Using Incentives Effectively - The National Perspective

Using Incentives Effectively – the National PerspectiveDARRENE HACKLER, ADVISOR, SMART INCENTIVES CAL IFORNIA ASSOCIATION FOR LOCAL ECONOMIC DEVELOPMENT (CALED) AUGUST 2016

About us Business Development Advisorsis an economic developmentconsulting firm

 Smart Incentives helps communitiesmake sound decisions throughout the incentives process

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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


Achieve economic development goals

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 Use data and analysis to enable better

decision-making.

 Achieve greater transparency and

accountability.

Reducing Risk - Making Sound DecisionsData and analysis prior to awarding incentives


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?

 Project Attributes and Benefits Fiscal Impact Economic Impact


Project attributes & benefits Project characteristics Fit with economic development strategy Effect on existing businesses 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◦  IEDC, CDFA 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


Compliance and EffectivenessEvaluating incentives outcomes


Did this deal generate net benefits for your community?

 Project performance  Achieving economic development goals


Compliance – performance agreements Define performance requirements Prepare an agreement◦  Only 56% of local governments report that a performance agreement

is required when providing business incentives

 Tie the project timeframe to the fiscal break-even point Require progress reports  Are policies in place to protect the community in the case of non-performance?


Compliance monitoring Whose job is it? Can information be verified?◦  Require reporting as part of agreement◦  Data sharing among agencies to verify key reporting variables

 How is data tracked? Timeframe? Site visits and closeout interview

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


Effectiveness – evaluation Did the incentive affect the choices businesses made?

 Were existing businesses harmed by the incentive?

 Did the benefits outweigh the costs? Is the program meeting the community’s goals? How could it be improved?

 Are the community’s incentives working together efficiently?


States regularly evaluating incentives


Pre-2014

2014

2015

2016

WA

OR

AZ

IA

MO

LA

FL

AK

TX

OK

NE

NDMN

MS

TN

IN

ME

NH

RI

CT

MD

DC

WI

AL

VACO

Business Incentives Initiative

 Identify effective ways to manage and assess incentive policies and practices

 Improve data collection and analysis Develop national standards and best practices that states can use to report on economic development incentives

 Participating states: IN, MD, MI, OK, TN, VA

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Evaluating to inform policy choices  Review your portfolio of incentive offerings Define the goal of each incentive program clearly Consider building reviews into the budget process (RI) or legislative calendar (IN, MS) Create a team with agency experience, analytical skills and subject-matter expertise Collaborate with other agencies to collect data and share analytics expertise Leadership is critical


Improving communicationPreparing for greater transparency and accountability


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

Many organizations still struggle to report basic project information . . . . . . And aren’t prepared to answer questions on outcomes and effectiveness


Transparency Lawmakers/the media/the public generally want to know:◦  How much are we spending?◦ Who is receiving incentives?

 Reporting considerations◦  Individual recipient versus aggregate reporting◦  Just the facts or analysis?◦  Need to provide context

 Usable/user-friendly information


GASB Statement 77 State & Local Tax Abatement Disclosure Disclose agreements between individual taxpayers and the government that might diminish the tax base

 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)◦  Number of tax abatement agreements entered into and in effect during

the reporting period◦  Dollar amount of taxes abated during the reporting period

 Substance of the transaction rather than the name or description determines whether the abatement must be disclosed.


Some GASB guidelines Now is the time to determine which tax incentive programs fit the definition. Communicate with government finance staff Transparency◦  Share process and rationale for decisions◦  Release basic deal information

 Accountability◦  Annual report – what we did and what we hope to achieve◦  Evaluations every 3-5 years – what worked, how can we

improve

 Context


AccountabilityWhat are we getting out of our incentives spending?Reporting the results of the evaluationsCollaborative approach to evaluation – and reporting Using reporting to improve not punish/get punished


Concluding thoughts Incentives should be used to accomplish community goals – not just win a deal◦ The problem is we haven’t known which incentives

actually help our communities

 Economic developers need better data and analytics to identify what works and enable sound decisions when awarding incentives The next few years will see tremendous improvements in the way we talk about and evaluate incentives

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Contact us Darrene HacklerAdvisor

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

@dhackler, @SmartIncentives


Economy & Finance

Using Incentives Effectively - The National Perspective