We’ve been thinking about trends in incentive use and we are not alone. The most recent issue of the IEDC Economic Development Journal includes an article on The Future of Economic Development Subsidies by Greg LeRoy of Good Jobs First. Here are the incentive trends LeRoy identifies that will affect US economic development programs:
- The total number of new facilities and expansions for economic developers to pursue is still relatively low historically, but the number of megadeals is increasing.
- Subsidies are becoming more transparent, with more states disclosing data online. Local governments, however, still lag by this measure.
- Most programs cited in the article are “geographically agnostic,” rather than targeting needy or depressed areas or striving to meet smart growth planning goals.
However, some states are improving efforts to coordinate their economic development initiatives with their planning programs. Meanwhile local transit agencies are increasingly trying to “leverage their economic development resources to maximize the utilization of their transit investments,” adding a geographic piece to their incentives policies.
- Communities recognize that it is prudent to hedge risk and look beyond the megadeals and large companies. Economic volatility makes it risky to place a long-term bet on an individual company, and small businesses with growth potential should be included more often in the incentives mix.
These trends are consistent with those we see here at Smart Incentives. We have frequently reported that economic development organizations must prepare for an era of greater transparency and openness, especially in the use of incentives. We have also been examining the linkages between incentives and smart growth and sustainability, and this is likely an area we will devote more resources to in the coming year.
We have also considered the pros and cons of providing incentives to more small companies, but we are not quite as optimistic on its ability to mitigate risk for individual states and communities. Our review of performance audits and studies of incentive programs suggests that programs specifically targeting small businesses and technology-oriented businesses actually find it difficult to meet jobs and investment expectations as well as long-term commitment to the community.
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