By Marisa Lupica
The Qualified Target Industry (QTI) tax refund is offered to attract high wage jobs in target industries to Florida. The program is administered by the Department of Economic Opportunity, Enterprise Florida, Inc. (EFI), and the Department of Revenue. Among Florida’s tax incentive programs, QTI is the largest and has the highest return on investment according to state economists. QTI has flaws, but it has actually generated more jobs than initially promised.
The QTI refund can be applied to a variety of business taxes, including those on corporate income, insurance premiums, and tangible personal property like inventories. New or expanding businesses in target industries are eligible for refunds after reaching milestones specified in performance based contracts. They can receive $3,000 for each full-time job created and $6,000 for each job in rural counties, with additional awards for jobs paying above the average wage, in “high impact” sectors (aviation and medical device manufacturers, for instance), in Brownfield areas, or for projects that increase exports through Florida seaports or airports. Local governments hosting these projects pay 20 percent of the tax refunds, while the state covers the rest.
According to Enterprise Florida, $55,324,300 in QTI tax refunds were approved in 2014. Actual awards in 2014 totaled $14,223,425, a combination of payments from deals made in 2012, 2013, and 2014. (Businesses cannot receive more than 25% of their refunds in one year, so payments are rolled over from previous years as contracted milestones are met.) About 29,000 jobs were promised, but participating businesses ended up creating more than 37,000 jobs. Only $1,457 was spent per job created. For comparison, the next most successful incentive program by this measure, the Quick Action Closing Fund, spent over $12,000 per job, while other programs spend as much as $430,000 per job.
Another financial measure of QTI’s effectiveness is its return on investment (ROI). Excluding projects judged likely to have happened regardless of incentives, Florida’s Office of Economic and Demographic Research calculated an ROI of 6.4 for this program. This means QTI generated $6.40 in tax revenues for every dollar invested by the government.
However because of unlikely assumptions made in the OEDR study, this ROI figure should be considered as a best-case-scenario. The OEDR ROI measure focuses on monetary gains or losses to state revenue and does not consider overall effectiveness, externalities, or social costs and benefits. Ignoring those effects can inflate the measure. State incentives are assumed to be the determining factor in business location decisions, yet a 2012 survey of businesses ranked state and local incentives 13th in their importance to business location decisions, making this assumption unlikely. Output from QTI projects is assumed to not displace existing Florida businesses, meaning all goods produced from these projects are assumed exported out of state. This is also unlikely.
High ROI notwithstanding, the effectiveness and efficiency of QTI have been questioned. QTI has also been criticized for its regressiveness. The government watchdog group Good Jobs First estimated 89 percent of QTI spending between 2009 and 2013 went to large businesses. Yet a 2011 paper in The Review of Economics and Statistics found small businesses create more jobs on net, suggesting incentives would be better directed toward them. Further, QTI projects may displace existing Florida businesses, and payments made to site selection consultants, who are estimated to facilitate as many as 75–80 percent of these projects with EFI, divert incentive dollars away from jobs and capital investment. The issues must be considered in a full analysis of the program’s effects.
The Washington, D.C.-based Tax Foundation attributes the QTI’s high performance on some measures to the program’s wide applicability to different taxes, some of which shouldn’t be in the tax code to begin with. For instance, Florida’s tangible property tax levied on business inventories is particularly destructive. QTI’s success may be less due to its design than the inefficiency of existing taxes it can be applied to.
QTI is Florida’s most successful tax incentive program based on some metrics. However, its success is possibly due to its applicability to many taxes, some of which may cause more harm than good. This should be an argument against harmful taxes, not in favor of tax incentives that disproportionately benefit big businesses and risk misallocating government and private sector resources.