using incentives effectively - the national perspective
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Using Incentives Effectively – the National PerspectiveDARRENE HACKLER, ADVISOR, SMART INCENTIVES CAL IFORNIA ASSOCIATION FOR LOCAL ECONOMIC DEVELOPMENT (CALED) AUGUST 2016
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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.
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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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Achieve economic development goals
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Use data and analysis to enable better
decision-making.
Achieve greater transparency and
accountability.
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Reducing Risk - Making Sound DecisionsData and analysis prior to awarding incentives
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Due diligence Recipient◦ Background research on the applicant
Deal◦ Business case analysis of the project◦ What could go wrong?
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Can this deal generate net benefits for your community?
Project Attributes and Benefits Fiscal Impact Economic Impact
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Project attributes & benefits Project characteristics Fit with economic development strategy Effect on existing businesses Timeframe Likelihood of success
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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
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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
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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
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Compliance and EffectivenessEvaluating incentives outcomes
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Did this deal generate net benefits for your community?
Project performance Achieving economic development goals
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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?
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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.
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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?
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States regularly evaluating incentives
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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
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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
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Improving communicationPreparing for greater transparency and accountability
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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
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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
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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.
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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
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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
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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
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