Sometimes it’s the company that is undermanned and under-resourced. I recently had a great conversation with Prince William County (VA) Existing Business Director and C2ER Board member George Harben. With his agreement, I am sharing some of his insights on incentives. George asked me to state up front that he offered his thoughts and that he does not speak for anyone or any organization.
How to frame an incentive deal
Talking about the article from CFO.com on “Getting the Most Out of State and Local Tax Incentives,” we focused on the author’s advice to redefine projects to satisfy governments’ definitions. George made the point that sometimes businesses come in with the attitude, “What do you have?” and are not prepared to think about their eligibility for different types of incentives.
This could be due to an unfamiliarity with local and/or state incentives, or it could be that they don’t want to discount any potential incentive before understanding the criteria. Frankly, this type of information can be difficult to determine. While I often remind economic developers to do their homework, it is also important for companies to come in with a sufficient understanding of the incentive policies in order to know what is realistic to request. It also helps when the business has a clear understanding of what specific types of incentives they value most.
Understanding project drivers for the company and the community
A related point is that the company and its consultants should try to understand why a community is offering incentives in the first place and what it is trying to accomplish. For some communities, new jobs or higher wages may be the driver, while in others, increases in specific tax revenues may be the objective. An attractive project in one location may not provide sufficient value in another, and the incentive offering will vary accordingly.
The deal has to benefit both parties, and most communities are not willing to offer incentives for every project that comes their way – a point some businesses forget. Again, economic developers are frequently reminded to think about the investment from the company perspective, but companies should also think about the community perspective when negotiating incentives.
Evaluating incentives
I think George and I agree to disagree on the topic of transparency and reporting on incentive use. We both agree, though, that it is much harder than many policymakers think to evaluate incentives. And we both agree that a public MOU should be required if any public funds are offered and accepted. This MOU should clearly spell out the expectations of the company and the community.
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