Evaluating economic development incentives is crucial for ensuring their effectiveness and driving program improvements. Virginia’s Joint Legislative Audit and Review Commission (JLARC) has been leading evaluations of the Commonwealth’s incentive programs since 2016. Similar to the evaluation process in Oklahoma, JLARC conducts evaluations on an ongoing basis with about ten incentives assessed each year.
JLARC completes legislatively mandated evaluations that focus on incentive spending, the economic benefits generated, and the effectiveness of the incentives. The Weldon Cooper Center for Public Service at the University of Virginia partners with JLARC to conduct the analyses, using the same methodology for the economic impact analysis each time. JLARC staff prepares recommendations based on the evaluation findings, which are presented to the commission’s state legislators.
Working with state agencies that collect the information necessary to conduct the evaluations is also integral to this process. Agencies are required to share information with JLARC and its contractor. The statute notes that JLARC should assist agencies in developing standard data definitions and measures to facilitate reporting and evaluation. Agencies are also given the opportunity to comment on draft reports.
Recommendations and Implementation
Report recommendations often relate to aligning program requirements with incentive best practices, but others suggest program restructuring or elimination. Programs that have been eliminated include the Worker Retraining Tax Credit, Telework Expenses Tax Credit, Coalfield Employment Enhancement Tax Credit, and Coal Production and Employment Incentive Tax Credit. The Small Business Jobs Grant has also been consolidated into the Virginia Jobs Investment Program, based on a JLARC recommendation.
JLARC’s focus on improvement extends to reporting requirements, with efforts to collect more comprehensive data and provide transparent information on the value and impact of incentives. For example, a past evaluation found that data being collected was insufficient to estimate the actual cost of Virginia’s data center tax exemption. The 2019 JLARC evaluation recommended requiring that all data centers using the data center sales and use tax exemption submit an annual report describing employment, investment and tax benefits to the Virginia Economic Development Partnership and that the Department of Taxation publish an annual report providing aggregate information on qualifying expenses that were exempt from the tax and total value of the tax benefit. The General Assembly amended the Code of Virginia to reflect this recommendation, and the Department of Taxation should release the first report this year.
The Importance of Consistent Evaluations
The regular series of scheduled evaluations has yielded valuable insights into the performance of Virginia’s incentive programs, particularly the methodical and consistent approach to evaluating and reporting programs’ economic benefits. The consistent approach to evaluations enables internal program comparisons across Virginia incentives, not just cross-state comparisons, through which JLARC gains a comprehensive understanding of how incentives perform relative to each other. This information guides discussions on resource allocation, enabling the state to make more informed decisions regarding economic development initiatives. Additionally, JLARC publishes an annual high-level report on incentive spending and related business activity, providing a contextual overview of spending trends, industry distribution, and program specifics.
Virginia JLARC’s consistent evaluation process for economic development incentives helps ensure that incentive programs align with the Commonwealth’s economic goals. Through ongoing evaluations and comprehensive reporting, Virginia can optimize its resources, drive program enhancements, and foster a business-friendly environment. The consistent approach exhibited by JLARC is one model for other states seeking to use evaluations to improve their economic development incentive programs.
To learn more, please see:
Science and Technology Incentives – July 2022
Trade and Transportation Incentives – June 2021
Infrastructure and Regional Incentives – September 2020
Data Center and Manufacturing Incentives – June 2019
Workforce and Small Business Incentives – July 2018
Film Incentives – November 2017
Thank you to Ellen Miller, JLARC’s Chief Economic Development and Quantitative Analyst, for sharing her insights with Smart Incentives about Virginia’s incentive evaluation process.