Encouraging Growth in Business
CSG Staff Report
States have tried a wide variety of tax incentives over the past three decades to encourage economic growth.
Although these incentive packages are popular, the types of programs states are using and the methods they use to ensure those incentives are working vary by state. A new report from The Council of State Governments—"Trends in Western State Business Incentives"—explores the successes 13 Western states have found with tax and financial incentive programs.
For example, Colorado offers a tax credit to businesses undertaking job creation projects that would otherwise not occur in the state. It also offers an Economic Development Commission Strategic Fund that offers funding to businesses that create new full-time jobs that are maintained for at least one year. Many of the programs have strict requirements for receiving funding.
In Idaho, the Department of Commerce offers employers funding through the Idaho Workforce Development Training Fund as a way to encourage business expansion or relocation from another state. The funds can be used to help employees—who must be paid at least $12 an hour and get health benefits—advance their skills or gain specialized skills for a new job.
“While state leaders may not agree on what strategy is best when it comes to reviving our economies, learning how our neighbors are innovating and pushing through tough fiscal times can help guide us as we move forward,” said Nevada Assemblywoman Debbie Smith, chair of CSG West Fiscal Affairs Committee. “This report adds to our knowledge base and gives policymakers another tool as they look for better, more efficient ways to bring jobs back into our communities and get our states back on track.”
Jennifer Burnett, CSG’s program manager for research services and special projects, said there are definite trends in the kinds of economic incentives Western states are using.
“Although each state approaches development differently, every state relies on incentives in varying degrees as a component of their overall strategy,” said Burnett. “For example, every Western state offers a tax exemption on raw materials used in manufacturing, while almost all states offer exemptions on goods in transit, manufacturers’ inventories and raw materials.”
Burnett also said state leaders are looking more closely at how incentives are used and more closely scrutinizing the payoff, which could mean big changes in the future of state economic development strategies.
“States have cut basic, essential programs—like education and infrastructure—to the bone and leaders don’t want to make even deeper cuts. That means everything is on the table for discussion, including incentives and whether they are getting the return on investment they should be,” said Burnett.
The report is available online. (http://knowledgecenter.csg.org/drupal/content/trends-western-state-business-incentives)