Over the last several years the economic development field has made real progress in understanding what works in the incentives world. At Smart Incentives, we define “what works” as achieving economic development objectives, not just landing a project. Here are some of our observations about what makes incentives effective.
Invest in the community, not just the company
Successful incentive offers blend an appropriate incentive with other critical location factors. Smart economic developers and elected leaders have long used incentives strategically to support compelling offers based on talent, infrastructure, housing, education, and other location-based assets. A corollary is that communities need to invest in those assets to be competitive. The best incentives take this a step further and incorporate investments that benefit both the company and the community into the offer package.
Be realistic about costs as well as benefits
Even if a project is good for the overall economy, it might not be good for everyone. A project that is a net gain may not benefit and may even hurt some neighborhoods, businesses and residents. EDOs often do impact analyses that show positive economic impacts, but we hear a lot of skepticism about these models because they are perceived as being too rosy – overstating the benefits and understating the costs. It is important to acknowledge and address potential downsides to get a true picture of how well incentives are working.
Always be engaging
This is something economic development, as a field, generally needs to do better. Engagement should be about more than promoting projects; it should be about connecting economic development efforts with community priorities. Make sure there are structures in places to listen and ways for the broader community – not just your immediate stakeholders – to understand what your economic development strategy is and why, so that residents don’t feel shut out of the process.
Shift to quality over quantity
We are seeing more states step back from their exclusive focus on “jobs, jobs, jobs.” When they offer incentives, they are becoming more selective and targeting their incentives to investments in places that need it most. There is more emphasis on quality jobs (measured differently in different places) and making sure residents are connected to those jobs. EDOs are increasingly taking that extra step to ensure that incentivized projects benefit current residents.
This blog article is adapted from recent Smart Incentives presentations on Economic Development Incentives: What Works? For more information, please contact us at firstname.lastname@example.org.
Image: 2019 rendering of the Amazon HQ2 campus in Arlington, VA