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During a recent incentives analysis and benchmarking study, several national site selectors who are also members of the prestigious site selectors guild, were interviewed. Several important factors regarding incentives were noted:
- Flexibility is a must. Some companies will need the majority of the incentives up front or in the first few years of the project to help with cash flow. Others, will want a consistent incentive arrangement. For example, a project that receives a 50% tax abatement for 10 years. One company may want 100% abatement in year 1, and then stair-stepped down over the life of the incentive. Another company will want to count on the 50% abatement each year for ten years.
- Incentives that reduce upfront costs are important. Any incentive that can help a company keep money in its pocket during the higher years of capital outlay, will help the overall financial position of the company.
- Local tax abatement for high capital projects is crucial. Projects are having higher and higher capital investments today than several years ago, and having a local tax abatement option is becoming crucial for winning projects.
- Training programs that help with talent pipeline retention and expansion are as important as infrastructure. Those communities which can offer assistance on the talent/workforce side, will win projects.
Part 3 of 3 Key Lessons
For a recent client, I conducted an Incentives and Benchmarking Analysis for the economic development organization and two of the cities in its territory. The goal was to understand if incentives which had been granted to a number of projects over the past fifteen years had done as promised—created value for the community. Several lessons were learned from that project that I will share over time. But three key lessons learned were: incentives only create a return on their intended use, incentives never left the community worse off, and communities do not have processes in place to track incentives well.
The final lesson was that communities do not have processes in place to track the incentives they are given. In one of the small communities I worked with, the finance director was able to give me the information quickly and easily on two projects. Yet, had there been more, or when this thirty-year veteran finance director retires, it could be a problem to locate the information. In the larger metro area, the finance directors were able to give information piecemeal, and it was great information. But it was apparent that they had to look in multiple places, take several staff members to pull the information, and ultimately were without some project information.
Regardless of how incentives are portrayed in the news/political word today, they do show a return for the communities who use them wisely, and do increase accessed value and tax revenues.
Part 2 out of 3 Key Lessons Learned
For a recent client, I conducted an Incentives and Benchmarking Analysis for the economic development organization and two of the cities in its territory. The goal was to understand if incentives which had been granted to a number of projects over the past fifteen years had done as promised—created value for the community. Several lessons were learned from that project that I will share over time. But three key lessons learned were: incentives only create a return on their intended use, incentives never left the community worse off, and communities do not have processes in place to track incentives well.
The second lesson was that incentives did not leave the community worse off. Even when a property tax abatement was given, which means a company does not have to pay its full tax bill, the taxing districts still ended up with more money before the company made its investments. This was notable when development occurred on a greenfield site. Taxes in the years preceding a hypothetical development may have been $10,000. After the development occurred, say a shopping complex, the taxes to be paid were supposed to be $300,000. A tax abatement was given so that not only was the original $10,000 paid, but an additional $50,000 a year for ten years. In this instance, the tax bill paid was $60,000—an increase to all. Some detractors of incentives only want to focus on the loss--$240,000 was not paid each year. In many instances, the abatement makes the project possible, and therefore, the tax bill can stay $10,000, OR, go up to $60,000 for a period of years, before it comes fully on the tax rolls at $300,000. But only looking at what is lost, is not fair to the project.
Part 1 out of 3 Key Lessons Learned
For a recent client, I conducted an Incentives and Benchmarking Analysis for the economic development organization and two of the cities in its territory. The goal was to understand if incentives which had been granted to a number of projects over the past fifteen years had done as promised—created value for the community. Several lessons were learned from that project that I will share over time. But three key lessons learned were: incentives only create a return on their intended use, incentives never left the community worse off, and communities do not have processes in place to track incentives well.
First lesson—incentives only create a return on their intended use. The programs evaluated in this analysis included TIFs (tax increment financing), IRBs (industrial revenue bonds), CIDs (community improvement districts), and NRAs (neighborhood revitalization areas). These programs either give a tax abatement or produce additional sales tax revenues that go back to the developer for improvements. For the programs which gave a property tax abatement, a PILOT (payment in lieu of taxes) was paid, or the additional tax received over the base year was placed in a separate account to pay for improvements. In each instance, the overall accessed value of the property in the program increased substantially, as did the tax revenues. They not only increased each year of the abatement, but increased once the abatement was completed. The CID which created additional sales tax revenue added a percentage to the existing sales tax, and therefore did not raise less money than when the addition was put in place.
Many public officials expect additional jobs created or additional wages paid when any kind of incentive is given. However, for the programs mentioned before, job creation or increased wages were NOT being incentivized, so not only was there not a means for capturing that data, it was also not an intended use of the programs.
Education to elected officials, board members, staff, and stakeholders needs to be ongoing so that all understand how an incentive program works, and WHAT is being incentivized.
Another article discusing that workers are returning to the office. This should help large metros with office space.
Census data: D.C., New York see growth after remote-work pandemic loss - The Washington Post
Those who worked from home prior to 2020 were a small percentage. The numbers surged during the pandemic, and have continued to decrease since the height of the pandemic. Several articles are examining and exploring whether the work from home will be allowed to continue, or if a larger return to the office movement will take place.
Working From Home Isn't an Option for Most Businesses, According to New Data | Inc.com