November 6, 2020 – Economic Development Incentives (EDI) manifest themselves in many forms, like Tax Credits, Grants, Abatements, Low Interest Financing, Fast Track Permitting and more. State and local governments offer these incentives to attract employers and investment for the betterment of their economies and ultimately their citizens. EDI have been around in the United States since its founding and savvy companies recognize the value of EDI and go to great lengths to leverage EDI to improve their return on investment and reduce operating costs. Incentives can help build a better workforce, acquire better equipment, defray the cost of being environmentally friendly and pay dividends to the communities that successfully lure projects to within their boundaries for years to come.
Unfortunately, the number of companies that fully avail themselves of these opportunities are far too few. Additionally, the number of communities that understand what tools they have in their toolbox are similarly short of the mark. Educating both companies and communities seems like an easy task but it is not. Competing priorities and a lack of focus continually get in the way. For companies that want to change the equation, all it takes is a commitment and to understand where you were, where you are and where you are going.
Understanding where you were:
Understanding where you were is akin to looking in the rear-view mirror. Where were jobs created? Where were investments made? Where were employees trained? And so on. Many incentives can be looked at as rewards for “doing the right thing” and companies that fail to claim their rewards are leaving money on the table. In some cases, the amounts can be astounding. Yet, it only takes a simple review to bring those valuable opportunities to light.
Understanding where you are:
Understanding where you are sounds simple, but it still takes some effort. Is the company located in a special geographic area that allows for ongoing incentives? Is the company in an industry that the state is focused on and is offering special Incentives to foster? Is the routine training that a company conducts eligible for a subsidy? Is the local community college offering that training for free? Does the company have high turnover that could yield special tax credits by screening prospective employees for targeted hiring credits? Are there incentives that will help reduce that turnover? If companies do not identify where they are and the tax incentives they are missing, they risk spending far more than they need to and could benefit from taking inventory of what is available right now.
Understanding where you are going:
Looking to the future is the hardest perspective to address, but by far the most rewarding for companies that know how to do it. Projects have an implicit value in terms of economic impact which is measured in wages, in taxes and “The Multiplier Effect”–a scenario where a company’s project can be worth far more than the wages and taxes that the company itself pays. The value of a project includes some of the wages and taxes that upstream and downstream supply-chain partners and customers bring to bear. Retail companies are generally at the bottom of the value proposition, while companies in Manufacturing and High Tech are at the top. That said, the Retail industry still has some great opportunities since sales taxes can be shared with companies that bring net new revenue for the community to the table. The same holds true with property taxes and even local payroll taxes. Everything is on the table and everything should be evaluated and considered. To coin a phrase, wherever there is a tax, there is an opportunity for an incentive. Companies should not think that they will get more than they bring to the table. However, knowing what they are bringing gives them something to benchmark against and the more that is identified, the more a company can expect in return.
Identifying all the possible incentives that a project may qualify for is not an easy task. Many incentives are widely publicized, while some are not. Some incentives are only offered for certain projects and some incentives are not even “on-the-books” but can be cobbled together through various means. In some cases, incentives are brought to the attention of the community by the company who quite frankly, may know more about what can be done than by those who can do it. Spending even a little amount of time and energy evaluating prospective projects can pay off big, but the most important thing to remember is that projects may need to slow down while the process takes place and that the sooner the analysis takes place, even before a project is approved internally, the more likely that a company will succeed at maximizing every possible opportunity.
John Skowronski is TCC’s Vice President of Incentives. For over 30 years, he has worked in State and Local Tax and almost exclusively in Tax Credits and Incentives during that time. He is frequent speaker and author and has taught many in this specialized area.