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Larry Gigerich: Cities, states should revisit economic-incentive policies

November 30, 2018

viewpoint-gigerich-larryWith Amazon’s much-publicized selection of the New York City and Washington, D.C., areas for its second headquarters, economic development incentive policies are being scrutinized more than ever. It is vitally important for communities, regions and states to give critical thought to these policies.

Flexibility, reasonability, accountability and transparency are all important factors to consider when taking a long-term view of incentives and entering into a public-private partnership. By asking questions, reflecting on current and emerging incentive-related issues, and taking into consideration the interests of all parties, a community/region/state can effectively position itself for long-term success.

Having solid policies in place ensures that leaders do not have to start from scratch every time a new project presents itself. Predetermined policies that reflect a geographic area’s top priorities create an environment that allows successful public-private partnerships for economic development projects. Due to the financial investment being made, it is vital that policies allow for transparency and accountability when incentives are being provided.

A clear incentive-compliance process ensures that the commitments agreed upon during negotiations are, indeed, being met. This is particularly important as groups such as the Brookings Institution, the Council of State Governments and the W.E Upjohn Institute are evaluating incentives awarded in support of economic development projects. Commitments from those receiving incentives typically include the creation and/or retention of a specific number of jobs at a certain wage level and a specific amount of capital investment. Since no company can predict what will happen over the next 10 to 15 years, it is important for the community/region/state to apply reasonable, proportional measurement standards as part of the compliance process.

Safeguards for both the governmental entities and those companies receiving incentives in support of a project are in place in most locations. As an example, locations in the Midwest region and the Mountain West division of the country will prorate the amount of incentives awarded to a company based on the company’s actual performance once the project commences.

The Indiana Economic Development Corp. does a very good job of tying the incentives received by companies by providing them post-performance. At a local level, the city of Fishers structures incentive transactions in a collaborative manner, which requires accountability but also allows for flexibility as business and economic conditions warrant. These real-world approaches result in a more agile incentive-management system that ensures accountability and transparency.

As communities/regions/states look to the future, some key questions should be considered when developing or refining economic development incentive policies:

 How should under-performance and over-performance be addressed?

 For purposes of establishing incentive policies, how will factors such as capital investment, job creation and average annual wage be weighted?

 What is a reasonable reporting requirement that will ensure transparency and accountability while not imposing onerous standards for the incentive compliance process?

 How can an efficient and fair compliance-management process improve relationships with existing companies and the opportunity to compete for future economic development projects?

 Is there a holistic approach in developing incentive policies that will ensure the right people are involved in the decision-making process from the onset of a project?

 Who will be responsible for updating incentive policies in the future?

 How can a community/region/state effectively engage site-selection professionals and companies in the incentive-policy development process?

 How can these same groups use their incentive policies to bring about a public-policy outcome that addresses key priorities of the community/region/state?

Asking these important questions during policy development and evaluation stages will help keep communities, regions and states on task for long-term success in economic development.•

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Gigerich is executive managing director for Ginovus.

 

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