As the end of the year approaches, companies are shifting their focus to economic incentive reporting. Unfortunately, the most overlooked aspect of a successful economic incentive package is the establishment of a comprehensive compliance process, which is why it has been reported that more than half of companies awarded economic incentives never fully realize the benefits.
Noncompliance can occur for several reasons: different parties being responsible for the site selection phase of a project and economic incentive negotiations versus the actual reporting on a project after it is underway, misunderstanding key commitments, personnel turnover and not clearly delineating who is responsible for the economic incentive compliance efforts.
The following blog aims to provide considerations and guidance on how to effectively prepare and manage the economic incentive compliance process.
Considerations when establishing the economic incentive compliance process
If a company does not timely or accurately complete compliance requirements, there is risk that the benefit may be reduced or eliminated, which may create a financial gap for the project. This can be averted or mitigated by proactively taking measures before an issue arises. Site Selection Group recommends establishing an economic incentive compliance process which includes the following:
Creation of an economic incentive compliance team
Many companies are accustomed to creating a team of key stakeholders for the site selection process and will include individuals who are responsible for economic incentives, but this rarely includes individuals who will be responsible for the actual compliance efforts and realization of benefits. The individuals on such a team may differ depending on the actual economic incentives procured, but likely should include:
All these individuals will play a critical part in providing necessary data which will be needed to comply and realize benefits. In addition to the various roles described above, it is highly suggested that companies appoint a primary contact to take ownership of the overall process. This could be an internal resource or a third-party consultant.
Review all economic development agreements or memorandums of understanding
Ideally the established compliance team will be a part of the review of economic development agreements during the negotiation phase of the incentive process to identify common pitfalls that occur later in the process. Regardless, the first key step in establishing the compliance process is to fully understand and summarize each economic incentive program and its terms, including:
Invest in an economic incentive management system
Most companies use Excel spreadsheets to track their economic incentive portfolio. Unfortunately, Excel is rather limited in its functionality for these purposes. In addition, employee turnover can wreak havoc on the compliance process if the Excel documents are only controlled by one or two individuals. Site Selection Group created a proprietary, web-based software application, IncenTrak®, to internally manage our clients’ economic incentive compliance. We also license such software for use by third-party corporations, as well as economic development organizations. Whether a company uses IncenTrak® or not, the key characteristics of an effective economic incentive management system are:
By bringing the right resources to the table, communicating incentive requirements consistently and early in the process to all interested parties and establishing effective tracking and monitoring systems, a company can ensure it maximizes its economic incentive portfolio to its full potential.