Audit sparks debate over cost effectiveness of Georgia’s job tax credits

Report finds program is not cost-efficient; economists and government officials argue whether that tells the whole story
New tax credits and incentives are expected to fuel green energy job growth. (Dreamstime/TNS)

Credit: TNS

Credit: TNS

New tax credits and incentives are expected to fuel green energy job growth. (Dreamstime/TNS)

A recent analysis of a decades-old program aimed at creating jobs in Georgia raises questions about whether the corporate recruitment tool is an efficient use of taxpayer dollars.

The state Legislature requested for Georgia State University to audit the program, which offers companies tax breaks based on the number of employees they hire and where those jobs are located. The report found the program costs more to operate than the amount it generates in extra tax revenue.

Some government officials and brokers challenge that finding, saying it is misleading and doesn’t take into account the other benefits of job creation.

Economists critical of these incentive programs said the result is not surprising, arguing many of these companies would locate to Georgia regardless of incentives.

“Georgia is successful and has attracted companies, good-paying jobs and a variety of industry,” said Betty McIntosh, a Cushman & Wakefield executive managing director who works with businesses on incentives and strategic investment. “Certainly these tax credits are part of that equation. For us to stay competitive, we need to keep them.”

Georgia spends billions of dollars each year to encourage job growth and economic development, prompting the General Assembly to put many of the state’s incentive programs under the microscope. Legislation in 2021 allowed the chairmen of the tax-writing committees to request tax break reviews — and one of the first conducted was GSU’s Job Tax Credit analysis, which was made public in November.

Nate Jensen, a professor of government at the University of Texas at Austin who studies economic development strategies, said many longstanding incentive programs go unchallenged and need re-evaluation.

“We always kind of joke it’s zombie economic development,” he said. “You build a program and it never dies.”

House Ways & Means Chairman Shaw Blackmon, R-Bonaire, said his committee will hear out both sides of the debate when deciding if any changes need to be made.

“We want to do everything we can to keep jobs here,” said Blackmon, whose panel is where tax breaks commonly start. “I think we want to be respectful of all sides when it comes to these issues and we hear from everyone impacted.”

Shifting goals

Georgia’s Job Tax Credit program was instituted in 1990 with the express purpose of bringing employment opportunities to the state’s poorest and most economically challenged areas.

Many states have similar programs, but only 40 Georgia counties initially qualified for these credits. The program eventually expanded to include the entire state.

David Sjoquist, the GSU professor who led the recent audit, said the program’s goal shifted to creating jobs across the state, not just in rural areas.

“It’s hard to have a program that focuses on just a handful of counties. Everybody else wants in,” he said.

The state’s 159 counties are grouped into four tiers based on their economic viability. The lower tiers require employers to create fewer jobs to qualify, and the value of the tax credits varies by tier, ranging from $750 to $3,500 per job for up to five years. The program only incentivizes certain industries, such as manufacturing, logistics, tourism and telecommunications.

Nick Masino, the president and CEO of the Gwinnett County Chamber of Commerce and Partnership Gwinnett, said the program has been effective at encouraging employers to consider far-flung corners of the state.

“I have seen more large projects being announced in rural Georgia that weren’t really prime places for companies to go,” he said, “And it’s been really exciting to see those parts of the state that feel like they’ve been left out.”

The GSU report focused on job credits offered in 2019 and 2020 and found that Tier 1, the most distressed counties, received the fewest number of credited jobs. By far, Tier 3 experienced the largest number of credited jobs.

However, Tier 1 counties tend to have significantly smaller populations, argued Amanda Shailendra, a managing partner at The Pendleton Group, who formerly worked for the Georgia Department of Economic Development. She added that the tiers take unemployment rates into account.

“We may have low employment across the state but there are still places where there is a need for better jobs, higher-paying jobs,” Shailendra said.

‘The tipping point’

The main point of contention is how many jobs are created solely because of this program.

Based on other studies, the GSU report assumed that 5% to 11.4% of all jobs that qualified for credits were the direct result of the program. The entire program costs nearly $66 million each year to operate. At those assumed percentages, the program brings in between $21.2 million and $48.2 million, resulting in a sizable net loss for the state.

Masino argues audits like this are inherently biased.

“I have never seen an audit in my career, government or business, that doesn’t have an end in mind,” he said.

The GSU report mentions multiple other potential benefits of creating new jobs aside from increased tax revenue, such as decreasing the time someone is unemployed and the possible societal benefits of increased population. Sjoquist said he was tasked with only analyzing return on investment and that many of the spillover effects would be “very hard if not impossible” to accurately measure.

McIntosh, the Cushman & Wakefield executive, said it’s nearly impossible to evaluate these incentives in a vacuum, since companies rarely qualify for only one program.

“It can be the tipping point,” she said. “It’s not the only reason, and it would be a ridiculous thing to think that one factor made the difference. It doesn’t.”

She added: “It’s a subjective choice to say which jobs would be here and which jobs would not because they’re not sitting in those boardrooms. They’re not listening to the presentations that people like me make to companies.”

Jensen, the Texas professor, said lawmakers don’t like to remove recruitment tools, even if it’s difficult to prove if they’re effective. He argued the program costs could go to better uses.

“There’s opportunity cost,” he said. “This is money that could either be used for reduction in tax rates or greater social services, better funding for education or infrastructure. You’re spending a lot of money on a very small number of jobs.”

Masino criticized the entire effort.

“I’m not saying we have the best system. We just have a great system,” he said. “... So it seems really odd to me that this is on an agenda somewhere. It doesn’t seem broken.”

— Staff writer James Salzer contributed to this report.