Comptroller Lembo Urges Enhanced Analysis Of Economic Development And Job Creation Programs
Tuesday, March 22, 2016 |
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Comptroller Kevin Lembo, in testimony submitted to the state
legislature’s Finance, Revenue and Bonding Committee today, said that businesses
and all taxpayers deserve the most efficient and effective analysis of whether
hundreds of millions of dollars in economic incentives provided to businesses
are fulfilling their intended purpose.
Current law requires that the state Department of Economic and Community
Development (DECD) submit a report to the Finance Committee every three years to
assess the economic and fiscal impact of the state’s tax credit and abatement
An Act Concerning Municipal Taxing Districts, the Sales Tax, the
Apprenticeship Tax Credit, Certain Fees and the Tax Credit Report would,
among other things, improve this reporting process. The proposed changes would
streamline the process, focus more emphasis on the most useful data, shift the
analysis to a state office other than the one that oversees the program in order
to assure the most unbiased reporting and it would increase legislative
oversight and input from stakeholders, Lembo said.
"The state provides hundreds of millions of dollars in tax credits to
Connecticut businesses every year," Lembo said. "These various tax credit
programs are designed to incentivize economic development and job creation. The
state owes it to businesses and all taxpayers to fully analyze the return on
investment that these sizable and important programs actually deliver in order
to assess whether such resources are fulfilling their intended purpose or, if
not, whether state funds would be better deployed to other economic development
or infrastructure investments.
"This legislation seeks to enhance the efficiency and effectiveness of
Connecticut’s assessment of these investments."
Lembo, who has successfully advocated for greater openness surrounding the
state’s economic development incentives, noted that legislation requiring
regular evaluation of the state’s tax credit and abatement programs dates back
to 2009. At that time, he said, Connecticut was one of the first states to
require regular evaluation of tax credit programs. Today, 20 states regularly
evaluate major economic incentive programs – and a review of other states’
evaluation criteria by PEW Charitable Trusts identifies certain areas in which
the state of Connecticut could improve its report by utilizing best practices
developed in other states.
Specifically, the legislation would streamline the report requirements, transfer
some of the reporting responsibilities to the Office of Program Review and
Investigations (PRI) and require legislative committees to hold hearings to
discuss the results of the evaluations and receive input from stakeholders.
It would give PRI the primary responsibility for authoring the report, including
evaluating the efficiency and effectiveness with which the programs are being
administered, recommending whether each tax credit and abatement should be
continued or expanded and providing recommendations on improving the
effectiveness or efficiency of administration. DECD would continue to provide
the data and economic modeling required by PRI to complete the report.
"The changes allow a well-respected independent office to evaluate the
performance of tax credits and abatements and the administration of the programs
that award them,” Lembo said. "DECD has done an admirable job in providing an
unbiased analysis of the programs it oversees, but it can be challenging for an
agency to fairly evaluate the programs it promotes and administers."
Lembo said that, of the states that require regular evaluation of their tax
credit programs, only two charge their economic development agency with
performing the evaluation and recommending potential changes.
"An unbiased assessment of the performance and administration of tax credit and
abatement programs has in other states resulted in opportunities for savings,"
Lembo highlighted an example in New Jersey where it was discovered that the
administration of an Urban Enterprise Zone program involved 135 state employees
at an estimated annual cost of $6.4 million.
"Assessing both the impact of tax credit and evaluation programs and the
efficiency of their administration will help our state make better decisions in
the future to ensure that we are getting the best return on the investments we
make in economic development initiatives,” Lembo said.
The legislative change also seeks to simplify the requirements of the triennial
report, Lembo said. Connecticut’s report currently requires more specific data
points than most other states.
"A streamlined report, relieving some of the administrative costs, should
focus on the most pertinent information, like the economic impact of each
program, the extent to which it is meeting statutory and programmatic goals and
the efficiency with which the program is being administered," Lembo said. "In
the last two reports, DECD has not fulfilled all of the statutory report
requirements, noting that gathering all of the required data would require
significant administrative effort while providing limited utility to the
legislature and other policy makers. Removing unnecessary data requirements in
the report will reduce the burden on the entity charged with producing the
report while placing added focus on the most relevant data for policymakers to
make informed decisions about the future of the tax credit and abatement
programs evaluated in the report."
The legislation would also require that the legislature’s Appropriations and
Finance Committees hold a public hearing following the release of each triennial
report to publicly consider the report’s analysis and recommendations.
"Requiring a public hearing will ensure the analysis and recommendations
included in the report are fully considered by the legislature," Lembo said.
"Tax credits and abatements reduce tax revenue at both the state and local
level. It is essential that the committees that oversee the state’s tax and
spending policy fully review their impact and make informed decisions about the
continuation, expansion or elimination of each program.
"The changes will help our state make data-driven decisions about tax credit
and abatement programs, ensuring that we are focusing state resources toward
their highest and best use."
Lembo thanked the Finance Committee – particularly the co-chairs, state Sen.
John W. Fonfara and state Rep. Jeffrey J. Berger, as well as ranking members,
state Sen. Scott L. Frantz and state Rep. Christopher Davis – for raising this
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