Effective evaluation begins with clear, measurable program goals. Whether created through legislation or administratively, incentive programs should have a defined purpose. Vague language related to jobs or economic development makes meaningful evaluation difficult.

Metrics to drive evaluation should reflect the goals of the incentive and:

  • consider available data
  • use clear and consistent definitions
  • allow for comparisons among programs with similar goals
  • connect to the economic well-being of residents

Conducting a quality evaluation is not a simple undertaking. Assessing whether a program is achieving its intended goal requires adequate time, resources and expertise. Some guidelines are:

  • Tax-focused incentive programs should be assessed every 3-5 years, while incentive programs with a wider scope such as community investment programs should be assessed every 6-10 years.
  • Evaluators need a strong analytical skill set and should be willing to make policy recommendations.
  • “Deal makers” should not conduct the evaluation. Third-party organizations such as legislative fiscal offices, audit offices, or universities may be better-suited for this task.
  • Evaluations should not strive to simplify all program outcomes into a single number, but should provide context and analysis.
  • Improving performance – not finding fault – should be the ethos.

The Pew Charitable Trusts is conducting excellent work on evaluating state tax incentives. For more information check out these valuable resources: 

How to Inform Policy Choices
How to Measure Economic Impact
How to Gauge Progress Toward Goals

In addition, learn more here about the Business Incentives Initiative, which is designed to “improve decision-makers’ ability to craft policies that deliver the strongest results at the lowest possible cost” by identifying better ways to assess and report on incentive programs.

The Business Incentives Initiative is a joint project of the Center for Regional Economic Competitiveness (CREC) and the Pew Charitable Trusts. Smart Incentives is pleased to be part of the CREC team working on this valuable effort.