Testimony in support of improving accountability in tax expenditures

May 09, 2012

Submitted by Kate Brewster, May 8, 2012

Thank you Chairman and members of the committee for holding this important hearing today.  The bills before you introduced by Representative Tanzi would provide basic, fundamental tools for policymakers and taxpayers to be able to evaluate the effectiveness and efficiency of the 227 tax credits, deductions, and exemptions contained in the state’s Tax Expenditures Report, as well as any newly created tax expenditures.

Our state forgoes over $1.6 billion in revenue through tax expenditures each year, yet we have no information or process in place to evaluate the impact these fiscal policies have had on our state’s economy or its residents.

By requiring all new tax expenditures to have a statement of purpose, performance measures and methods for evaluation, as well as expiration dates, policymakers will be able to make informed decisions about whether to maintain, reform, or eliminate preferential tax items.

The Pew Center on States recently ranked Rhode Island as “trailing behind” (the worst category) in its it review of how well states are evaluating tax incentive programs.  They suggest states adopt the types of reforms contained in the bills before you.

Other states, including our neighbor to the north, are making progress in this area, recognizing that taxpayers deserve to know whether tax incentives and expenditures are worth the revenue the state gives up. Just two weeks ago Massachusetts’ relatively new Tax Expenditure Commission issued recommendations calling for a reduction in the number of tax expenditures through better performance management, sunsets and claw backs, among other measures.

Oregon has had great success in weeding out unproductive tax incentives since it implemented sunsets on tax expenditures in 2009.  Virginia just unanimously passed legislation requiring 5-year sunsets on new or renewed tax credits and created a joint subcommittee of the legislature charged with reviewing tax expenditures, similar to what Representative Tanzi has proposed.

Given all of the areas where we need to invest, it is more important than ever that tax expenditures be subject to the same scrutiny as direct spending. The reforms proposed today are a critical step to ensuring we can balance the state budget now and in the future, without sacrificing the services that are necessary for the health of our people and our economy.

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