Good morning Chairmen Kaufman and Rodrigues and members of the Joint Committee. Thank you for the opportunity to testify today on House 7, which was filed by this office, An Act Relative to Tax Expenditure Information.\n\nBefore explaining the bill itself, I want to tell you what precipitated its filing.\n\nWhen I came before this committee nearly two years ago, my office had just completed work on a review of business-related tax expenditures. We found little oversight, accountability, or transparency \u00a0for over $2.2 billion in business-related revenue foregone on an annual basis. This examination of the state\u2019s system of tax expenditures, I said at the time, was but the first step in my planned work.\n\nThe next phase of our work on tax expenditures was to be an audit of the administration of tax incentive programs, including that conducted by the Department of Revenue, to evaluate the methods used to verify eligibility for favorable tax treatment and to measure the effectiveness of tax credits in accomplishing their intended results.\n\nWe wanted answers to questions like these:\n\nHow do the various agencies conduct their oversight, verification, and investigation of business tax expenditures?\n\tIf a tax break recipient fails to meet the intended goals or requirements, how effectively does the agency pursue clawbacks or reimbursements?\n\tFor transferable credits, what entities realize the credits and are the final beneficiaries?\nWe initiated this audit, which we believed would assess government\u2019s efficiency, effectiveness and accountability, but were unable to complete it. This was not due to intransigence on the part of any agency, but because a statutory restriction on my office\u2019s access to tax return information made it impossible to test data, to confirm its accuracy, validity and completeness, and to conduct analysis of it.\n\nOur enabling statute specifically states in Chapter 11, Section 12, that we are to conduct audits of the Income Tax Division of the Department of Revenue. In that same section, and again at Chapter 62C, Section 20, it is stated that the Office of the State Auditor shall have access to books, accounts, and records - except tax returns. This means that under existing circumstances, it is impossible for my office to effectively audit oversight of tax expenditures by any agency, including DOR, to ensure the existence and adequacy of controls to prevent, waste, fraud or abuse.\n\nFor example, DOR informed my auditors of an electronic \u201cfront-end filter\u201d system it uses to screen returns. How this system functions and the impact it has on the number of tax return reviews DOR conducts are areas from which auditors would need source information to test and verify accuracy, effectiveness, and efficiency. Without access to tax returns, we cannot gather source data and analyze if the methodology and use of resources is appropriate. The \u201cfront-end filter\u201d may catch enough problems that decrease the need for full reviews; conversely, it may not.\n\nThere are two other specific examples I will share with you. One involves the Life Sciences Center, which has strong statutory language around verification, transparency, and accountability. The Life Sciences Center makes public when a company is either decertified and must return money to the Commonwealth. In our work, however, we learned that the Life Sciences Center has no way of knowing if DOR actually collects that money. Neither do we.\n\nFinally, there is the issue of transferable tax credits, which can be bought and sold. There is little transparency around this process. We do not know who buys these credits or for how much, nor could we test compliance with those transfers. This information is essential in evaluating and developing tax policy.\n\nIn the work that lead up to the report last year of the legislatively-created Tax Expenditure Commission, a unanimously-endorsed principle was that: \u201cRelevant and useful data regarding the tax expenditure budget should be subject to full disclosure for the benefit of policymakers and the public, consistent with longstanding principles of taxpayer confidentiality.\u201d\n\nThe current prohibition on access to tax return records is inconsistent with that principle. It also defies the position of the vast majority of states. Of the 43 states that require tax returns, 36 states grant to their state audit function access to tax return information. The bill before you today is crafted more narrowly than other states in that it is restricted only to tax return information that is necessary to audit tax expenditures.\n\nChapter 62C, Section 20, makes 26 exceptions to the restrictions on disclosure of tax return information. The Department of Housing and Community Development, the Office of the Commissioner of Probation and the Department of Transitional Assistance are among the agencies granted access through these exceptions to determine eligibility. For a similar reason -- to ensure the effectiveness, efficiency and accountability of state agencies\u2019 administration and oversight of tax expenditures -- my bill would make the State Auditor\u2019s Office the 27th exception, while expressly stating \u201cthat the identity of any particular taxpayer shall be deemed to be confidential information and not a public record.\u201d\n\nI want to be clear \u2013 our goal is to look at the system of tax expenditure oversight, not to re-check individual returns that DOR has already processed.\n\nI hope that you will act favorably on this bill. I thank you for the opportunity to speak to you, and I would be happy to address any questions you may have.