Discretionary vs. As-of-Right Economic Development Incentives 

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Discretionary vs. As-of-Right Economic Development Incentives

Incentives are either “as-of-right” or “discretionary”.

“as-of-right”, also known as statutory, means that the incentive is much more “by the book”, with the type and amount of the incentive objectively defined, obtained solely by qualifying under specific criteria. While “as of right” incentives appear on their face to be simple and easy to use, in practice they are often subject to unanticipated pitfalls and strict statutory interpretation, prohibiting or reducing the potential benefit for what appear to be minor deviations from the required procedures.

“discretionary”. incentives require a case-by-case analysis, customized for a particular city or project with the approval of a designated public agency . If the project is viewed to be highly desirable, i.e., creating new jobs, bringing significant tax revenue, industry leader, is a catalyst for other jobs.

More often, even when the amount and form of incentives is set in a formula, the incentives are discretionary. In their most discretionary aspects, a company and its consultants can negotiate for amounts and type of incentives that are not restricted by formulas.

A major factor in obtaining discretionary incentives is the perceived value of the project to the public sector. Objectively, this is demonstrated by the number and salary levels of jobs retained, increased or attracted, and by the amount of direct and indirect tax revenues generated by the operations of the project. Subjective factors are also considered such as the strategic value of a benefited company or project (i.e, is it an industry leader, is it a catalyst for other jobs or construction, will it provided needed facilities for an important industry). Another important, sometimes critical factor is the amount of competition for a particular company or project from other jurisdictions.

In almost all cases, discretionary incentives are available only if “inducements” can be shown, i.e., the project would not have proceeded without the incentives. Most states now favor “discretionary”, rather than “as of right” programs because it enables government to have more flexibility in targeting limited resources towards those industries or companies that are most important to a community, and to control the terms of the incentives granted. 

Types of Economic Development Incentives

 

State and local governments employ diverse financial tools to compete for corporate location decisions. While all states may offer similar type of programs such as job creation credits, training grants, various incentives through enterprise zones, not all programs are built the same. Often times States and local municipalities operate independently, thus imposing burden on corporate decision makers to understand the value of available programs, intricacies of the requirements and potential pitfalls that may arise. Click here for a brief description of select incentive programs available across the states. However, a more detailed review of the sites under consideration is required to determine the value of any incentives.


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