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Sunday, July 7, 2013

Corporate welfare accountability improved by Tanzi bill

Lawmakers call for deeper analysis of business tax incentives
STATE HOUSE – The General Assembly passed part of the Senate and House economic development packages today with the approval of legislation that would insert more accountability into the state’s handling of tax credit programs.

Sponsored by Senate Finance Chairman Daniel Da Ponte (D-Dist. 14, East Providence) and Rep. Teresa Tanzi (D-Dist. 34, South Kingstown, Narragansett) in the House, this legislation (2013-S 0734B, 2013-H 6066B) provides a systematic approach for evaluating whether the state’s tax incentives are truly fulfilling their intended purpose in a cost-effective manner through data collection and a comprehensive assessment.

“In order for state government to be truly effective in serving Rhode Islanders, the legislature needs to be presented with more economic data,” Senator Da Ponte said. “Otherwise, it’s impossible to craft the most useful policy and adapt to an ever-changing economic climate. This bill not only inserts more accountability in our budget and policymaking processes, but also ensures that state dollars are being channeled into incentives that are actually working to the taxpayers’ advantage.”

The proposed tax incentive evaluation would include:
  • The number of aggregate jobs associated with the taxpayers receiving the incentives;
  • The aggregate annual revenue taxpayers generate for the state through the direct taxes applied to them and their employees in relation to the incentives;
  • Statutory and programmatic goals of the incentives;
  • The number of taxpayers granted the incentives during the previous year;
  • And the value of the incentives listed by the North American Industrial Classification System (NAICS) code associated with the taxpayers receiving such benefit, if available.

For each evaluated tax incentive, the governor’s budget submission shall include a recommendation as to whether the tax incentive should be continued, modified or terminated.

The analysis would also consist of a five-year projection of the potential impact on the state’s revenue stream, the costs to the state associated with those incentives, an estimate of how many benefits of the tax incentives remained in state borders, and whether General Assembly action would facilitate data collection in a way that would allow for better analysis of the economic investments.

“All states rely on incentives – whether they are tax credits, deductions or exemptions – to lure businesses to their communities and to encourage companies to take that leap and further invest in their expansion, employees or production capabilities,” Representative Tanzi said. 

“So when it comes to creating and exploring those incentives, Rhode Island should be mindful of all the variables at play. For that, we need our governor and state agencies to communicate with each other and provide the necessary information so we can all make informed decisions together.”

The legislation also calls on the director of the state Office of Management and Budget to prepare a comprehensive review and inventory of all reports from the executive office and other state agencies filed with the General Assembly.

It provides that this inventory be presented to the state legislature as part of the annual budget submission. Further, the act calls for a cost-benefit analysis be incorporated into the unified economic development report, which the Office of Revenue Analysis prepares each year.