Bill to weigh effectiveness of Indiana tax incentives

Every year, government agencies around Indiana dole out millions of dollars worth of tax breaks to businesses to encourage them to expand or relocate and create more jobs.

But it’s anyone’s guess whether those incentives actually work, says state Rep. Eric Koch, R-Bedford, who wants to set up a way to evaluate their effectiveness.

“I get a lot of questions from constituents who see the incentives being granted,” Koch said. “We just need to know whether they’re working.”

Koch has introduced a bill that would require the state to review and evaluate all state and local tax incentives that are provided to encourage economic development.

He said it would generate a comprehensive database on which breaks are working and which ones need another look.

“This bill is about transparency and it’s about providing policymakers and taxpayers with data that we don’t have right now,” Koch said.

The studies would include a cost-benefit comparison of the revenues given up and the property taxes shifted to other taxpayers as a result of allowing the tax incentives.

Koch said the bill is not meant to target any particular agency or project.

The state’s primary agency for encouraging job creation, the Indiana Economic Development Corp., has long been criticized for its lack of transparency and for not requiring companies that receive tax incentives to disclose how many jobs they’ve created

State law exempts the IEDC from disclosing much of that information on the grounds that doing so could harm negotiations with prospective employers.

In recent years, The Indianapolis Star has reported that IEDC has been able to operate largely out of public view, and that many of its big announcements never materialize or fall short of the goal.

Koch said he doesn’t share those criticisms of the IEDC, and worked with the agency to help shape his bill.

“I’m not a critic of the IEDC,” Koch said. “The impetus of this bill is not connected to any allegations against the IEDC.”

The bill would not require the IEDC to reveal how many jobs have been created at each individual project. Rather, it is to evaluate the success or failure of tax incentive programs overall.

The IEDC said the bill builds on the last two years of work by the State Tax and Financing Policy Commission in looking at the effectiveness of tax incentives by placing them on a scheduled review.

“It makes sense that the General Assembly might want to examine the tax incentives it creates to understand whether they are fulfilling their intended objectives,” said Katelyn Hancock, an IEDC spokeswoman.

But some critics of the way Indiana manages economic incentives said the bill sounded like a good idea.

Morton Marcus, retired director of the Indiana Business Research Council, said the bill could lead to hearings that could draw more public attention to the need for accountability in awarding tax breaks.

“One of the very positive things that can come out of this is a good questioning of not only the IEDC, but local practices,” he said. “I think that’s very positive.”

The eight-page bill, known as HB 1020, would require the Commission on State Tax and Financing Policy to analyze state and local tax incentives beginning in 2014. The review would cover exemptions, deductions, credits and other tax benefits. It would also require the Legislative Services Agency to evaluate each incentive.

Koch said the results would help policymakers decide whether each tax benefit is working, and whether to continue, modify or repeal it.

“I would like more information, because the public would like more information,” Koch said.

Call Star reporter John Russell at (317) 444-6283 and follow him on Twitter: @johnrussell99.