This article was written by Ellen Harpel, Founder of Smart Incentives and Randall Bauer, Director, PFM Group Consulting. It first appeared on the Barrett and Greene website at https://www.greenebarrett.com/guest-column.
As management guru Peter Drucker said – and as has been repeated by many others over the years – “what gets measured gets managed.” In thinking about the issue of tax incentives offered by cities and states to attract and retain businesses, we think that a variation on Drucker’s maxim is equally true: “That which is managed can be more effectively measured.” And, in turn, better measurement generally leads to more effective use of tax dollars.
In our work at Smart Incentives and PFM Group Consulting we’re often called upon to advise economic development organizations and evaluate incentive programs. In these efforts, we have identified two key questions: How will the incentive be managed? What data is necessary to determine if it is working?
Considering the first question, it’s become clear to us that incentive program management is underappreciated but critical to their use For example, we’ve consistently found that incentives with a designated lead organization and key management elements, including application forms, review procedures, and required reporting, generate better data and yield better performance outcomes.
Among the elements of good incentive program management are:
- Clear guidance to program users
- Appropriate applicant eligibility requirements
- Specific compliance procedures
- Accountability through public reporting
Putting these program management processes in place requires sufficient staffing – not an easy task in this day of workforce shortages — as well as sufficient resources. But their value is clear as they create multiple points of accountability and open more windows for leaders to gain insights into how incentives are performing, both individually and collectively.
The second question of course, goes beyond data lists. It is also necessary to create systems that collect, manage, and report data across the incentive portfolio. While many programs collect data, it often suffers from the ‘garbage in, garbage out’ syndrome. ‘Active management’ is necessary here as well, and data collection activities (and the actual data collected) should focus on several key strategic elements:
- What data is necessary to determine performance related to the incentive’s policy goals?
- How will data be collected and integrated, and by whom?
- How will data be shared with other state/local agency partners and policymakers to enable an understanding of how well programs are performing?
There are real technical challenges associated with these questions, and it can be a struggle to develop data management systems for incentive portfolios. This roadmap, first created for a workshop on Designing and Managing Business Incentive Compliance Efforts hosted by the Center for Regional Economic Competitiveness, identifies steps that are the foundation for incentive program compliance work. It’s followed in this Guest Column by a greater examination of the elements present in each of the steps shown.
Data. Consider both requirements (such as contractual obligations that the company must meet) and requests (information that would be helpful to have but may not be contractually required). Data typically comes from three sources: the incentive recipient, state administrative records, and other third-party data sources.
Procedures. What is the process for obtaining and managing data? How can the steps be implemented to ease the administrative burden for both companies and compliance staff? Good practices include outreach and training for recipients, so they know what they need to provide and when they need to provide it, developing procedure manuals for staff, providing reminders and guidelines for incentive recipients, and making it easy to submit data electronically.
Progress. Data should allow tracking of milestones to show outcomes achieved and incentive payments made. Data insights can also be used to address projects that are not in compliance.
Results. Compliance data is valuable for both internal and external use. Internally, mangers can see how well programs are performing and which programs are most effective at generating the outcomes the government cares about. Externally, organizations can be confident that they have good quality data that can be shared with elected officials, other policy leaders, and the public.
Transparency and accountability. Aggregated information can be used to tell the story of how the economic development organization is utilizing incentives to support the location’s economic development priorities. This moves beyond spreadsheets and dashboards to communicate with a wider audience in a user-friendly, informative, and positive manner about how and why incentives are being used on the community’s behalf
Ultimately, business incentives are an investment with an expected pay-off for state and local taxpayers. Many of the active management and data collection and analysis tools we cite are used by smart investors for their personal investment portfolios every day. It is worth keeping in mind that the whole reason that we are engaged in economic development is because we believe these activities are beneficial for our locations and our residents. Active program and information management allows agencies to make their case – and provide the data to back it up.