On paper, state and local governments are well-aligned when offering incentives. Many local programs are enabled by state statute. State incentive programs often require local participation, commonly a city or county contribution to the incentive package. State and local governments both have an interest in supporting good quality investments that benefit their citizens.  

In reality, incentives are often a source of conflict. We are frequently asked how to manage disagreements between state and local government around incentive use.

Here are a few lessons we’ve learned.

Remember that you are on the same team. It is surprising how often we find ourselves saying this. Good teamwork applies to incentive offers and the general business environment. Businesses and investors favor locations that demonstrate good governance and the ability to get things done. When leaders at the state and local levels can come together for a project, they also demonstrate that they have the ability to work together to solve larger problems and not get bogged down by infighting. 

State agencies can do a better job communicating with local government. Many local governments feel left out of state economic development efforts. State agencies can be more proactive in sharing information on how incentive programs work (let’s face it – they can get complicated), how cities and counties can best participate, other programs and services that can help communities, and guidance on managing local incentive programs effectively and responsibly. 

Local governments can be better prepared for projects. State governments would like projects to be more evenly distributed around the state, but many locations are not investment-ready. Some locations may not even be prepared to respond to an RFP. Local economic development organizations and elected leaders should invest time in planning and professional development so that they can articulate their economic objectives, address their strengths and weaknesses, and partner effectively with the state. 

Coordinated state and local incentive offers are the most effective. This is especially true for major, high-profile projects, such as headquarters searches. In order to get the assets in place for business growth –  including sites, infrastructure and workforce – state and local government have to work together. For incentives, many state flagship programs require a local contribution, partly so everyone has skin in the game and partly so that it is clear that the project has local support. 

Keep the communication going after the deal is done. This is the easiest fix. State agencies are likely doing most of the work to track business activity and incentive milestone compliance. Local economic developers are probably doing most of the retention and expansion work with the business on an ongoing basis and are best positioned to know what is going well, if there are any challenges, and how to respond. They should share their information with each other to maximize the potential for achieving their shared economic development objectives for incentivized projects.  Sharing information also allows both parties to demonstrate the benefits of their work to their respective stakeholders. Once these joint benefits become clear, it can enable a virtuous cycle in which both state and local economic development organizations truly value working as one team.