Filling the Gap with Creative Economic Incentives for the Modern-Day Project
by Rachel Rohn & Kelley Rendziperis, on Aug 20, 2019 1:24:38 PM
Historically, economic incentive offerings were standardized and a project either qualified for benefits or it did not. More recently, state and local governments are working toward creating flexibility with their economic incentive programs and trying to ensure companies fully realize the benefits they are offered. However, as the business environment continues to evolve, economic development policies will need to adapt as well. This blog touches on some recent challenges we see with our projects and economic developers’ ability to incentivize certain projects.
Qualified workforce availability is a major challenge
One of the most common economic development gaps when attracting businesses is the lack of a qualified workforce. Last month the unemployment rate across the country remained unchanged at 3.7%. This historically low rate impacts many jurisdictions because either a company cannot meet its employment demand and/or the tight labor market forces a company to pay higher than anticipated wages. Both issues can cause a company to locate elsewhere. Some of the focus areas include:
- Training:Training programs targeted at modern business operations are imperative to retaining and recruiting new business. Communities need to ensure they proactively address skilled worker gaps, such as IT workers, welders, bilingual employees, etc. Jurisdictions that have worked closely with their community and technical colleges to develop curricula around existing industry needs will be best-suited to compete for new business. Not only will this lead to increased opportunities in a certain industry, but it can be representative of how the community can craft specific programs for other industries it wishes to recruit.
- Apprenticeships:Apprenticeship programs are another way to improve the skills of a workforce. Communities should encourage this kind of hands-on approach and many offer companies a direct benefit of grants, supplemented wages or tax credits for implementing apprenticeship programs.
- Workforce retention: States are continually realizing the value of retaining students that are already living within their borders. Providing reduced or free tuition for technical college or state universities is becoming more popular. These programs attempt to tie the talents of a student to the state for a certain amount of time.
- Targeted groups of employees:Economic incentives tailored to specific employee populations such as veterans, youth, etc. can help a community increase its labor pool by attracting these types of individuals, which would presumably be more sought after by companies incentivized to employ them. We have clients whose mission is to increase employment of targeted individuals, and they will ask us which communities will best support and incentivize this objective.
Employee mobility is changing workforce dynamics
Technology, new generations and a desire for work/life balance have completely changed the way an employee can perform his or her job. The customer service and professional service industries are progressively moving to the hub-and-spoke model. With this model, a company typically offers hoteling spaces and employees are not assigned to a specific desk; instead, they can reserve a desk for the increment of time in which they will be working in the office. Otherwise an employee works from home or at a client site.
Other companies allow virtual employees who do not report to a specific physical location. The benefit to a company of these types of models are the direct cost-savings on the real estate, which results in less property and sales tax revenues for the community; thus, many communities will not provide economic incentives for these mobile workers. However, a state and local community should still try to have enough flexibility to allow economic incentives in certain circumstances. For example, we have seen job creation incentives for at home workers when a company tries to recruit employees from a specific region. In this instance, incentives were higher for residents of the community than nonresidents. In addition, state-level incentives should still be available in this situation to the extent these positions are generating additional state revenues via the payment of state income taxes.
Real estate availability can be a significant challenge to overcome
What happens when you have a qualified workforce, but not enough real estate? Across the country we are seeing jurisdictions where real estate inventory has not kept up with demand. This issue is not specific to one property type as it can be seen for projects that need office space, warehousing or manufacturing sites. For example, we recently encountered a fast-growing port district which is now slowing down due to a lack of warehousing available to the companies utilizing the port.
When a gap in real estate is identified, there are a couple of options to incentivize development. First, the state or local jurisdiction could have a third party analyze sites that could be made pad-ready for development. The benefit of this type of analysis is that the jurisdictions can determine the optimal site to invest resources. At the same time, this would greatly help a company complete a build-to-suit in a shorter time frame if the site is already leveled and utilities are accessible. Companies tend to avoid building a new site if they cannot complete it within the business’s required turnaround time. A second creative way to shore up real estate options would be to directly incentivize the developers in order to close any gap in financing. Offering economic incentives to developers such as cash grants, tax increment financing, sales tax rebates or property tax benefits would allow the jurisdiction to have some control over the type of properties and industries expanding and where in the region the development would occur.
Economic developers need to ensure they are thinking about modern issues, as well as what is yet to come, when deciding how to structure economic incentive programs and recruit businesses.