Two midwestern cities recently released reports examining their economic development incentives. These studies each had different objectives, one with a project orientation and the other with a strategic focus. Both are publicly accessible and are worth checking out if you are interested in incentives evaluations.
The purpose of this study was to examine the efficacy and efficiency of the city’s economic development incentives as well as to answer basic questions on: dollar amount of incentive use, where and when incentives have been used, characteristics of incentivized projects, and how incentives are layered with other incentives to complete projects.
The study found:
- Over a 15 year period, the value of primary city tax incentives (TIF and tax abatements) was $709 million
- Incentive use is concentrated in a few areas and is not distributed evenly throughout the city
- Most of the incentives are for real estate investments, 45% of which are commercial and 36% are residential
- There is a strong association between incentive use and increased assessed value and permit investment, but little relationship with jobs and scant evidence of spillover effects
- On combining incentives with other investments: “While there might be cases where incentivized projects are transformative for local communities, it is probably the sustained, consistent use of both incentives and overall investment over time, including investments of a variety of types, which increases local economic outcomes and transforms communities.”
- Establish a formal framework for reporting and analyzing the incentives data contained within this report.
- Build greater quantitative measures into the application scoring process for incentives.
- Require additional reporting from incentive recipients.
- Focus incentive use around a City-wide plan for development.
- Develop a formal tax incentive related to creating high skills/high wage and benefits jobs.
Source: City of St. Louis, Missouri, City Economic Development Incentives, The PFM Group. May 2016.
This study had three main objectives: assess the relative effectiveness of the city’s incentive programs in achieving broader economic development objectives, as well as to understand the comparative costs and benefits to the city; consider how to adapt the city’s incentive regime to reflect increased demand for living and working in the urban core; and provide a strategic framework on when and how to deploy incentive programs to increase performance, transparency and efficiency.
The study found that Cincinnati’s incentive portfolio facilitates achievement of a number of core economic development objectives, including creating a diverse housing stock and enhancing the built environment, but policies can be strengthened to improve alignment with other objectives (such as job and industry growth).
In examining costs and benefits, the study found that the city’s major commercial tax abatement is revenue neutral (given the city’s property tax revenue cap) and supported revitalization in specific neighborhoods within the city. The Job Creation Tax Credit was found to cost the city 52 cents for every dollar in earnings tax and is credited with creating over 2,000 jobs at an average of $4,400 per job.
- Deploy a more streamlined and strategic deal evaluation process, including enhanced deal tracking mechanisms.
- Leverage Commercial CRA more effectively for place-based investment and job growth.
- Refine use of the JCTC to maximize return on investment for the City
- Continue to innovate new mechanisms to reinvest property tax revenue in Cincinnati.
- Tailor use of programs to meet specific economic objectives, including housing stock diversification, targeted industry growth, innovation and entrepreneursthip, place-based development, workforce development, and enhancement of the built environment.
Source: Cincinnati Incentives Policy Review and Final Briefing to Budget and Finance Committee, HR&A Advisors. June 2016.