Managing economic development incentive programs is not easy. Here are five common mistakes we see in state and local incentive efforts across the country.
1. It is not clear what the incentive program is supposed to accomplish.
Too many incentive programs are designed to “support economic development” or “assist businesses,” which can mean just about anything. As a result, it is extremely difficult to determine which programs are effective uses of taxpayer funds. Everyone wants to know if incentives are effective, but “effective at what?” remains an open question in many places.
2. The portfolio of financial incentive programs is out-of-date.
Economies evolve, priorities change, and business needs are not what they used to be. Incentive programs created in different economic eras often remain on the books even when they are no longer aligned with current community objectives. It is also easier to add rather than eliminate programs, meaning many jurisdictions have overlapping programs that are inefficient to administer and confusing to the businesses they are intended to help.
3. A focus on doing deals outweighs attention to actual outcomes.
When the focus is on completing a deal and making a project announcement, the back-end work of tracking commitments and progress toward economic development goals gets short shrift. This near-term focus can inadvertently undermine long-term support for economic development activities when results can’t be tracked and reported.
4. Resources are not available for compliance and evaluation.
Economic development organizations need staff with the right qualifications, appropriate information systems, and procedures for obtaining and tracking data on outcomes associated with incentives. Resources are required to manage and monitor incentives, as well as to enforce contract provisions when necessary, not just make the awards.
5. Failure to prepare for transparency as the new norm.
Elected officials and community groups are demanding better data on incentives, especially for high-profile projects like Amazon’s HQ2. While we don’t believe every aspect of incentive program management is appropriate to share publicly, it is reasonable to disclose the essentials of incentives that are offered, how much they are expected to cost, and anticipated community benefits. Not doing so undermines confidence in both the incentive programs themselves and the overall economic development effort.
We can and should do more as economic developers to share with our communities how our work and well-run incentive programs help us accomplish our shared economic development objectives.
Ellen Harpel, Founder, Smart Incentives