Whether you are in favor of economic incentives or against them as a tool for economic development, the reality is state and local communities need to have them to compete. Over the years there have been various reports which state that most projects would have moved forward in certain jurisdictions regardless of the economic incentives offered. However, based on recent project experience, economic incentives are increasingly more important among the traditional site selection considerations.

While some have a perception that governments are simply handing out cash grants to win new business, most economic incentives are offered to bridge a gap that exists as to one of the more traditional site considerations such as construction costs, real estate costs or qualified workforce needs. To help you understand the potential high-level value of attracting new companies and new investment to a community, I have identified three ways economic incentives can be used to bridge gaps of the company’s project to benefit the broader community.

1. Infrastructure

Infrastructure assistance can encompass many items, including paved roads, utility connections or improvements, traffic signals, acceleration/deceleration lanes, bridges, tunnels or mass transit. Oftentimes, many of these investments will not be made by the local jurisdiction until there is sufficient cost/benefit to do so and new private investment certainly aids in yielding a sufficient return. While some communities may be able to fund the total cost of such an improvement as an economic incentive, others may at least be able to shoulder some of the cost. These types of economic incentives can benefit the broader community by alleviating traffic, providing enhanced utility services or even creating a new route for mass transit benefiting other nearby businesses or homes.

2. School revenue

Real and/or personal property investments associated with new projects yield increased property tax revenue — a significant source of revenue for public schools. Because this revenue is tied to public school education, the use of property tax benefits to incentivize new investment is a highly controversial issue. Property tax abatements are used, in some form or fashion, throughout the United States to attract new business. Much of the time, property tax benefits are either limited in duration or only incentivize a certain type of investment, tax type or percentage of tax. For example, the actual portion of the total tax millage which is associated with a school district is often unabated. In addition, some jurisdictions will only provide property tax benefits for real property investments or machinery and equipment used specifically in manufacturing. Most communities require a payment in lieu of tax or only abate a certain percentage of the tax for a limited time. However, the perception is that companies being offered property tax benefits pay no property tax at all, which is rarely the case. Thus, while a company may benefit from a property tax abatement, it ultimately still results in increased tax revenue for the city, county and school district.

3. Skilled workforce 

Economic incentives targeted at training vary widely across the U.S. because they consist of cash grants, reimbursements or in-kind services, but training incentives may provide the most impactful benefit to a community. Programs which seek to help companies get up and running through use of existing curriculum at nearby educational institutions, such as technical colleges or community colleges, while utilizing a company’s process can generate a well-qualified workforce. One primary concern many manufacturing companies are facing is the lack of a skilled workforce. Using training incentives to foster a system which generates a qualified pool of candidates will aid all of the companies in the area, as well as create avenues for the unemployed or underemployed.

Conclusions

Perhaps economic incentives should be viewed through the lens of how they benefit the overall community, rather than the company itself. Economic incentives which bridge cost gaps and make new investment feasible while providing ancillary benefit to the community produces a true win-win.

Let us know what you think!