n a survey of top corporate executives who are the key decision makers on site selection for their firm, most find that incentives are not a leading factor in choosing a site location for their facility. However, when the same group of professionals is asked how important incentives are to the ultimate site decision, nearly 80 percent admit that incentives are a key factor.
        So why are there different responses to what appears to be the same question? The answer is quite simple. Incentives don't last forever. Most companies will not choose a location based solely on incentives. While incentives may be able to mask certain location shortfalls in the short term, the company will be responsible to find ways to make up for lack of production or efficiency once the term of the incentives has expired. If the company finds itself in a position where it can't attract quality labor, or if business costs are extremely high, the company will not be in as good a position as it could have been after the incentive period has expired. This is the reason business costs should be reviewed both pre-incentive and post-incentive to get the most accurate picture of what truly is the best location decision.
        This begs the question, "Why do incentives exist, and should you shy away from the areas touting the best incentive packages?" Incentives are what they are ... incentives. They are used routinely by government agencies to attract investment, or to steer investment into blighted areas that may not have received consideration for a project. Incentives remain at the top of the priority list for many companies because they are critical to a successful site location. While incentives do try and steer investment in a certain direction, and may be used to entice companies into lesser-developed areas, this does not mean there is always a problem with a heavy incentive package. Targeted industries will receive heavier incentive packages, and your search may take you to an area which happens to be focused on your particular industry. Although incentives should not be considered "the factor" in determining the final site, they are very important when trying to decide between a number of locations with similar characteristics.
        An integral part of any site selection process is the negotiation and evaluation of the incentive programs that can be offered at each of the locations under consideration. The impact incentives can have on the bottom line of any business operation is significant enough that missing incentive opportunities can result in a serious blow to your facility's profitability.

Phase I ­ Identification and Quantification

The first phase of the incentive process is the most critical step to ensuring that you will be successful in securing the best package possible.
        This is the step equivalent to scouring the Internet before you purchase a car. Before you walk into the dealership the ideal situation would be to have all of the information regarding the production and delivery costs of the vehicle so that you can effectively negotiate the best price possible. You would also want to know what programs are available through the manufacturer such as a recent graduate rebate, repeat buyer rebate, and so on.
        The incentive process is very similar. Your first step should be to gather a detailed listing of incentives available through the federal government, state governments, and city or local governments. Next, get a listing of what incentive packages have been given to similar types of companies in the past, therefore creating a baseline report. Many of the incentive packages given are public record, and can be obtained through requesting copies of the minutes from economic development meetings and hearings. Most states, counties, and localities have specific dates when they will address the approval or disapproval of incentive packages, and the minutes from these meetings should prove to be insightful.
        You will also need to research all of the as of right, or statutory incentives and review to see if they are going to be applicable to your particular situation. Much like the rebate programs a car manufacturer uses to attract certain types of buyers, government incentives also are used to target certain industries or development in certain areas. Obtaining a listing of the statutory incentives and determining which qualify for your particular project can make a significant difference.
        As much as we would like to believe in a perfect world, the reality is economic developers may not always know their incentive programs inside and out. Economic development officials are trained in many disciplines within their community, and sometimes they don't have a complete grasp on the nuances of every incentive program. It is imperative to review these programs internally to determine if changes in your approach to the business can qualify you for what otherwise may seem to be an insignificant program.
        Once you have your baseline study, now you are ready to sit down and negotiate.

Phase II ­ Negotiation and Procurement

During this phase you will need to decide what incentives on the baseline list your company will choose to pursue.
        It is imperative to understand that the incentive package you desire can be negotiated, not dictated. Understanding what incentives will make the most impact on your business will lead to a successful negotiation session. For example, if your company, due to limited tax liabilities, cannot use tax credits, you may be able to shift some of the incentive dollars into programs that can be fully utilized such as training grants. It is important to remember that the dollar figure offered as the incentive package by the government is not the most important number. It is the dollar figure actually used by your company that is. This may seem like a simple concept, but it is very common for a company to be duped into believing that they are going to receive more than they actually will.
        This phase will require company representatives to schedule meetings with the state and local economic development officials to outline any incentives above and beyond what was set forth in the Phase I study, and to negotiate the terms of the incentive package to maximize total benefit.

Phase III ­ Administration

The most important step in your efforts to secure incentives comes in the form of administration. While not the most glamorous job in the process, without it all of the efforts put into the first two phases of the process will be wasted. Once the incentives are identified and secured, you will be required to set up multiple tracking systems to capture the information necessary for compliance with each individual incentive program. This may require a coordinated effort from various departments within your company, such as: payroll, human resources, finance, operations, etc. in order to obtain and monitor the necessary data.
        Failure to file all required reports in a timely and accurate manner, ensuring that your company is in full compliance with the incentive regulations, can sometimes result in the removal of the company from the incentive program, and the forfeiture of any awards granted. Even after the reporting requirements are met, it is wise to monitor the status of your incentive payment to ensure the incentive check is to be cut. Accurate record keeping is key, as it could be used to assist in the defense of any State audit or disallowment of any incentive previously negotiated. It is also crucial to stay on top of your commitments to the State or Locality, as clawback provisions may be triggered if certain hurdles are not cleared. Avoiding the potential for a penalty payback of some or all of the incentives received can save your business a lot of money and heartache.
        Every incentive negotiation process will be different. However, following a few guidelines and doing a bit of due diligence will pay off immensely during the process. If your timeline is such where you cannot complete any portion of the necessary steps in order to be successful, consider outsourcing some or all of the process to ensure accuracy and efficiency.
        Setting up an internal process will make the incentive experience more amicable for both the economic development professionals and your company. Going into the negotiation with an understanding of what your company needs and what the reporting requirements will be for each incentive will allow you to focus your efforts on maximizing the value derived by the process, and lead to successful site location decisions.