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Tax expert warns incentives are politically entrenched, urges stronger accountability for data center and incentive deals
Summary
Former state revenue official Billy Hamilton told the Revenue Stabilization & Tax Policy Commission that while incentives are politically entrenched, states should design incentive programs with strict monitoring, clawbacks and sunset provisions; he highlighted data centers'large power demands and modest local job creation'as a cautionary example.
Billy Hamilton, a former deputy controller and longtime tax official, told the Revenue Stabilization & Tax Policy Commission in Santa Fe on Thursday that state and local economic incentives are now an entrenched part of economic-development policy but often produce uncertain returns without strict design and oversight.
"If the legislature decides it wants to go forward with incentives, make sure it builds them in a way that protects the state and maintains fiscal responsibility," Hamilton said, urging policymakers to tie incentives to measurable performance, require tight development agreements, include clawbacks and set sunset dates so legislatures can reevaluate programs.
Hamilton reviewed decades of incentive practice and warned that targeted subsidies for projects such as data centers and large "mega deals" can forgo large amounts of tax revenue while delivering relatively few long-term local jobs. He cited Good Jobs First and state audits showing that some incentives can cost hundreds of millions of dollars in foregone revenue and noted that data centers'because of capacity, electricity, and water needs'have created significant local debate in other states.
"Data centers are attractive because they can be built in rural areas and look big in prospect studies, but they don't create many jobs relative to their size and they can impose large energy demands," Hamilton said.
Committee members from southern New Mexico questioned Hamilton about local IRB incentives and a recent industrial revenue bond vote in Dona Ana County. Representative Latica Cadena and others raised concerns about transparency, a lack of visible economic or environmental impact studies, and the implications for the state's climate and utility goals when large data centers rely on behind-the-meter power or produce emissions greater than entire cities.
Hamilton said incentives are unlikely to disappear absent a coordinated national disarmament among states and recommended best-practice design principles from experts including the Upton Institute and Pew: treat incentives as public expenditures, evaluate them on a risk-reward basis, monitor performance closely, and compensate firms only on demonstrated outcomes.
The committee closed the day's session without votes on incentive policy and scheduled additional tax-package discussions for the next day.
