Reduce risk and achieve better outcomes with economic development incentives provided to businesses.

1. Guidelines for
Effective &
Responsible
Business Incentives"
SMART INCENTIVES
APRIL 2015

2. About us"
Business Development Advisors
is an economic development
consulting firm"
Smart Incentives helps communities
make sound decisions
throughout the incentives process"
"
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3. Why do we use incentives?"
To achieve our community’s economic development goals
"
◦ Jobs"
◦ Business Development"
◦ Investment"
◦ Downtown revitalization"
◦ Brownfield redevelopment"
◦ Quality of life and quality of place"
◦ Strengthen tax base"
Incentives are not just about winning a deal. Smart incentive use is
always connected to a larger economic development strategy."
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4. Today’s environment
requires better analytics"
Reduce risk"
Quantify net benefits"
Refine incentive strategies"
Explain and build support for decisions"
Achieve better outcomes"
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5. Smart Incentives 4x4
Framework"
and to communicate and improve incentive outcomes
Transparency
Accountability
at
all
4
stages
of
the
incen@ves
process
Recipient
Deal
Compliance
Effectiveness
Rigorous analytics to reduce risk
Data
Analysis
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6. Reducing Risk -
Making Sound Decisions"
Data and analysis prior to awarding incentives"
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7. Due diligence"
Recipient"
◦ Background research on the applicant"
Deal"
◦ Business case analysis of the project"
◦ What could go wrong?"
"
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8. Can this deal generate net
benefits for your community?"
Project Attributes"
Fiscal Impact"
Economic Impact"
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9. Project attributes"
Project characteristics"
Fit with economic development strategy"
Effect on existing businesses"
Timeframe"
Likelihood of success"
"
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10. Fiscal impact"
Tax and budgetary implications of incentive decisions for state and
local government"
Cost of the incentive"
Tax revenue the project may generate"
Additional expenditures that might be required"
Challenges:"
◦ Jurisdictions affected"
◦ Fiscal impact of indirect and induced jobs "
◦ New jobs and new residents"
◦ Timing "
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11. Economic Impact"
Traces the flow of money after an initial investment to estimate the
contribution to the regional or state economy"
Economic impact depends on industrial structure and size of your
region "
Components: "
◦ Direct"
◦ Indirect"
◦ Induced"
Data needs"
Judgment and interpretation"
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12. Takeaways ""
Devote resources to the analysis"
◦ Organizations like IEDC, CDFA, C2ER can help make the case"
◦ Band together with others in your community and region"
Strike a balance between detail and reasonableness"
◦ You’ll never be “right” – need order of magnitude estimate"
◦ Judgment still needed"
Be prepared to communicate your process, decision
and rationale"
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13. Compliance and Effectiveness"
Evaluating incentives outcomes"
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14. Did this deal generate net
benefits for your community?"
Project performance "
Achieving economic development goals"
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15. Compliance – performance
agreements"
Define performance requirements"
Prepare an agreement"
◦ Only 56% of local governments report that a performance agreement
is required when providing business incentives"
Tie the project timeframe to the fiscal break-even point"
Require progress reports "
Are policies in place to protect the community in the
case of non-performance?"
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16. Compliance monitoring"
Whose job is it?"
Can information be verified?"
◦ Require reporting as part of agreement"
◦ Data sharing among agencies to verify key reporting variables"
How is data tracked?"
Timeframe?"
Site visits and closeout interview"
"
Collect the data to see what is working and what is not"
"
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17. Evaluation"
Did the incentive affect the
choices businesses made?"
Were existing businesses
harmed by the incentive?"
Did the benefits outweigh the
costs?"
Is the program meeting the
community’s goals?"
How could it be improved?"
Are the community’s incentives
working together efficiently?"
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18. States regularly evaluating
incentives"
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19. Business Incentives Initiative"
Identify effective ways to manage and assess incentive policies and
practices"
Improve data collection and analysis"
Develop national standards and best practices that states can use to
report on economic development incentives"
Participating states: IN, MD, MI, OK, TN, VA"
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20. Evaluating to inform policy
choices "
Review your portfolio of incentive offerings"
Define the goal of each incentive program clearly"
Consider building reviews into the budget process (RI)
or legislative calendar (IN, MS)"
Create a team with agency experience, analytical skills
and subject-matter expertise"
Collaborate with other agencies to collect data and
share analytics expertise"
Leadership is critical"
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21. Improving communication"
Preparing for greater transparency and accountability"
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22. Reporting & communication"
Elected officials and community groups are demanding
better data from EDOs on incentive use."
"
Reporting should"
◦ reflect different types of information"
◦ recognize the needs of different audiences "
Creative presentation can help audiences absorb
complex information"
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23. Transparency"
Lawmakers/the media/the public generally want to
know:"
◦ How much are we spending?"
◦ Who is receiving incentives?"
Reporting considerations"
◦ Individual recipient versus aggregate reporting"
◦ Just the facts or analysis?"
◦ Need to provide context"
Usable/user-friendly information"
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24. Accountability"
What are we getting out of our incentives
spending?"
Reporting the results of the evaluations"
Collaborative approach to evaluation – and
reporting "
Using reporting to improve not punish/get punished"
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25. GASB: State & Local
Tax Abatement Disclosure"
Disclose agreements between individual taxpayers and the
government that might diminish the tax base"
Would include:"
◦ General descriptive information (tax being abated, authority, eligibility,
mechanism by which taxes are abated, provisions for recapture)"
◦ Commitments made by the recipient"
◦ Other commitments made by a government (such as infrastructure)"
◦ Number of tax abatement agreements entered into and in effect during
the reporting period"
◦ Dollar amount of taxes abated during the reporting period"
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26. Some guidelines"
Transparency"
◦ Share process and rationale for decisions"
◦ Release basic deal information"
Accountability"
◦ Annual report – what we did and what we hope to achieve"
◦ Evaluations every 3-5 years – what worked, how can we
improve"
Context"
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27. Concluding thoughts"
Incentives should be used to accomplish community
goals – not just win a deal"
The problem is we haven’t known which incentives
actually help our communities"
Economic developers need better data and analytics to
identify what works and enable sound decisions when
awarding incentives"
The next few years will see tremendous improvements
in the way we talk about and evaluate incentives"
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28. Contact us"
Ellen Harpel
President"
571/212.3397"
eharpel@businessdevelopmentadvisors.com "
www.businessdevelopmentadvisors.com
"
ellen@smartincentives.org"
http://www.smartincentives.org/
"
@SmartIncentives"
"
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