Negotiating State & Local Economic Incentives
Governments award funds through public incentives to lure companies to their localities – funds that can help minimize taxes and offset capital and operating costs.
Special 2019 Note: Those looking for Joe Vranich’s new comprehensive report about businesses leaving California can find a summary on the California page (once there, scroll down).
Services are available to identify and negotiate economic incentives. At first, incentives are explored on an anonymous basis on your behalf (your project will be referenced only by a code name, which is a standard procedure in the Site Selection process).
Can a Small Business Qualify for Incentives?
We can use a thousand words to explain why that question is difficult to answer, but we’ll get to the bottom line: Many enterprises fail to meet legal thresholds because in the new location they will have too few employees, have low compensation levels, or have a thin capital investment plan.
But, we always ask for incentives! Consider this: In addition to 50 states, there are 3,242 counties and county-equivalents and about 40,000 local governments in the United States. Some have incentives while others have none. Also, laws and public budgets change every year, making it difficult to determine what agency is offering what types of incentives. So, in short, everywhere we go, we ask.
Pressures Limit Incentives
Often unrecognized is the pressure within Economic Development Agencies when competing incentives applications put the agency at risk of exceeding its budgetary or statutory limits. These organizations are run by conscientious people who are accountable to their Board of Directors and often to Governor’s offices, city councils and mayors. Hence, for an application to prevail over competing projects, it must be thoroughly prepared, comply with legal and agency requirements, supported with credible data, and presented in a convincing and timely manner.
Sometimes incentives are curtailed or eliminated outright because of a public outcry that a company received certain benefits such as tax abatements, but packed up and moved away even though they did so while following all of the incentive stipulations. Such is the case in New Jersey as this is being written in January 2019. Also, we’ve seen where incentives wither in one state or locality while they become more robust elsewhere.
Examples of Public Incentives
Incentives are either statutory or negotiable and generally fall into the following categories:
- Cash Grants
- Employee Tax Credits
- Training Grants
- Wage Subsidies
- Property Tax Abatements
- Investment Tax Credits
- Energy Investment Tax Credits
- Sales Tax Exemptions
- Low-Cost Financing
- Utility Rate Reductions
- Green and Renewable Energy Credits
- Fee Waivers
- Infrastructure Grants
- Fast Track Permitting
- Inventory Tax Reductions
- Subsidized Land
How it’s Done
Available incentive opportunities are researched. Next, a business case to qualify for incentives will be created and provided to Economic Development agencies. It generally is helpful to provide the agency with an Economic Impact Analysis (statutes in some states require such a study). The likelihood of receiving incentives from different jurisdictions will be included in a competitive location assessment. Once a location is selected, experts will coordinate the application process and facilitate the authorizations and contracts required to receive the incentive awards, often a complicated process.
After incentives are in place, you must remain in compliance. You may assign tasks and deadlines to a management employee (with compliance duties clearly outlined in a job description). Alternatively, a turnkey arrangement with an incentives management and compliance firm would make sure that you receive the full value of incentive awards as negotiated. Whatever path is taken, remaining in compliance is an absolute must. Failing to do so will, at a minimum, result in adverse media coverage and potentially costly clawbacks by the granting agencies.