Good incentive program design benefits both businesses and economic development organizations.
Companies and EDOs need well-designed and well-managed incentive programs that can create long-term, mutual benefits. Incentives with clear rules and responsibilities suggest a stable, responsible, and sustainable fiscal and economic environment, which is good for businesses too.
Here are some design features of good incentive programs:
People often debate whether incentives are effective, but they rarely agree on what they mean by effective. Setting clear and measurable goals at the outset helps focus the conversation on the economic development outcomes that matter most.
We are seeing more pay for performance incentives. Grants or tax breaks are increasingly provided only after the company has met specified commitments. This means that there is less emphasis than in the past on clawbacks.
More places are also placing limitations on either program or project commitments to keep costs from getting out of control.
Tax credits are still very important within the incentives environment, but our work indicates that they are used more often for retention or expansion of existing businesses. They are less important elements of the incentive package for new business attraction. Pay for performance grants can also be easier to administer and monitor.
Finally, good program design builds in reporting mechanisms to capture company milestones related to economic development priorities. Economic development organizations can then easily share program accomplishments with stakeholders and elected leaders.