Increase transparency by creating a tax expenditure budget

Every two years, the Governor develops and presents a budget to the Legislature that allocates state spending based on what is determined to be the priorities of our state. Missing from this budget proposal is the inclusion of any tax expenditures — the hundreds of special exemptions, deductions, credits and other tax preferences. Requiring the Governor to develop a tax expenditure budget along with her standard biennial budget would improve tax expenditure accountability and transparency.

Executive tax expenditure budgets are routinely produced in at least six states (many others produce detailed tax expenditure reports) and typically include detailed information on tax preferences — including policy goals, current and projected costs to the state and local governments and relevant performance information.

Though the Department of Revenue currently produces a tax exemption report, these reports are produced only once every four years and are not part of the formal executive budget proposal. Because it would be created as part of the Governor’s routine budget development process, a true tax expenditure budget would more closely align the cost of tax expenditures with direct spending on state programs.

A tax expenditure budget should include:

• A listing of all tax expenditures, categorized by the function or program they support;
• Tax expenditure performance information from the Joint Legislative Audit and Review Committee (JLARC) and the Citizen Commission for Performance Measurement of Tax Preferences (Citizen Commission); and
• A recommendation from the Governor on whether tax expenditures scheduled to expire in the coming biennium should be continued, allowed to expire or modified.

HB 1899, which was dropped last week in the Legislature, would require tax expenditures to be incorporated into the state budget process.

For more information on tax expenditures and long-term reforms to our state budget process read our latest policy brief, Every Dollar Counts: Why it’s Time for Tax Expenditure Reform.