Incentives. Probably one of the most highly charged words in the English language, particularly among economic developers.
On the civic side, some people -- many people, in fact -- think of incentives as a form of corporate welfare, as giveaways to wealthy companies. Others, perhaps an equal number, think of incentives as an instrument without which they can’t possibly compete with other communities in attracting new businesses.
On the corporate side, some CEOs think the sky’s the limit in terms of what local communities will offer, while others think that incentives are only for the big guys -- the Mercedes or BMWs or Intels of the world.
In fact, there’s a little bit a truth and a whole lot of exaggeration to each of those beliefs.
The truth is that incentives, or inducements, are a natural part of any business deal and that, above all else, is what a site location decision is -- a business deal. The fact that one of the parties might happen to be a governmental entity should be looked upon as an opportunity, rather than a liability.
Incentives are not corporate welfare. The company is bringing jobs, capital investment and future tax revenue to that community. Incentives are just an investment in the future, not unlike the old community barn raisings that were once a fixture of rural America. A helping hand, if you will, for a company that will return much, much more to the community on down the road.
And not every incentive involves a King’s Ransom. In fact, only one of two per decade do, and those – like the Mercedes deal several years ago -- are usually offered in hopes of establishing an industry in a particular state or region.
And you don’t have to be a major automaker or a computer chip manufacturer to receive incentives. In fact, almost all of the incentives offered throughout the United States go to small- to mid-sized companies. And most usually ask only a few things in return: that your company make a physical and financial investment in their community and that you create a certain number of jobs … good paying jobs.
But communities don’t exactly drive around with a megaphone announcing all their bargains, deals and discounts.
In fact, if you don’t bother to ask about what incentives are available, don’t expect the state or community to remind you about them. They might, but I wouldn’t count on it. Think about if one of your customers offers to pay you full price from one of your products -- are you going to then mention that you would have actually given it to him cheaper? Probably not.
Communities are pretty up-front on legislated incentives -- those that everyone who meets certain specified requirements is entitled to -- but most are reluctant to talk about many of their more discretionary incentives, particularly those related to tax abatements. It’s not unlike your local computer store owner prominently advertising manufacturer’s rebates, while keeping silent on the possibility of any further discounts that would come from his own pocket.
Likewise, if a state or community “leads” with its incentives offer -- rather than trying to sell you on its low operating costs or work force quality -- turn around and run in the opposite direction. That would be like selecting a financial institution based primarily upon who offered the best toaster. Not that you’d turn down the free toaster if they gave it to you -- it’s just that other factors are much more important.
So it is with site location searches.
Incentives are just one element of the process, not the “be all, end all.” I’ve heard them referred to as anything from an after dinner mint to fine cigar and a cognac, the point being that incentives are an excellent way to seal a deal, but they’re certainly not the main course.
Bill King is the editor of Expansion Management.
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