Who’s Cashing In?James H. Renzas, PresidentLocation Management Services

October 28, 2006

2006 Fall Professional Conference – Charlotte, NC USA

Almost $50 Billion in Incentives and Credits are available annually for new and expanding facilities..

Recent Examples:

Honda - $80 million in incentives for a $510 million automotive plant in Greensburg, Indiana;

Scripps Research - $450 million including a grant of $300 million and a free $140 million facility for 545 new jobs ($826,000 per new job);

Fidelity - $69 million in incentives for a $100 million facility and 2,000 new jobs in Research Triangle;

Dell - $318 million in incentives for 1,500 new jobs in Winston-Salem Burnham Institute - $300 million for 300 biotech jobs in Orlando; United Solar - $37 million for a $132 million 202,000 sq. ft. solar device

manufacturing plant with 200 employees in Greenville, Michigan; Samsung - $231 million for a $500 million 300 mm chip fab expansion plant

employing 300 in Austin, Texas; Boeing - $69 million for 500 headquarters jobs in Chicago, Illinois.

Source: Site Selection Magazine

Unfortunately, billions of credits and incentives are never claimed…

“Every day millions of dollars of corporate incentives and credits are left unclaimed due to neglect, lack of informationor lack of a management system to ensure collection”

James RenzasPresidentLocation Management Services

Area Development study of corporate incentives and credits utilization…

• Only 12 % said that they are confident that they are collecting all incentives available to them

• 84 % said that they lack a formalized incentives negotiation and tracking program to maximize benefits available to them

Over two hundred Fortune 500 company CFO’swere surveyed:

Why don’t more companies take advantage of credits and incentives?

Many companies have the following problems…

• Decentralized processes

• Renegotiations aren’t timely

• Tax departments are swamped

• States and cities change political direction

• Nobody dedicated to tracking incentives agreements

What are the key issues in incentives negotiations?

Incentives don’t get taken advantage ofbecause of the following reasons…

• Lack of knowledge as to what is available

• Detailed application procedures

• Specific performance requirements

• Premature disclosure of plans

• Fear of negative publicity

Incentive contracts areoften very specific regarding performance requirements for earning incentives…

• Negotiating incentives contracts is very time consuming and detail-oriented…

• Often incentives negotiations can become political

Incentives contracts are very specific as to their performance requirements…

Applications for incentives are often very long and detailed…

State and local incentives program often require long and detailed applications which must be completed, submitted and approved before closing and/or announcement…

Annual or quarterly documentation is frequently required in order to maintain incentives…

Many companies fail to meet the compliance requirements in order toclaim or maintain their negotiatedincentives…• Must be filed annually or quarterly

with the appropriate taxing bodies (sometimes 2 or 3 taxing bodies per project)

• Information must be collected in a very specific format and must be reported on the appropriate forms before deadlines

Does your client need an incentives management consultant?

An incentives consultant can do the following:• Conduct a confidential analysis of incentives potential• Provide knowledge of how incentives programs work• Benchmark past deals for similar projects• Manage the application, documentation and compliance• Resolve compliance problems and re-negotiate if necessary

if plans change

Case study # 1: Collecting incentives is the point, isn’t it?

• Retailer negotiated sharing of sales taxes over 10 year period, starting 1 year post occupancy – March 1 2005. City did not send payment on March 1, 2006

• LMS contacted city – the Mayor and City Manager were both new – neither involved in negotiations, city council had changed completely

• LMS used our Incentives Management System to bring them up to provide documentation on all aspects of the negotiations and to claim $150,000 in benefits

Case study #2: Leverage is key in negotiations..

• Manufacturing co. applied to Nevada city for CDBG grant of $750,000 to offset road and sewer costs

• County calendared approval for November 8th

• On November 5th, the new Plant Manager made an offer on a home in this small Nevada town

• On November 6th, the City pulled the CDBG offer off the table saying that the company had already made a commitment to the area and that the incentive request was not “but for”

• The lost incentive money could have paid for 6 homes for the plant manager

One company lost it’s leverage in a unique way:

Case study #3: Local knowledge is critical..

• LMS was helping a company build 10 stores in a state

• Our local consultant was having drinks with state revenue personnel one night

• Using an existing program, they jointly figured out how to use a taxable bond to exempt sales and use taxes on all construction materials

• Each store paid approximately $250,000 in sales and use taxes on construction materials

• Thus, local knowledge and creative thinking helped this client save over $2.5 million in taxes..

Understanding how programs can be used is critical:

Case study #4: Incentives must be negotiated and documented prior to closing and announcement…

• Documentation that the project may relocate out of state, through a qualified relocation study

• Negotiations must commence prior to closing on the property

• If there is no out-of-state component, the project is ineligible

• Savings are 15 % of energy costs over a five year period.

Southern California Edison’s economic development rate requires:

Case study #5: Communications must be coordinated and controlled..

• In March, 1999 – Wal-Mart sent out a press release announcing James City County as the site for its new distribution center

• Public relations actually meant to announce the food distribution center in Louisiana

• Virginia Governor’s Opportunity Fund commitment requires that the Governor publicly announce all grants prior to company release

• This gaffe almost cost Wal-Mart $700,000 in grant funds, but was ultimately saved by the Governor

LMS Partnership with SIOR

Exclusive Member Benefit:

• Free analysis of incentives potential at any location • Negotiation of state, local, regional, and federal incentives• Management of all documentation related to application and

approval of the incentive• Management of all compliance requirements• Renegotiation of terms if necessary, should plans change

either upwards or downwards• Referral fee to SIOR broker• More satisfied clients

LMS Partnership with SIOR

Example:

• GN Manufacturing, a manufacturer of specialty building products was out of capacity and needed and found a suitable 109,000 square foot building through Lee Wilburn and David Davis, owners of Commonwealth Commercial Real Estate in Louisville, Kentucky

• LMS conducted a free opportunity evaluation and identified potential incentives• LMS conducted negotiations with:

•Commonwealth of Kentucky•KY Economic Development Finance Authority•Greater Louisville, Inc. •Various departments of Metro Louisville government•Community Development Entity•Community Development Bank•Republic Bank and Trust•Jefferson County Property Valuation Administrator

• Incentives awarded:•Kentucky Enterprise Initiative Act sales tax abatement on construction materials

$20,000•Louisville Metro New Market Tax Credit Loan - $1 million

$210,000•Metro Business Development Corporation - $100,000

$20,000•Louisville Metro Government/Jefferson County property tax moratorium

$15,000•Louisville Metro Government/Jefferson County property valuation freeze

$35,000Total Savings

$300,000

Contact Us..

Location Management Services

Offices Throughout the U.S., Europe and the Pacific Rim

949-472-4482

SIOR Hotline: 800-259-0947 Option 3

www.locationmgmt.com