North Carolina Group Calls for More Sunshine on Tax Breaks

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The Corporation for Enterprise Development (CFED) is making hay with a new calculation that 90 percent of economic development spending in North Carolina last year was funded through tax incentives. That’s up from 77 percent in 1995/96. Moreover during the same period, the state’s outlay for economic development has about doubled, growing to $1.29 billion.

Tax breaks for economic development are huge in most states; it’s no exaggeration to call appropriations the tip of the iceberg and tax expenditures the bottom. However, since tax spending is often poorly accounted for, legislators often continue to approve more of it while cutting outlays to other programs, even when states struggle with deficits. In At What Cost? North Carolina’s “Budget” for Economic Development, CFED recommends increasing accountability standards for state tax expenditures.

CFED obtained the data from a one-time report released by Fiscal Research Division of the North Carolina General Assembly. CFED recommends that the state continue to publish these reports on a regular basis and adopt universal performance measures on which to judge all subsidy programs. To date, only a few states have institutionalized regular reports (called Unified Economic Development Budgets or UDBs) on spending line items for economic development, including the cost of subsidies.

However, several state watchdog groups have created their own UDBs. In Kentucky, the Mountain Association for Community Economic Development published an exemplary UDB in 2005. However, watchdog UDBs are not a permanent solution, since it is ultimately too much work for a non-profit and should be the states’ responsibility.

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