Economic Incentives

The Benefits and Risks of Economic Incentives

Each year state and local governments award valuable incentives to lure

companies to their communities. Benefits may include minimizing tax liabilities, facilitating ownership of buildings and land, or offsetting capital and operating costs. The incentives may be short term or be in effect for many years.

Our work involves identifying and negotiating economic incentives, which we do on an anonymous basis. Your project will be known only by a code name. Only when official negotiations begin will your company’s identity be revealed to the appropriate officials (sometimes required by state law) and that is done so with the protection of a Non-Disclosure Agreement.

Incentive Uncertainties

Economic Development Agencies are accountable to their Board of Directors and often the Governor’s office, city councils and mayors. Multiple incentives requests can put an agency at risk of exceeding its budgetary or statutory limits. For an application to prevail over competing projects, it must be thoroughly prepared, supported with credible data, and be presented persuasively in written and perhaps oral presentations.

The incentives arena is complex. The United States has 3,242 counties and county-equivalents and about 40,000 local governments. Some have incentives that will benefit you while others have none. Also, policies change often, making it difficult to determine which agency will offer what types of incentives in the future.

Risk Avoidance

Diligence is critical if the company is to remain in compliance with its incentive contracts. It is little known that about 50 percent of all economic incentives never materialize because companies fail to meet filing deadlines or agreed-upon targets. The recipient must assign compliance tasks to an employee, or establish a turnkey arrangement with a compliance firm, to ensure receipt of incentive awards.

Not The Be-All and End-All

Sometimes a company will select a location despite a lack of incentives being available – and while counter-intuitive that can be a smart choice. If incentives are considered essential, then a risk exists that another community may be overlooked despite its potential for more satisfactory results.