2016 Fall Forum Breakout Session: Incentives
If you’re reading about economic development or site selection in your local newspaper, you’re likely reading about incentives. The media are quick to outline how much a deal “costs” a state or locality – yet in reality, incentives are just one small factor in professional site selection.
When companies embark on the site selection process alone without the help of a professional consultant, they often start asking questions about incentives right out of the gate, which can be alarming and raise red flags for many EDOs and IPAs.
What these companies don’t realize is that incentives are just part of what’s important to determine when choosing the right site- but since they are in the news and being frequently discussed, it’s what companies think of when beginning the site selection process. Typically, with the guidance of a professional site selector, incentives aren’t actually considered until late in the process when a company is deciding between two locations as a tie-breaker. Incentives are like the cherry on top of the sundae – not the sundae itself.
Communities must understand that it is important to offer incentive packages that are congruent with the value added to your community. Offering overly large incentive packages that are not in line with the size of the project is not good for anyone – and could reflect badly on your region and the company if the project gets negative press. Always be prepared to defend deals to the public by offering reasonable incentives – and only do deals that make good sense for the community.
What counts as an incentive?
At the Incentives Breakout Session at the Site Selectors Guild’s 2016 Fall Forum, which was hosted by Guild leaders and members Angelos Angelou, Tracey Hyatt Bosman, Darin Buelow, Larry Gigerich and Jim Renzas, a major discussion point was the idea surrounding what counts as an incentive.
While many EDOs consider having a shovel-ready site as an incentive, companies are more likely to expect that as a prerequisite of a prepared community as opposed to an incentive. Because of the time constraints around any location decisions, businesses expect to have a site that is ready with utilities and rough grading done, and no longer consider this an incentive. At this point, it is important to remind the company how much money you are saving them by having the ready site, because ultimately cost savings is what matters.
Another area of incentives that is interesting to study is the value of long-term cost savings. Many large companies will not even bother looking at long-term cost savings as an incentive. Some small or family owned companies might be interested in long-term cost savings, but they still may not consider it an incentive.
Some utility companies have heard recently that reduced utility rates are not considered an incentive. However, when packaged together with the rest of the community’s offerings, utility incentives can play a big role in the site selection process. It is possible that if in negotiations, a company indicates that utilities or ready sites are not considered an incentive, they are posturing for a negotiation and you should present data to show the benefits to the company.
When presenting an incentives package to a new company, it must be comparable to (if not better than) the package that was offered to the previous company. Everyone wants to feel special and that their project is unique.
There are opportunities in the incentives process to offer some unique and enticing incentives. For example, offering in-state tuition to public colleges and universities for all employees and family of the company. These types of outside-the-box incentives can make your community stand out over another community and ultimately win you the bid.
Ultimately, companies will choose the community they are most comfortable with and not necessarily the cheapest or the one with the most incentives. No amount of incentives can make a bad location a good location or the wrong location the right location for a business.
Deloitte recently did a study that reported that the majority of incentive dollars are never claimed by the companies who received them, citing that $5 out of every $6 offered are not redeemed. This startling number can tip the cost-benefit ratios in favor of the city, county and state offering the incentives.
Interested in learning more about how your community can position itself positively to attract companies and site selectors? Visit the Site Selection Guild <Events site> for more information about our educational and networking events.