Incentives have their place in location decisions.
Often, we in the economic development profession lose sight of
the fact that incentives really are used to decide between two
“equal” locations. While incentives recently ranked No. 1 in a
survey of site location factors, their importance comes into play
only if the locations already have the building or site, labor,
transportation, utilities and quality of life that meet the company’s
needs. If a community doesn’t have these things, the incentive
offering is worth nothing. It goes back to this adage: you really
can’t “buy” a project if it doesn’t make a good business case.

      So why all the buzz about incentives? It
is because of the sheer dollar value that some companies have
received, and the huge press it generates. Certainly, these are
large sums, but look at what it means to the state and community
that is successful in locating the project. All of these entities
will tell you that they would do it again; that every dollar spent
has been worth it; that they have reaped and will continue to
reap the benefits of the company’s location to their area.

      When you look at the amounts paid per job
at recent automotive assembly plant locations, they vary upward
and downward — they don’t just continue to increase. The point
is that these states and communities have figured out the value
to them of having the company present and what it would mean to
them long-term (15 to 20 years out). This allowed them to determine
if this was a good investment based on their return (increases
in taxes of various kinds to the state and community). Some of
the return comes from the primary project, and the rest from suppliers
and other spin-offs that locate in the area because of the assembly
facility. Good analysis will determine what is “good business”
for a state and community to include in their incentive package.
And because of this, each package is tailored to meet the specific
needs of the company.

      So what do you do? You make smart decisions
about incentive offerings. You decide what you want to get in
return for your incentives. One-size-fits-all incentive packages
seldom do the trick. Incentives need to be tailored to the industry
segment. A set of statutory incentives around which to build the
tailored or discretionary incentives is one good solution. Having
the incentives designed for the targeted industry adds credibility
to your recruitment efforts. It also meets the needs of the companies
you’re trying to locate to your area.

      If you have more than one target industry,
then have an incentive package for each target. Be sure to engage
experts in your target industries to help you establish your incentives
tools. These experts may be executives in the industry in your
state or community, or they could be consultants to this industry.
Another decision you must make is the split between what is available
at the state level and what is available at the community or area
level. The state and its communities need to be on the same page
when it comes to targeted industries and associated incentives,
and the authority to offer the incentives must be legally provided.

      It is also important to remember that incentives
are not just money. Many things that you provide can be very low
cost and extremely effective, while others do cost money, either
in preparation or at the time of the deal. Having ready sites
with the proper infrastructure in place and buildings that are
already constructed to the criteria of your target industry (lab
space, for instance) are examples of incentives for which you
have already covered as well as costs the prospective company
does not have to worry about.

      Others low-cost incentives include ease in
all permitting applications — environmental, business and construction.
Creating one point of contact for monetary incentives, training
and education, environmental permitting and local permitting are
all steps you can take where the costs are minimal but yield great
benefits to the company by saving them time and money. When the
time is right, you can then focus on the monetary incentives that
are meaningful, such as payroll tax credits, sales tax exemptions,
property tax abatements, relocation cost offsets, financial assistance
and others.

      You will always be saddled with determining
the “right” amount of incentives for the projects you work. For
this, there is no magic formula or book of answers. Developing
a good relationship with the company representatives and any consultants
involved will do more for you in making this determination than
anything else you may do. Listen carefully, answer the questions
being asked, and do this in a professional, prompt, concise and
accurate manner. Doing your best and respecting the client will
give you a real understanding of what is important and required
by the company. And putting your best effort into creating an
incentive package will sometimes overcome any shortfall in your
monetary incentives.

      Economic development has been and always
will be about relationships. And the ability to establish good
relationships is the best tool for both the economic development
professional and the company decision-maker to possess. It will
help make the outcome of incentive negotiations a win-win for
all concerned.