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 investment.
“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 and/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 nonstatutory (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 opportunities?
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?
n 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 capital investment.
n You must also demonstrate that you’re seriously considering alternative locations in multiple states and cities.
n 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.
n 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 incentives process?
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]. Or, contact Ray Sandelli, senior managing director, locally at [email protected] or (813) 273-8450.
