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Guidelines for effective & responsible business incentives

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

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Guidelines for effective & responsible business incentives

  1. 1. Guidelines for Effective & Responsible 
 Business Incentives" SMART  INCENTIVES APRIL  2015
  2. 2. About us"   Business Development Advisors
 is an economic development
 consulting firm"   Smart Incentives helps communities
 make sound decisions 
 throughout the incentives process" " 2  ©  2015  SMART  INCENTIVES  
  3. 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." 3  ©  2015  SMART  INCENTIVES  
  4. 4. Today’s environment requires better analytics"   Reduce risk"   Quantify net benefits"   Refine incentive strategies"   Explain and build support for decisions"   Achieve better outcomes" 4  ©  2015  SMART  INCENTIVES  
  5. 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 5  ©  2015  SMART  INCENTIVES  
  6. 6. Reducing Risk - 
 Making Sound Decisions" Data and analysis prior to awarding incentives" 6  ©  2015  SMART  INCENTIVES  
  7. 7. Due diligence"   Recipient" ◦ Background research on the applicant"   Deal" ◦ Business case analysis of the project" ◦ What could go wrong?" " 7  ©  2015  SMART  INCENTIVES  
  8. 8. Can this deal generate net benefits for your community?"   Project Attributes"   Fiscal Impact"   Economic Impact" 8  ©  2015  SMART  INCENTIVES  
  9. 9. Project attributes"   Project characteristics"   Fit with economic development strategy"   Effect on existing businesses"   Timeframe"   Likelihood of success" " 9  ©  2015  SMART  INCENTIVES  
  10. 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 " 10  ©  2015  SMART  INCENTIVES  
  11. 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" 11  ©  2015  SMART  INCENTIVES  
  12. 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" 12  ©  2015  SMART  INCENTIVES  
  13. 13. Compliance and Effectiveness" Evaluating incentives outcomes" 13  ©  2015  SMART  INCENTIVES  
  14. 14. Did this deal generate net benefits for your community?"   Project performance "   Achieving economic development goals" ©  2015  SMART  INCENTIVES   14  
  15. 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?" 15  ©  2015  SMART  INCENTIVES  
  16. 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" " 16  ©  2015  SMART  INCENTIVES  
  17. 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?" 17  ©  2015  SMART  INCENTIVES  
  18. 18. States regularly evaluating incentives" 18  ©  2015  SMART  INCENTIVES  
  19. 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" 19   ©  2015  SMART  INCENTIVES  
  20. 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" 20  ©  2015  SMART  INCENTIVES  
  21. 21. Improving communication" Preparing for greater transparency and accountability" 21  ©  2015  SMART  INCENTIVES  
  22. 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" 22  ©  2015  SMART  INCENTIVES  
  23. 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" 23  ©  2015  SMART  INCENTIVES  
  24. 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" 24  ©  2015  SMART  INCENTIVES  
  25. 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" 25  ©  2015  SMART  INCENTIVES  
  26. 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" 26  ©  2015  SMART  INCENTIVES  
  27. 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" ©  2015  SMART  INCENTIVES   27  
  28. 28. Contact us"   Ellen Harpel
 President"   571/212.3397" eharpel@businessdevelopmentadvisors.com " www.businessdevelopmentadvisors.com
 " ellen@smartincentives.org" http://www.smartincentives.org/
 " @SmartIncentives" " 28  ©  2015  SMART  INCENTIVES