State incentive program creation tracks with recessions. If past trends hold, the next two years will see a spate of new incentives. Leaders can inform the policy discussion now so that new business incentives generate desired outcomes consistent with state economic and fiscal priorities.

New State Incentive Programs by Year, 1987-2020
Source: C2ER State Incentives Database, 2021

The latest report from the Center for Regional Economic Competitiveness (CREC) and Smart Incentives, Repositioning Economic Development Incentives for 2021, provides guidance for considering critical issues and trade-offs that will help leaders make sound decisions on incentive policies in order to generate net benefits for their communities. 

The guidance draws on lessons learned from past recessions, our own work on incentive best practices, recent research examining incentive effectiveness, and responses to economic priorities that have come to the forefront over the last year. The questions in each section provide a framework that will help state leaders assess their incentive options in 2021.

The report has three sections: 

Incentive Goals and Guardrails

What economic development outcome is the incentive trying to achieve? How is that outcome tied to state economic goals and priorities? Is the incentive structured correctly to attain the desired outcome? What protections are in place if projects don’t work out as anticipated?

Using Incentives to Address Immediate Priorities

Most state incentive and finance programs were designed for a different era. They may not be suitable to address today’s economic development needs. The pandemic has led many states to prioritize small business recovery and inclusive growth. Well-designed programs can foster small business recovery, and incentives can help embed equitable economic development practices into the recovery.

Enhancing State Competitiveness with Incentives

States are developing new ways to address the evolving challenges associated with talent development, how best to support both legacy and new manufacturing operations, and near-term opportunities in the bioscience, medical technology, and health care supply sectors. 

For more detail, please download the full reportRepositioning Economic Development Incentives for 2021 is the latest in a series of papers prepared for the State Economic Development Executives Network. The full series is available here. You can also access our blog articles summarizing past reports:

Remote Work and Incentive Programs, January 2021

Incentive Adjustments. Implications for Reporting and Evaluation, August 2020

Guidance on Adjusting Discretionary Incentive Programs to Support Small Business Recovery, July 2020

Guide to Help States Adjust Incentive Performance Agreements in Response to the Current Economic Crisis, May 2020