3 tax-credit programs are targeted for sunset
A Georgia Senate study committee wants to set up a review schedule to determine if state tax credits and exemptions are worth the loss of revenue. And it’s recommending the elimination of three programs, as a start.
Sen. Chuck Hufstetler, R-Rome, is one of six members of the Senate Study Committee of Special Tax Exemptions chaired by Sen. John Albers, R-Alpharetta. The chairman of the Senate’s Finance Committee, Hufstetler has chafed at the state’s lack of mechanism for vetting the “return on investment.”
Credits allowed for teen driver education classes, employer subsidies of mass transit use and diesel emission-reduction technologies are proposed for the chopping block.
Three other programs — for the film industry, historic property rehabilitation and company research and development — netted support.
A template for evaluation also is included with a proposed schedule in the committee’s final report before the Jan. 8, 2018, start of the Georgia General Assembly session. There are 29 tax credit programs and 39 tax exemption programs on the list.
“It is the intention of the Committee that these and other potential tax expenditures be evaluated on a repeating, rotating basis … approximately once every five years,” the report states.
Ten states have evaluation plans and 17 others are working on a process, according to testimony taken during the committee’s five meetings around the state.
“Oregon was able to save hundreds of millions of dollars due to their evaluation process,” the report states, while Alabama restructured its historic rehabilitation tax credit to make it more efficient and effective.
In analyzing the six targeted Georgia programs, the committee used the template based on criteria set by other states: justification, effectiveness, efficiency, equity, return on investment, credit structure and administration, budgetary risk, local government impact and opportunity costs.
Hufstetler has said the economic benefit of a tax break comes when the tax dollars generated from the activity exceed the cost. The report also acknowledges a public benefit if the incentive encourages a certain type of behavior.
The film tax credit, allowed for companies that spend at least $500,000 in the state, was hailed as a measurable income-producer.
In 2007, the economic impact of the film industry was $241 million, according to the Georgia Department of Economic Development. The tax credit was established in 2008 and, in fiscal year 2017, the impact was $9.5 billion.
“The motion picture and television industry is responsible for more than 92,000 jobs and more than $4.6 billion in total wages in Georgia, including indirect jobs and wages,” the department report notes.
Credit for rehabilitating historic properties also was determined to generate economic and social benefits to an area, although the committee recommends modifying the program to exclude private homes.
Examples of successful rehab projects are Ponce City Market in Atlanta, which now leases space to more than 80 businesses, and the 1925 Daniel Ashley Hotel in Valdosta. The hotel makeover as low-income senior housing received an “outstanding achievement” award from the city for going beyond its preservation regulations.
The credit of up to $150 toward teen driver education programs from private providers was deemed ineffective. In 2014, just 872 filers claimed the credit, although more than 32,000 teens got their licenses that year. Also, 114 counties don’t have a private drivers ed provider.
If it’s continued, the committee recommends expanding it to feebased public school programs. However, it’s unclear if the incentive is required, since 16-year-olds need the classes to get a permit.
A tax credit was established in 2001 for the purchase and installation of diesel particulate emission reduction technology on commercial vehicles, but nobody has claimed it since 2012. The committee is recommending elimination.
Employers are eligible for a $25 tax credit per employee for subsidizing certain transportation benefits, such as vanpools or public transportation passes. However, just $122,074 was claimed between 2011 and 2015.
The committee report indicates the amount is likely too small to effect a change in commuter behavior that reduces traffic congestion and improves air quality.
Georgia should keep — but require additional reporting on — the program that allows a 10-percent tax credit for a company’s research and development expenses above a base amount, the committee is recommending.
“It is possible that this credit results in some additional research activities in the state,” the report states. “These activities will likely result in increased employment and are typically associated with higher wages.”
Companies claimed about $116 million in R&D credits between 2011 and 2014, based on data provided by Georgia Department of Revenue.
In addition to suggesting three existing programs be allowed to expire, or “sunset,” the committee is recommending “sunrise” evaluations for every new incentive. The process “would allow the General Assembly to understand the full economic effect of any legislation with tax expenditures before voting on it,” the report states.