“But for” refers to a determination of whether incentives are essential for a project to be initiated or completed or whether incentives induce a company to invest where it otherwise would not have.
It seems obvious that incentives should only be used when they absolutely have to be used – when a project would not occur “but for” the incentive.
But this phrase causes a lot of problems, and its role can easily be misunderstood and exaggerated. Worst of all, it inadvertently leads us to emphasize several of the aspects of incentives we like least: playing one location against another and discounting the value of all our other community attributes in investment decisions.
Here are a few ideas from our work on the topic:
- The concept of “but for” is not necessarily integral to incentives.
- We use incentives to accomplish our economic development goals. “But for” tells us nothing about whether an incentive helps us do this.
- Applying a strict “but for” rule diminishes the other important factors that influence business investment decisions and creates confusing messages about the role incentives play in economic development.
- Making “but for” a condition of awarding incentives encourages and rewards inter-jurisdiction competition.
- It requires economic development organizations to make an impossible determination. An EDO can do great due diligence and still not be sure of a company’s true intent or the options the company is evaluating. Even companies themselves may not be able to articulate the exact role incentives play in their decision.
- But-for is a useful concept when considering gap financing for real-estate based projects.
- We still want to know whether an incentive is making a difference related to our economic development goals and community benefits. But-for remains a valuable concept for program evaluation.
For more detail, check out our recent presentation on the topic, adapted from a discussion at the Incentive Project Accountability and Transparency Workshop.