Economic development leaders and policymakers continue to face challenges stemming from the pandemic, an uneven recovery, and an uncertain economic future. Federal recovery and investment programs that respond to these challenges are intended to benefit communities across the country. State and local governments are also assessing relief efforts and other economic development programs to determine if they are creating the hoped-for benefits for their residents and communities.
Business incentives and financing programs are part of many of these efforts and, naturally, are at the top of the list for review. Tallies of business wins, jobs, and investment are increasingly considered insufficient justification for incentives in the absence of other measurable benefits to residents and communities.
In response, incentive and financing programs are increasingly being geared to address economic development goals related to community priorities such as local small business support, workforce skills development and career opportunities for residents, and greater equity and inclusion, among others.
Benefiting residents and communities
The pandemic showed just how important local small businesses are to our communities. Policymakers created new incentive, finance, and technical assistance programs to support this hard-hit sector. The 2022 update of C2ER’s State Business Incentives Database revealed a decline in total incentive programs but growth in grant, direct business financing, and capital access programs, many of which are designed to help small businesses.
Workforce development incentives are also evolving. The State Business Incentives Database update found nearly 300 state-level programs focused on the education, training and recruitment of workers. Most of these incentives are structured as tax credits or grants. Programs frequently cover skills training or retraining and work-based learning opportunities, including apprenticeships. New this year, the update also determined that approximately 10% of workforce development programs seek to address individual barriers to employment, such as having a disability, criminal history, or recovery from substance abuse. These are all great examples of incentive programs that benefit residents, the communities where they live and businesses.
New expectations for business incentives
The incentives included within the federal CHIPS and Science Act of 2022 reflect all of these themes. A tremendous amount of incentive money — $39 billion — is available to support domestic semiconductor manufacturing. At first, these programs might look like standard business incentives. However, companies will have to do more than build a facility in order to access the incentives. Applicants for CHIPS funds must describe collaborations for building out semiconductor industry ecosystems, establish partnerships and initiatives to expand the workforce pipeline that will be inclusive of populations that have been underrepresented in the industry, and demonstrate how small and underrepresented businesses will be included in projects.
These evolving approaches to deploying incentives should strengthen the connection between business-oriented economic development and residents and communities. New metrics will help tell the story of how business incentives support the economic development mission and assure that people, businesses and places participate in the benefits.
This article was adapted from Evolving Incentives For Today’s Priorities featured in the November 2022 issue of Site Selection Magazine.