States are spending billions of dollars on tax incentives to lure businesses, but policymakers often don't know if the incentives work, according to a report released today.
The Council of State Governments report also said that funding education may be more important in trying to bring businesses to a state.
"Most states make significant investments in business incentives, but we've found most states don't have a good handle on what that investment is buying," said David Adkins, executive director and chief executive officer of CSG, a nonpartisan, nonprofit research group based in Lexington, Ky.
The report tracks on a national level what a state audit released earlier this month said of Kansas' business tax incentives.
That audit said it was difficult to assess the benefits of major economic development programs that are designed to lure businesses to Kansas, because the Kansas Department of Commerce had incomplete or inaccurate data. In addition, the audit said the state had exceeded the statutory cap on tax incentives.
The CSG report found similar problems in other states.
The report said state leaders often aren't familiar with the costs of tax incentives, and that solid evaluation of the programs is lacking. It also said bidding wars for businesses between states can have a negative impact.
"Far too often, states are competing for a business whose relocation decision is not significantly impacted by the business incentives offered," said Adkins, a former Kansas state legislator. "Investments in education and cultural resources may actually do more to influence the decisions of CEOs."
State Sen. Jay Scott Emler, R-Lindsborg, who was chair of CSG last year, created the working group that looked at how states are using business incentives.
"The working group hopes legislators, economic development practitioners and private sector companies make this a living document that provides guidance to everyone and helps to advance all economic development," Emler said.