It’s a win-win situation. State and local governments offer economic and financial
incentives to businesses. In turn, these organizations create quality jobs and
increase the tax base by attracting capital
“The use of incentive programs is becoming increasingly competitive across the country, especially in the Southeast and
Southwest,” says Jonathan Sangster, senior
managing director with CBRE Consulting at
CB Richard Ellis, Atlanta.
Smart Business learned from Sangster
about how to find and benefit from government economic incentives.
Why should companies consider local, state
and federal economic incentives?
Strategic location decisions are driven by a
number of variables with cost being near the
top. Incentive programs can enable the leadership team to either support its financial
business case for the preferred location decision or to reposition a higher cost location
that may be a better fit with strategic and
operational variables, such as work force,
accessibility, business environment and quality of life. A combination of incentive programs can effectively reduce project start-up
or relocation costs as well as lower longer-term operational costs, such as property
taxes, utilities and corporate tax liabilities.
What types of incentives are available?
Incentive programs typically fall into two
categories, statutory (as-of-right) and non-statutory (discretionary). Statutory incentives are available to any business that meets
specific criteria or qualifications like job creation, capital investment or wages. These
typically include tax credit programs, sales
tax exemptions, recruiting and hiring assistance, and employee training assistance.
Discretionary incentives are custom programs offered on a project-by-project basis
and may be driven by a number of variables,
including quality job creation, significant
project capital investment, targeted industry
sectors and strength of the company.
Discretionary incentives are often designed
to ‘level the playing field’ with other locations
or to close a financial gap. They typically
include property tax abatements, forgivable
and low interest loans, free or reduced price
land, infrastructure assistance and deal-closing cash grants.
How can businesses find out about these
States’ economic development or commerce departments’ Web sites will typically
provide a summary of their statutory incentives and financial assistance. Discretionary
incentives are less accessible and are most
likely discovered through past project press
releases and published articles. There are
also site selection industry publications and
Web sites that provide excellent summaries
of incentive programs by state. Companies
can also check with real estate and consulting firms that specialize in location analysis
and tax and incentives negotiations.
What are some strategies for working with
economic development groups?
- Before approaching the organization,
document the key project parameters that
will determine the type and amount of incentives that might be available. These would
include the amount and timing of job creation, the average wages of the new jobs, the
project schedules and a breakdown of the
- You must also demonstrate that you’re
seriously considering alternative locations in
multiple states and cities.
- Identify a single point of contact to coordinate incentive discussions within the various economic development groups. If you
are considering multiple cities or counties
within a state, start with a state economic
development organization or a major utility
economic development group in the state.
- Consider hiring a third party to facilitate
the process for you. These groups add value
by understanding the available programs and
knowing the processes and timing required,
having established relationships with the key
stakeholders, and knowing of prior awards
and strategies that could help to optimize
your project incentives.
Are there nontraditional incentives?
Leading edge economic development
organizations are creating performance-based programs that offer more front-loaded
benefits in the form of cash grants, forgivable
loans or rebates from tax withholdings if performance metrics are met. I suggest identifying specific needs, such as use of an apartment or condo for a year while the project is
ramping up or perhaps waiver of in-state
tuition waiting period for transfers into the
state, and asking if those needs can be met.
What else should companies know about the
When the agreements have all been signed,
it is essential to focus on obtaining the benefits. Roughly 50 percent of negotiated economic incentive benefits are never collected
due to compliance issues or failure to follow
administrative requirements. Larger businesses may have the resources to manage
this in-house through accounting, tax or
finance organizations. Smaller companies
may need to work with specialty firms that
can manage these processes for them.
JONATHAN L. SANGSTER is senior managing director with CBRE Consulting, CB Richard Ellis, Atlanta. Reach him at (404) 923-1228
or [email protected].