Incentives. Ears are sure to perk up at the mere mention of this little word in the midst of an unfolding business expansion or relocation project.
It seems these days everyone wants incentives, and likewise, most states and communities seem more than willing to provide them.
But in the overall scheme of things, how important are incentives to your site location project?
When you think about incentives, what comes to mind? Probably one thing: money.
To be sure, cash is one of the best incentives a company can obtain, but there is a smorgasbord of other incentives out there — if the project is the right fit for a community.
“All types of incentives are available, from financing to tax credits to grants to in-kind services,” said Kate McEnroe of Kate McEnroe Consulting, an Atlanta-based corporate location and economic development consulting firm.
Additionally, incentives can include property tax reductions, sales/use tax exemptions, low-cost to no-cost land, no-cost infrastructure improvements, cash rebates based on employment and payroll levels, and work force training grants, said Mike Mullis, president and CEO of J.M. Mullis Inc., a project location specialist firm based in Memphis, Tenn.
Just who offers these incentives? States and local communities alike are brimming with ways to extend expanding and relocating companies some bottom-line savings.
And while each state may have a standard set of incentives, it is the ability to customize programs that can really helps set states — and potential project locations — apart from one another.
“Most states have been through this long enough that they are targeting incentives to help attract the types of companies they are interested in,” said Saul Grohs, founding partner of West Long Branch, N.J.,-based Location Advisory Services, which specializes in location consulting and site location for corporate clients.
Offering Incentives To All Companies
In the old days, most incentives were offered to startup operations, or for new facilities.
However, through the years, states have updated their perspectives and now court expanding companies with equal enthusiasm. After all, an expanding company, new or existing, is an expanding company. And in this volatile economy, good jobs are good jobs by any measure.
Mullis pointed out that certain sectors, such as better-paying industries and more technology-based industries, tend to receive more attention from communities and incentives may be more directly targeted at them.
When it comes to company size, many companies might mistakenly believe that they are too small to receive incentives. That is absolutely not the case.
“A company should always ask about incentives,” Grohs said. “With some projects today, a company won’t even have to ask about incentives if the competition is high for the project. I think a lot of companies are missing the boat. There are a lot of state and local incentives for expansion projects. Communities are really trying to level the playing field.”
That said, the higher a project’s number of jobs and the more they pay, the more lucrative an incentive package is likely to be.
“Companies that are adding new jobs or capital investment are more eligible than those that are just looking for assistance to maintain the status quo,” McEnroe said. “Also, companies that locate in certain zones or hire targeted individuals, as well as companies in certain industries targeted by local areas and states, may qualify for specialized programs.”
Do Your Homework
When it comes to figuring out what incentives are available in a given state or community, a company can investigate a couple of different ways.
Thanks to an entire cyber universe of economic information, companies can tap into Web sites of state and local economic development organizations for a quick overview of basic incentive programs.
However, it’s important to remember that Web sites are only a starting point.
“Oftentimes, the information on Web sites is not easy to navigate and the information is not always clear,” Grohs said. “You eventually have to talk to people and provide them with a base of how many jobs and what kind of investment you are talking about. It’s a two-way street. If you want information, you have to give information.”
When it’s time to sit down at the table and really hammer out the details of project perks, heed the sage advice of those who have gone before.
“The best way to negotiate is to contact the appropriate state or local agency and have them facilitate the process of bringing together all the entities that may be able to offer assistance,” McEnroe said.
A site location consultant will prove to be a major asset during all phases of a project and will certainly know the ropes as far as what assistance a company might expect to obtain.
On the flipside, if a company chooses to step into negotiations without a consultant, Grohs said it’s extremely important that a company use a formal and straightforward process and conduct itself professionally.
One Piece of the Puzzle
Of course, the most important thing to remember about incentives is that they represent only a piece of the entire puzzle of site location considerations an expanding company must sift through.
While incentives should be touched on during the early phase of an expansion or relocation project, they are not what will drive a project — labor availability, real estate options and market proximity are among the other important location considerations.
“Incentives are truly valuable only after all other aspects of the selected location decision have been satisfied,” Mullis said.
Sometimes termed the “icing on the cake,” incentives should ultimately end up as that special little something that might make one location shine a little brighter than another.
“In my opinion, it is something that should be done at the end of a project, something that can swing a project one way or another, unless you have a vanilla project that can go anywhere,” Grohs said. “But remember that a great big incentive package upfront does no good if a company can’t get labor or shipping, etc. You can get money in incentives but a company can give all that right back if power costs or taxes are high. A company must base a site decision on all factors with incentives being just one.”
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