LFC report: most economic-development tax incentives don’t pay for themselves, staff say

Bridal Gray, an economist with the Legislative Finance Committee, told lawmakers the LFC’s tax-expenditure assessment of FY25 economic-development incentives found mixed value for money: aggregate economic ROI across 24 tax incentives is modestly positive (about 1.4%) but the fiscal return in state tax revenue is negative for every program analyzed.

"The return in revenue for all expenditures is negative," Gray said, noting that for every $1 in foregone tax revenue the state recaptures only about $0.09 in new state tax receipts on average. Using REMI economic modeling and a suite of case-by-case briefs in the report, staff also calculated employment impacts: the average cost per job across the incentives studied is about $137,000 per year. Gray said roughly $176 million a year of incentives in FY25 are estimated to have a negative economic ROI.

LFC staff emphasized the importance of additionality — whether an investment or expansion would have occurred but for the incentive — and presented sensitivity tests showing that large, costly incentives aimed at attracting new industry often fail to break even on a net revenue basis unless a high share of the jobs and activity is truly additional.

Drew Weaver, a program evaluator, walked through design principles the committee should use if it wants to improve the portfolio: include expiration dates or sunsets, add expenditure caps, target incentives geographically to distressed communities and to traded industries, require clearer statutory purpose statements and improve reporting requirements for TRD and administering agencies.

During Q&A, members proposed a scored index that would rank incentives on metrics such as cost per job, economic ROI, reporting, caps and purpose statements; several lawmakers asked staff to develop such an index and to combine tax expenditures with other economic-development subsidies to produce a full picture of state support for any project.

LFC staff said they can expand analysis in future updates (TRD FY26 data are expected in November) and offered to work with legislators on marginal-return and additionality scenarios for specific incentives.