	Background

Tax expenditures are preferential provisions in the tax code, such as  exemptions and exclusions from taxation, deductions, credits, deferral of  tax liability, and preferential tax rates that result in forgone revenue for the  federal government. GPRAMA amends the Government  Performance and Results Act of 1993, Pub. Overlap Exists in the Design of Community Development Tax Expenditures

		Multiple Tax Expenditures Fund Community Development Activities

For fiscal year 2010, we identified 23 tax expenditures that fund  community development activities. For example, employers cannot double dip by claiming two employment  tax credits for the same wages paid to an individual. Applicants may need to apply for tax  expenditures and spending programs at multiple agencies to address the  needs of a distressed area or finance a specific project. Limited Information and Measures Are Available to Assess the Performance of Community Development Tax Expenditures

Achieving results for the nation increasingly requires that federal agencies  work together to identify ways to deliver results more efficiently and in a  way that is consistent with limited budgetary resources. For tax credits, IRS  has data on the numbers of taxpayers and aggregate amounts claimed,  but data often do not tie use of the tax credits to specific communities. For  those limited areas where OMB sets long-term, outcome-oriented,  crosscutting priority goals for the federal government, a more coordinated  and focused effort should ensue to identify, collect, and use the  information needed to assess how well the government is achieving the  goals and how those efforts can be improved. Whether or not OMB selects  community development as a priority goal area, Congress also has the  opportunity to urge more evaluation and focus Executive Branch efforts  on addressing community development performance issues through  oversight activities, such as hearings and formal and informal meetings  with agency officials. Matters for Congressional Consideration

Congress may wish to use GPRAMA’s consultation process to provide  guidance on whether community development should be among OMB’s  long-term crosscutting priority goals as well as stress the need for  evaluations whether or not community development is on the crosscutting  priority list. Congress may also wish to focus attention on addressing  community development tax expenditure performance issues through its  oversight activities. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) identify tax expenditures that promote  community development, and areas of potential overlap and interactions  among them; (2) assess data and performance measures available and  used to assess performance for community development tax  expenditures; and (3) determine what previous studies have found about  the effectiveness of selected tax expenditures in promoting community  development. To identify community  development tax expenditures, we developed a list of community  development activities based on various federal sources and compared  these activities to the authorized uses of tax expenditures. Where specified in tax law and regulations, we  also identified interactions and limits on using tax expenditures with other  federal spending programs. Tax Expenditure Information and Performance Measures

To determine what data and performance measures are available and  used to assess community development tax expenditures, we identified  the data elements and types of information that IRS and federal agencies  collect. For certain  community development tax expenditures in our universe where other  federal agencies help with administration—the New Markets Tax Credit,  Empowerment Zone/Renewal Community tax incentives, and the  rehabilitation tax credits—we reviewed prior GAO reports, and  interviewed and collected information from the CDFI Fund, HUD, and  NPS to identify their roles in helping administer the tax expenditures and  any measures the agencies use to review tax expenditure performance. State and local  entities also collect information on some of the tax expenditures included  in our universe. Number 7. Involves administration by a federal  agency outside IRS? Our work as of May 2011 suggested that the design of each of these 80  economic development programs appears to overlap with that of at least  one other spending program in terms of the economic development  activity that they are authorized to fund, as shown in table 12. Bibliography

To determine what is known about the effectiveness of selected  community development tax expenditures, we conducted a literature  review of studies that addressed the following tax expenditure provisions:  (1) the Empowerment Zone/Renewal Community tax programs; (2) the  New Markets Tax Credit program; (3) tax expenditures available for  certain disaster areas; and (4) rehabilitation tax credits, including the 20  percent tax credit for preservation of historic structures and the 10  percent tax credit for the rehabilitation of structures (other than historic). 16096 (2010). May  2011.
Why GAO Did This Study

Tax expenditures—exclusions, credits, deductions, deferrals, and preferential tax rates—are one tool the government uses to promote community development. Multiple tax expenditures contribute to community development. GAO (1) identified community development tax expenditures and potential overlap and interactions among them; (2) assessed the data and performance measures available and used to assess their performance; and (3) determined what previous studies have found about selected tax expenditures’ performance. GAO identified community development activities using criteria based on various federal sources and compared them with authorized uses of tax expenditures. GAO reviewed agency documents and interviewed officials from the Internal Revenue Service (IRS) and five other agencies. GAO also reviewed empirical studies for selected tax expenditures, including the New Markets Tax Credit and Empowerment Zone program which expired in 2011.

What GAO Found

GAO identified 23 community development tax expenditures available in fiscal year 2010. For example, five ($1.5 billion) targeted economically distressed areas, and nine ($8.7 billion) supported specific activities such as rehabilitating structures for business use. The design of each community development tax expenditure appears to overlap with that of at least one other tax expenditure in terms of the areas or activities funded. Federal tax laws and regulations permit use of multiple tax expenditures or tax expenditures with other federal spending programs, but often with limits. For instance, employers cannot claim more than one employment tax credit for the same wages paid to an individual. Besides IRS, administering many community development tax expenditures involves other federal agencies as well as state and local governments. For example, the National Park Service oversees preservation standards for the 20 percent historic rehabilitation tax credit. Fragmented administration and program overlap can result in administrative burden, such as applications to multiple federal agencies to fund the needs of a distressed area or finance a specific.
Limited data and measures are available to assess community development tax expenditures’ performance. IRS only collects information needed to administer the tax code or otherwise required by law, and IRS data often do not identify the specific communities assisted. Other federal agencies helping administer community development tax expenditures also collect limited information on projects and associated outcomes. GAO has long recommended that the Executive Branch improve its ability to assess tax expenditures, but little progress has been made in developing an evaluation framework. Generally, neither these agencies, nor the Department of the Treasury or the Office of Management and Budget (OMB) have assessed or plan to assess community development tax expenditures individually or as part of a crosscutting review. The Government Performance and Results Act Modernization Act of 2010 (GPRAMA) calls for a more coordinated approach to focusing on results and improving performance. OMB is to select a limited number of long-term, outcome-oriented crosscutting priority goals and assess whether the relevant federal agencies and activities—including tax expenditures—are contributing to these goals. These assessments could help identify data needed to assess tax expenditures and generate evaluations of tax expenditures’ effect on community development. Through related GPRAMA consultations agencies are to have with Congress, Congress has a continuing opportunity to say whether it believes community development should be among the limited number of governmentwide goals. While community development was not on the interim priority list, Congress also can urge more evaluation and focus attention on community development performance issues through oversight activities.
In part due to data and methodological limitations, previous studies have not produced definitive results about the effectiveness of the New Markets Tax Credit, Empowerment Zone tax incentives, historic rehabilitation tax credits, and tax aid for certain disaster areas. A key methodological challenge is\ demonstrating a causal relationship between community development efforts and economic growth in a specific community. As a result, policymakers have limited information about the tax expenditures reviewed, including those that expired after 2011, and ways to increase effectiveness.

What GAO Recommends

Congress may wish to provide OMB guidance on whether community development should be among OMB’s long-term crosscutting priority goals, stress the need for evaluations, and focus attention on addressing community development tax expenditure performance issues through its oversight activities. Two agencies questioned the matters for congressional consideration or findings. GAO believes its analysis and matters remain valid as discussed in the report.