States face a constant struggle to encourage an even distribution of new investment activity. Incentive program managers often feel this challenge most keenly. Many flagship programs include tiered benefits that provide higher incentives for investment in distressed or lagging locations, but for the most part these efforts have not yielded the desired results. In fact, over the past decade, regional disparities have become worse in many states.
Forward thinking economic development leaders are trying a new approach. They are adapting their incentive program rules and metrics to prioritize investment that benefits distressed places and the people living in those communities. For a real-time example, we recently talked to Steve Bakkal, Senior Vice President of Strategy, Planning, and External Affairs at the Michigan Economic Development Corporation to learn how they are taking on this challenge.
Why did you decide to re-examine your incentive practices?
It started with a research-driven update of our strategic plan. We commissioned a series of studies on our incentives and our other flagship programs and examined new data on Michigan’s economy. A few themes emerged. First, while the state overall was performing very well, and we’re proud of that, some places were clearly struggling. In fact, some counties never fully recovered from the last recession. Second, we learned we’re not alone in that, and focusing resources on distressed communities is now a state economic development best practice. Third, if we incentivize projects in distressed communities, we would anticipate a better economic return overall, in addition to creating more opportunity within the community itself. So all of our analyses indicated that this was something we needed to devote more attention to.
Our next step was to do an internal assessment of our incentive practices and our other services – from our entrepreneurial and technical support services to COVID-19 relief programs – to see how we could improve them to support our strategic plan and be more equitable.
What changes are you making?
One of our overall goals is to make sure that the outcomes from our incentives are focused on the impact on the people holding the jobs, not just the company itself.
The research showed that just focusing on growth overall without targeting it to where it was needed most was not the right approach. Too many families are continuing to struggle to make ends meet even after a period of significant economic growth for the state. So we shifted our vision to include resilience and equity, not just growth. Focusing resources on disadvantaged areas is one way we are making our work more equitable.
We are shifting those resources across all of our programs, not just incentives, to better serve distressed communities. We have also enhanced our economic modeling to better understand county-level impacts, not just the overall statewide numbers, so that we can tailor incentive offers appropriately given the local conditions and our economic objectives.
Within the incentives program, we are also emphasizing job quality more. For example, we are not just looking at number of jobs and average wages per project. Now we are asking for more detail on the occupations behind the jobs and the average wages by occupation. We are using research from Brookings to assess the proportion of occupations that are considered either good jobs or promising jobs. We want to see wages that get individuals or households over a living wage threshold. We are asking for more detail on the nature of worker benefits. Finally, we consider what other actions or services can help projects follow through on the promise of good jobs, like connecting companies with our local workforce service and training providers.
What challenges have you faced?
The biggest challenge has been how to communicate such a significant shift in how we evaluate projects. It always takes time to adapt to a new way of doing things, particularly when we were seeing success in the aggregate. We’ve worked very closely with our teams, and particularly our business development and community development teams, to establish buy-in and start embedding this approach into our work processes. We’ve done a lot of training and outreach for our own team and are expanding these efforts now to our local partners as well.
We are also working on adjusting our internal processes to collect the information we need to make good decisions and that will also allow us to follow up to see how well the projects we incentivize are performing. Part of that effort is creating an open line of dialogue with the companies, site selectors and developers to ensure they have visibility into this expansion of our strategic vision and what factors we will use to evaluate projects.
What outcomes are you hoping to see?
We continue to track our core metrics: jobs created, new investment, and return on state tax dollars. That hasn’t changed. But we are also measuring and setting targets for subsets of those metrics related to our strategic plan, such as the share of jobs and investment in geographically distressed areas, jobs in resilient sectors, and the percentage of jobs that are good or promising. We’re also measuring the businesses assistance services provided to women, minority, and veteran owned businesses.
Ultimately, these efforts over time will contribute to increasing the number of households above the ALICE (asset limited, income constrained, employed) income threshold.