Economic development tax expenditure accountability and control: The problem and some proposed solutions

This article addresses the following tax expenditure topics as they relate to ‘economic development’ activities: (a) purposes to be served, (b) resultant benefits, (c) measurement of the results, (d) reports to the public, and (e) acceptability of ‘off budget’ spending. Tax abatements and credits not related to economic development are not within the scope of this work. The usual purposes stated for economic development are relatively straight forward-to create wealth, in the economic sense of the term, for a targeted community. This article discusses how interjurisdictional competition, expediency and political activity associated with tax expenditures can often negate the value of these programs. It further examines what is known from current research conducted in both the academic and governmental communities pertaining to the effectiveness or lack of effectiveness associated with tax expenditures. A major theme of the article pertains to accountability for use of funds expended through tax abatements. The appropriate role of the Government Accounting Standards Board (GASB) and current research about public reporting of these expenditures are discussed in detail. Generally accepted reporting practices of similar expenditures are identified and the current lack of uniformity in reporting tax expenditures is also discussed. Finally, recently enacted legislation which requires tax expenditure reporting by New York State is discussed, and legislation currently pending before the New York State Legislature which may improve accountability for tax expenditures in connection with economic development activities is presented. This discussion may be helpful to officials in other states.