They don’t have to produce fiscal uncertainty. States are finding ways to bring these important economic development tools under prudent controls.
By Susan K, Urahn | Governing
Every state uses financial incentives, often in the form of tax credits or cash grants, to encourage business growth and job creation. However, this economic development strategy has led to serious budget challenges in many states.
In May, for example, Michigan officials projected that because businesses were redeeming more in incentives than the state was collecting in corporate taxes, it would suffer a net loss in revenue from its major business taxes in the current fiscal year. Hawaii ended an incentive program for high-tech businesses in 2010 amid concerns about its effectiveness, but a 2015 audit showed that the state could still be on the hook for hundreds of millions of dollars because of prior incentive commitments. Oklahoma is unsure when businesses will use more than $400 million in tax credits the state offered, a situation that one official described in an interview with Oklahoma Watch as “a huge wild card” for the budget.
