ECOnomic Development INcentives are investments made by state and local governments to influence corporate decisions on the location of jobs and investment, to create or enhance the feasibility of a private sector project that helps to achieve a community’s economic goals. By themselves incentives do not determine if a project will go forward, but they can reduce the costs and financial risks to the company thereby improving ROI.
Most states, and many localities, in the U.S. provide incentives to attract new businesses; in some cases incentives are also provided for expansion of existing businesses in that location, and in a few cases, for retention. As in all markets, pricing strategies and transactions structures vary widely, although tend toward market norms.
Incentives come in a variety of forms, sometimes including cash grants or direct low interest loans, but usually they are in the form of a cost offset to project or business operation costs, such as abatements on sales taxes for capital purchases, provision of low cost energy, or most usually, per capital job credits on state and/or local corporate income taxes. In a few cases, incentives are provided by or through federal agencies. The amount and type of incentives, the criteria for qualification, and the regulatory conditions will vary depending on each community’s economic development goals.
Economic conditions make incentives even more important. Especially during a down economy, when companies are unable to increase revenue, they have added continuing pressure to manage earnings by cutting costs. Every state & most localities utilize public financial incentives as tools to stay competitive in attracting jobs and capital investments as well as job retention.
THE VALUE OF INCENTIVES
A wide range of factors will influence the value of potential incentives – i.e., number and quality of jobs, amount and nature of capital investment, the jurisdictions involved and the competitive location options available – and they will range from modest enhancements, to packages that can have a meaningful impact on project economies.
While large marquee transactions capture the most attention, a “best practices” approach to incentives will be multi-tiered, also including a strategy to systemically capture the more modest incentives opportunity that may be imbedded in smaller transactions, which can amount to significant savings across an active portfolio over a period of time, and give corporate managers the confidence to exploit the opportunities available to them.
Individual projects with modest amounts of capital investment and employment may nonetheless be eligible for certain incentives, such as ad valorem tax abatement, training grants or other vehicles which can be cost-effectively pursued through a systematic process, but may not be realistic to pursue on a one-off basis.
While value may refer to the dollar value of the actual award made to the project by the relevant public-sector entities , value of incentives is also measured by the practical value, the Company’s ability to utilize and maintain the benefits for which the project was awarded.
CLICK HERE FOR A LIST OF ECONOMIC DEVELOPMENT INCENTIVES