Evaluate and maximize return on incentives

Evaluate and Maximize Your Return on IncentivesIEDC WEBINAR, JANUARY 2016

ELLEN HARPEL, SMART INCENTIVES

About us Business Development Advisorsis an economic developmentconsulting firm

 Smart Incentives helps communitiesmake sound decisions throughout the incentives process

2©2016SMARTINCENTIVES

Why do we use incentives? To achieve our community’s economic development goals

◦  Jobs◦  Business development◦  Investment◦  Downtown revitalization◦  Brownfield redevelopment◦ Quality of life and quality of place◦  Strengthen tax base

 Incentives are not just about winning a deal. Smart incentive use is always connected to a larger economic development strategy.


Today’s environment requires better analytics Reduce risk Quantify net benefits Refine incentive strategies Explain and build support for decisions Achieve better outcomes


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Due diligence Recipient◦ Background research on the applicant

 Deal◦ Business case analysis of the project◦ What could go wrong?


Can this deal generate net benefits for your community? 3 steps to assess return on incentives Project Attributes Fiscal Impact Economic Impact


Project attributes Project characteristics Fit with economic development strategy Effect on existing businesses Location Timeframe Likelihood of success


Fiscal impact Tax and budgetary implications of incentive decisions for state and local government

 Cost of the incentive Tax revenue the project may generate

 Additional expenditures that might be required

 Challenges:◦  Jurisdictions affected◦  Fiscal impact of indirect and induced jobs ◦  New jobs and new residents◦  Timing


Economic Impact Traces the flow of money after an initial investment to estimate the contribution to the regional or state economy

 Economic impact depends on industrial structure and size of your region

 Components: ◦  Direct◦  Indirect◦  Induced

 Data needs Judgment and interpretation


Takeaways Devote resources to the analysis◦  Organizations like IEDC can help make the case◦  Band together with others in your community and region

 Strike a balance between detail and reasonableness◦  You’ll never be “right” – need order of magnitude estimate◦  Judgment still needed

 Be prepared to communicate your process, decision and rationale


Did this deal generate net benefits for your community? “Monitor, measure and report”

 Project performance  Achieving economic development goals


Compliance monitoring What is required in the performance agreement? How is data obtained and tracked? Whose job is it? Can information be verified? What do you do with the information? Is there a closeout process?

Collect the data to see what is working and what is not


Program evaluation Define program goals clearly Align metrics with program goals Consider data sources when choosing metrics Go beyond job counts Use consistent definitions and reporting mechanisms Communicate findings


Reporting & communication Elected officials and community groups are demanding better data from EDOs on incentive use.

 Transparency◦  How much are we spending?◦ Who is receiving incentives?

 Accountability◦ What are we getting out of our incentives spending?◦  Reporting the results of the evaluations


GASB: State & Local Tax Abatement Disclosure Requires disclosure of financial information about tax abatement agreements between individual taxpayers and the government  Why? To make transparent the financial impact of transactions that can limit a government’s revenue-raising ability Includes:◦  General descriptive information (tax being abated, authority, eligibility,

mechanism by which taxes are abated, provisions for recapture)◦  Commitments made by the recipient◦  Other commitments made by a government (such as infrastructure)◦  Dollar amount of taxes abated during the reporting period◦  Tax abatements entered into by other governments that reduce the

reporting entity’s tax revenues

 In effect for financial statements for periods beginning after Dec. 15, 2015


GASB (2) Individual agreements do not need to be disclosed. The guidance for disclosure is limited to tax abatements. It does not include all tax expenditures and it does not include other forms of assistance to businesses.

 The disclosure rules are not limited to tax abatements for business attraction. Disclosure does not depend on the existence of a written agreement.


GASB (3) An example provided by GASB (“illustrative only”):


Taxabatementprogram AmountoftaxesabatedduringFY($000)

Film&TelevisionProducGonIncenGve

Salestax $13,345

Corporateincometax $12,479

Dept.ofEconomicAssistance

EconomicAssistanceIniGaGve $18,566

High-TechInvestmentProgram $9,578

CompeGGveCountyCredit $11,158

Concluding thoughts Incentives should be used to accomplish community goals – not just win a deal. Economic developers need better data and analytics to identify what works and enable sound decisions when awarding incentives in order to maximize ROI. These tools can also help us communicate our work to external stakeholders.


Contact us Ellen Harpel President 571/212.3397

[email protected] www.businessdevelopmentadvisors.com

[email protected]://www.smartincentives.org/

@SmartIncentives


Economy & Finance

Evaluate and maximize return on incentives