivized, as well as the indirect effect of suppliers and the induced effect when employees spend their wages. The economic measures reported include jobs, labor income, value-added, and economic output.

The contractors also estimate the amount of the economic activity attributable to the incentive. For example, researchers estimated that 21% of low-income housing units built between 2000 and 2009 were due to the state’s low-income housing credit, so 79% would have been built without it.

Do the incentive evaluations consider non-economic impacts?

O.C.G.A. § 28-5-41.1 requires an evaluation of the net change in public benefits, if applicable. Public benefits are a policy’s effects on the broader society, outside of the economic impacts on the companies and individuals (e.g., employees) directly affected. Public benefits are generally more important for incentives without an economic development purpose (e.g., incentivizing behavior that benefits the environment or improves education).

Has DOAA performed any other tax incentive evaluations?

Here are the links to DOAA’s recent reports on tax incentives. While some reports address incentive impacts, others focus on their administration.

You can also search here and filter the Sector to Finance & Taxation and the Report Type to Performance Audit.

FAQs

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Reports – Tax Incentives for Businesses

Reports – Tax Incentives for Individuals