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Editorial: States should do more to evaluate tax breaks

The Herald-Dispatch editorial

Incentives and tax breaks play an important part in most state and local governments’ efforts to attract business. This region recently saw that at work with the announcement last month that Braidy Industries plans to build an aluminum mill in the South Shore, Kentucky, area about 15 miles northwest of Ashland and 30 miles west of Huntington. Gov. Matt Bevin had convinced the Kentucky General Assembly to set aside $15 million for him to help persuade the company to locate in the area.

Considering the company plans to invest $1.3 billion for the plant and expects to hire 550 workers at the plant making an average of $70,000 a year, the outcome appears to be a good deal for Northeastern Kentucky.

But what about corporate tax breaks overall? Are they effective tools for economic development and do taxpayers sometime foot the bill for tax giveaways that don’t yield a sufficient return on the investment?

That’s a question that the Government Accounting Standards Board wants state and local governments to answer – at least in part. The GASB, a private, non-governmental organization, establishes the generally accepted accounting principles used by state and local governments in the United States.

In 2016, GASB adjusted its guidelines to require reporting of economic development tax breaks, meaning state, local, county and township governments are now instructed to include in their annual reports information on their tax abatement programs. That includes how many such deals they had going, the amount of tax revenue foregone and the value of any non-tax commitments.

Watchdog groups say the new requirement is an important step in determining whether such incentives are a good investment for taxpayers, and we agree. Taxpayers should have access to detailed information about tax breaks given to businesses. It also would behoove state and local governments to go a step further and determine whether the businesses receiving the incentives have lived up to their end of the bargains. Did they actually invest as much money as they said they would? Did the economic benefits match the incentives allowed?

The report said West Virginia was lacking because it has not adopted a plan for regular evaluations of tax incentives, it only evaluates four specific tax breaks once every three years but does not study others, and it does not evaluate a $24.5 million-a-year property tax break designed to encourage expansion of manufacturing facilities. Kentucky also does not have a plan for regular evaluations, even though its Kentucky Business Investment Program has handed out hundreds of millions of dollars in incentives.

The new GASB accounting rule is an important first step in informing the public about the extent of corporate tax breaks, but West Virginia and Kentucky also need to establish mechanisms for consistently evaluating whether those incentives have paid adequate dividends. And those evaluations also should be accessible to the public.

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