Prove it! States offer many incentives to promote economic development, yet seldom evaluate their effectiveness.

• Author: Renault, Catherine S.
• Position: ECONOMIC DEVELOPMENT

States are ratcheting up their efforts to spur economic development and create jobs now that the effects of the Great Recession are fading. In some states that means becoming more business friendly. Arizona, Ohio and Wisconsin replaced their economic development agencies with public-private partnerships. Alabama, Georgia, Kansas and Nevada added new business-driven strategic planning to their economic development efforts.

For other states, it's creating new--or reorienting existing--incentives to attract new investments. In 2012, states added more than 180 new incentives and business assistance programs to some 1,700 already existing programs. But whether they will be (or have been) effective is unknown, and little information is collected to find out.

Policymakers often assume that economic development incentives result in job creation. But too few try to understand how well the incentives are working until something forces the issue.

Lawmakers Want Answers

For state legislators who want to create jobs in the midst of a long-term budget squeeze, all expenditures---even the most laudable of economic development efforts--should be under scrutiny. These lawmakers want answers, greater accountability and better information to evaluate whether investments in economic development actually do create jobs. Many say they're willing to make investments, but only if those investments generate a proven, adequate return. Most state economic development agencies report that they do, but many legislators question the veracity and quality of the available data.

Few states have all the necessary mechanisms for beginning the credible, rigorous evaluation of their economic development investments required to answer these questions. And, there's little incentive to create them, because data are seldom used to drive policymaking or allocate resources in any significant way.

If an economic development program is shuttered, it's typically because of ideology or the need to cut budgets, not for lack of performance. And then it's often simply replaced with new iterations of the same incentive. Rarely are the results analyzed and used to adjust programs or policy.

Efforts Exist

Some evaluations are being done. Incoming governors often ask for audits to find economic development programs that are wasteful, being abused or not performing as expected. In Wisconsin, for example, an audit led to the reorganization and privatization of the state's economic development efforts.

Numerous academics have evaluated specific programs. For instance, Younghong Wu, a professor at the University of Illinois at Chicago, found that the existence of a state research and development tax credit has a positive and significant effect on the number of high-technology establishments in a state. For many years, independent evaluators have conducted regular studies of...