WHAT WE FOUND

• Virginia spent $4.1 billion on 96 economic development incentive programs from FY14 to FY23. This amounts to 1.9 percent of total general fund spending during this time. Total spending on incentives was $1.1 billion in FY23.

• Total incentive spending increased between FY14 and FY23, with significant increases starting in FY19 because of improved reporting requirements for the data center exemption. Previous estimates for the value of the data center exemption ranged from $80 million to $100 million per year. However, with the improved reporting, annual estimates for the exemption now range from $412 million to $685 million.

• Data centers were by far the largest beneficiary of incentive spending, which reflects the sizable capital investment by the industry. The sales and use tax exemption for data centers accounted for 42 percent of all incentive spending over the decade ($1.7 billion).

• Spending on incentives other than the data center exemption also increased significantly in FY23, including the Virginia Business Ready Sites Program and the Tourism Development Financing Program.

• A majority of the incentive programs that have been adopted since 2017 have been custom grants. Although custom grants constitute a fairly large share of incentive program funding, payouts are generally contingent on meeting performance milestones and therefore vary from year to year. Custom grant spending decreased slightly from $21 million in FY22 to $16 million the following year.

• Nearly three-fourths of incentive spending between FY14 and FY23 was for tax incentives, primarily sales and use tax exemptions, with the remainder split between tax credits and single sales apportionment for manufacturers and data centers. Grants made up nearly all the remaining one-fourth of incentive spending.

• Collectively, grant programs awarded $2 billion to 5,000 projects between FY14 and FY23. There was a substantial one-year increase in grant awards in FY19, primarily because of the $750 million custom grant award for Amazon HQ2.

• Completed projects receiving grant funds created approximately 61,000 jobs and $15 billion in capital investment or other spending. The majority of these projects met their capital investment goals, but just over one-quarter met their job creation goals.

• Business savings from tax incentives increased in FY23, even when removing the data center exemption, primarily because of increased usage of the Major Research and Development Tax Credit and the Coalfield Employment Enhancement Tax Credit. Even though the Coalfield Employment Enhancement Tax Credit expired in 2022, businesses can still claim credits they were awarded in future years.

• Grants have higher economic benefits than tax incentives. A higher proportion of grant funding is directed to projects in traded industry sectors, which tend to have high economic multipliers and pay higher wages. In addition, unlike many tax incentives (with exception of the data center exemption), businesses that receive awards from most grant programs also must commit to creating jobs and making capital investments.