BAITING HOOKS Tax incentives will always be with us, but states are finally keeping tabs on what they're getting for their money.

From the January 2008 edition of Governing Magazine:

Tax incentives have long been endorsed as the highway to prosperity — attracting businesses, providing jobs and enriching the state. That's been conventional wisdom in most states and cities.

One problem: Most public finance experts consider them bad policy. Tax incentives that target specific companies create inequities, complications and inefficiencies — and they shrink the tax base. Meanwhile, there's little evidence that targeted incentives bring growth in good-paying jobs. In short, big-ticket targeted tax incentives fail the test of any investment: the presence of a clearly identifiable return.

Many companies still seek incentives, and it's difficult for states to back away — particularly when there are lots of jobs involved. But there are questions states can focus on to mitigate the damage: Are the incentives transparent? Is there a look back to see if promises are met? Are there clawbacks — to retrieve the dollars spent if companies fail to hold up their end of the bargain?

Read full story in Governing Magazine http://www.governing.com/articles/0801taxinc.htm