Why are incentives important? It depends on who’s asking.
If you’re the CEO or a senior executive of a company that is weighing a major facility expansion or relocation, you’re looking at a major capital investment, usually in the millions (if not tens or hundreds of millions) of dollars. If there is any way you can recoup some of that investment, you owe it to your company and your shareholders to do so.
If you’re the mayor or other civic leader of a community that is trying to attract new jobs and increase its tax base, incentives are a way for you to distinguish your community from the several other locations that also made a particular company’s final “short list” of possible sites.
It’s not required, nor is it often even necessary, for a state or local jurisdiction to offer incentives.
For both parties, incentives are simply a negotiating tool not unlike a CD player you might try to talk your local car dealer into throwing in at no extra charge. If you’re talking about buying a Lincoln Navigator, the odds are good that, if you ask, they’ll kick in a free CD player. They might even throw in a luggage rack, or even those nice-looking pin stripes that nobody ever admits to wanting. If, on the other hand, you’re talking about buying a five-year old Yugo, don’t get your hopes for incentives up too high.
The same is true when it comes to business attraction incentives.
If your company is seriously planning to make a major capital investment in a new facility -- or is planning to create a significant number of good-paying jobs -- I can almost guarantee you’ll be able to bring some very attractive incentives into play that will help you to recoup some of the enormous investment you are about to make.
If, on the other hand, your company’s prospective business expansion or relocation involves little or nothing in the way of capital investment, or will only create a relatively small number of minimum-wage jobs, don’t expect anyone to offer you the keys to the city. It’s a business decision, after all, and you’d do the same thing.
That doesn’t mean that they don’t want your company. It’s just a matter of relative worth.
By the same token, don’t let amazingly generous incentives dazzle you into making a bad decision for your company. Using our earlier analogy, the reason you’re considering buying a Lincoln Navigator has nothing to do with the fact that you might get them to throw in the CD at no extra charge. The CD is just a little extra inducement on the Lincoln dealer’s part to keep you from going down the street to the Toyota dealer to buy a Land Cruiser.
The same is true for incentives. The location itself has to make good business sense for your company before you even begin to entertain any incentives offers. There’s a cardinal rule in the site selection field that good incentives won’t make a bad location good.
So, why are incentives important? Well, if you’re the CEO, they help you recoup some of the investment you’re about to make anyway. And if you’re the mayor, they help ensure that our friend the CEO makes the investment he was about to make anyway -- in your community, and not in another community.
It’s just that simple.
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