When selecting a site for business
operations, or considering a move,
the availability of government economic incentives might just help in the decision-making process. In an effort by the state
to remain competitive, incentive programs
serve the purpose of boosting business in the
right locations, creating a win-win situation.
Smart Business spoke to Victor Murray,
senior vice president of CresaPartners,
Princeton, New Jersey, about how incentives
can affect where businesses chose to reside.
How might incentives fit into site selection?
The four major corporate resources — capital, people, technology and information —
are constantly being transformed to accommodate the core businesses that they support. By contrast, the fifth corporate resource
(real estate) is far less flexible and requires
considerable research, in-depth local knowledge and tactical forecasting in order to
address the dynamic needs of the other four
resources. Most incentive packages attempt
to offer a broad array of incentives that can
address each (or many) of these resources,
since once a site has been selected the prospect of leaving anytime soon is not likely.
My collegue Tim Myllykangas, a principal in
our CresaPartners office in Boston, works
with incentive programs there and says that,
although not always the top criterion at the
first phase of a typical site selection project,
once a short-list has been developed, incentives can rise to the top as a key factor for
selecting the finalist community. Unfortunately, he says most CFOs place a zero
value on corporate tax credits, which then
reduces the overall incentive package value
of some cities/states by 25 to 75 percent.
Above-the-line incentives can make or break
a final decision since start-up costs are so significant for most projects.
What kinds of incentives are available?
There’s an interest on the part of the state to
encourage redevelopment or revitalization in
places where it wouldn’t normally occur, so
their incentives are really tailored to that.
Many incentive packages are put together
with equipment and employee investment
tax credit programs, like they do in urban areas where there’s high unemployment and
low inventory of unchallenged sites.
There are incentives tailored to spurring
geographic diversity and urban redevelopment, like opportunity zones. Pennsylvania
has ‘keystone’ opportunity zones and they’ve
used that with significant success in going to
geographically remote areas, like the
Scranton and northeast areas, to try to
encourage businesses to locate there.
Business employment incentive programs
(BEIPs), what we have in New Jersey, are
really grants focusing more on the hard
assets, like the employment and personnel
side. They are offered to companies that are
either expanding within the state or who are
considering relocating here. In a BEIP, a company can be refunded 10 to 15 percent of the
taxes that it pays if it’s in a smart growth area.
Or, in an area where they really want to
encourage growth, it might be refunded 80
percent of its taxes. There’s various limits
depending on whether it’s in an area where
the state is really encouraging growth.
Which businesses are good candidates?
Some incentives are tailored toward the
larger organizations — 250 people or more
— and at any given time the states do change
those entry levels for where you can participate. Qualification can vary based on the
industry. Sometimes programs are tailored
toward technology companies; others are tailored more toward manufacturing or offices.
Are there limitations?
That’s something that changes on a fairly
infrequent basis — but it can change. Some
of the programs are victims of their own successes, in that it encourages more and more
people to participate. Some of the states do
cap their incentives because of tough times.
They want to continue them, but realize that
it comes at a cost. So there is a tendency to
start limiting what they can contribute or
offering some incentives in lieu of others
based on where their financial resources are.
How can companies learn more about programs available to them?
The world of incentives has become very
complex in recent years and the need for
sophisticated specialists with experience is
critical to maximizing your opportunities. At
CresaPartners, we’ve seen many companies
think they did a great job getting $3 million in
incentives, never knowing they could have
received $5 million if they’d had specialists
on their team focused on the detailed process
of negotiating multiple programs in parallel,
as well as multiple cities and states. A preliminary estimate or range of potential incentives can be provided quickly by consultants
once basic project parameters are known.
One way is to go individually to the different regions that you’re considering or the different state economic development groups.
There are also trade associations and real
estate adviser groups that specialize in tax
and incentive programs. We recommend
engaging a qualified professional that can be
a single source who has access to all of the
areas you might be considering. Dealing
directly is also time consuming. And without
a proper confidentiality program in place,
you let the entire community, not just your
intended audience, know that you are out in
the market looking; your anonymity is lost
and you’ll get barraged by economic groups
in every state pursuing you.
VICTOR MURRAY is senior vice president of CresaPartners, Princeton, NJ. Reach him at [email protected] or (609) 452-8200.
