Arkansas Legislative Audit presented reports on a couple of important topics today: tax incentives and the outcome of cases referred to prosecutors for review for potential criminal prosecutions.
The short version:
* CORPORATE WELFARE: The report on tax incentives — some statutory and some discretionary — back more than a decade concluded that most projects had positive benefits. It did note that some projects that received statutory incentives likely would have been undertaken with or without the incentives. The report covered about three-quarters-of-a-billion dollars worth of potential incentives, about two-thirds of which have already been paid.
The report noted some negative returns on some specific projects. It also found some relatively small payments made to which recipients didn’t qualify and recommended repayment be sought.
Based on analysis of reviewed CIA projects since 2013, ALA staff were able to draw overall conclusions about the cost effectiveness of entire CIA programs. The TaxBack, Advantage Arkansas, Create Rebate, and InvestArk programs have an overall positive cost effectiveness. Due to the nature of the programs, ALA staff have not yet evaluated enough data to draw a conclusion regarding the effectiveness of the ArkPlus, Sales and Use Tax Refund – Targeted Business, Payroll Tax Credit – Targeted Business, and In-House Research and Development programs.
Based on methods used, data available, and the assumption that all project costs and jobs created would not have occurred without the corresponding incentive, ALA staff concluded that the economic incentive projects resulted in a positive net tax benefit to the State, with the exception of ArkPlus and In-House Research and Development projects. ArkPlus projects may or may not result in a positive cost-benefit ratio, depending on the amount of new wages relative to the overall project investment expenditures.
In-House Research and Development projects do not return positive cost-benefit ratios due to the significant amount of the incentive. If the primary purpose of the In-House Research and Development incentives is to encourage research and assist in the growth of certain business sectors in the State, the short-term impact may be less valuable to the State than the potential long-term gains.
ArkPlus is a 10 percent tax credit for investments in a new plant or expansion. Some create no new jobs, for example.
The In-House Research and Development program gives a tax credit up to 100 percent of tax liability in a given year and up to 33 percent of research expenditures, with credits carried forward for nine years.
* PROSECUTION REFERRALS: Adverse audit findings are often referred to prosecutors for review. Here’s the rundown on what happened on every referral in 2016.
Pulaski County gets a heavy load of referrals because of auditing focus on state agencies, many based in the capital. The specific reviews can be found at the link beginning on Page 37. Some of the audit findings were