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Pre-Summit Workshop 
Smart Incentives & Technology 
Kent Gardner, Ph.D. 
Chief Economist 
Center for Governmental Research 
Ellen Harpel 
Founder 
Smart Incentives
About CGR 
• Independent, objective nonprofit (501(c)(3)) dedicated to 
the public interest 
• Consultant to government, business and nonprofit 
leaders, providing decision support, policy analysis, 
implementation guidance 
• Active throughout NYS with additional engagements in 
Ohio, Massachusetts, Ohio & New Jersey 
• Key areas of focus: local government, education, human 
services 
• Creator of 
2
About Smart Incentives 
• Business Development Advisors is an economic 
development consulting firm 
• Works with leaders at the local, state and national levels to 
3 
increase business investment and job growth in their communities 
• Founded 1999 
• Smart Incentives helps communities make sound 
decisions throughout the economic development 
incentives process 
• Due diligence and business case analysis for incentive projects 
• Processes for monitoring compliance and evaluating effectiveness 
• Launched 2013
Smart Incentives 4x4 Framework 
Recipient 
Deal 
Compliance 
Effec1veness 
Data 
and 
analysis 
to 
enable 
be7er 
decision-­‐making 
Greater 
4 
transparency 
and 
accountability
Analytics for Smart Incentives 
• Incentives are part of a community’s financing toolkit 
• Evaluating deals 
• Monitoring the return on investment 
• Quality data and analysis help you: 
• Reduce risk 
• Understand if an incentive deal can generate net benefits for your 
community 
• Refine incentive strategies 
• Explain and build support for decisions 
• Achieve better outcomes 
5
Incentives Basics 
A working definition of incentives: 
• Tools to influence business decisions in order to spur 
the growth of companies and jobs in specific 
locations 
• Taxpayer-financed programs that support individual 
businesses 
Development finance: 
• Fostering job creation and economic growth through 
the use of tax-exempt and other public-private 
partnership finance programs 
Blurred lines between the two categories
Incentives Basics (2) 
• Categories 
• Direct business financing 
• Indirect business financing 
• Community-oriented 
• Tax-related 
• Types 
• Bonds 
• Grants 
• Investments 
• Loans 
• Tax abatements, credits, deductions, exemptions 
7
Incentives Basics (3) 
• Business Need 
• Capital access 
• Facility/site location 
• Infrastructure 
• Marketing 
• Product/process improvement 
• Regulatory climate 
• Workforce 
• Discretionary and non-discretionary 
• Targeted (or not) by industry or geography 
8
Pursuing diverse community goals 
• Economic growth 
• Jobs 
• Investment 
• Downtown revitalization 
• To support remaining business 
• To provide jobs for center city residents 
• Brownfield redevelopment 
• Improved quality of life 
• To support business retention 
• To support business attraction 
• Strengthen local fisc 
• Taxable income 
• Property value 
• Taxable retail sales 
9
Economic goals also diverse 
• Jobs for whom? 
• Skilled v unskilled 
• Under & unemployed v. new workers 
• Is population growth a community good or a community evil? 
• Business development 
• Existing v. new 
• Traded sector v. support infrastructure 
• What are the “investment” goals? 
• To support construction 
• To add taxable property 
10 
Analy1cal 
tools 
((pprroojjeecctt 
oorriieennttaa1oonn))
Measurement is just as difficult 
• Core metric: Jobs 
• Payroll/Payroll per job adds quality dimension 
• Skills needs will help discern if project is going to 
support existing workforce or in-migrants 
• Cleveland Foundation’s laundry: More cleaning being 
done? 
• What are your incentives buying? 
11
Can this deal generate net benefits for 
your community? 
• Project Attributes 
• Fiscal Impact 
• Economic Impact 
12
Project attributes (1) 
• Project characteristics 
• Number of jobs 
• Type of jobs and wages 
• Investment 
• Location – where is the project and where will the benefits occur? 
13
Project attributes (2) 
• Fit with economic development strategy 
• Target industries 
• Business types 
• Coordination with state and regional allies 
• Meets established program criteria 
• Would this project harm existing businesses? 
14
Project attributes (3) 
• Timeframe 
• When will the project begin? 
• When will investment and hiring occur? 
• What is the expected lifespan? 
• Likelihood of success 
• Does it make sense? 
• Other backers (banks, investors) 
• What is the level of risk? 
15
Why devote effort to impact assessment? 
• Heightened sensitivity in use of public dollars 
• “Good Jobs for All” and similar efforts propose 
restrictions in business tax and incentive structure 
• Efforts to improve public/private partnerships 
• Increasing skepticism about economic impact claims 
• What can’t we measure?
Questions and discussion 
17
Case Study: Measuring economic & 
fiscal impact 
• Ohio Star Forge 
announces 
expansion in 
Warren (N of 
Youngstown)
19
OSF: Key Facts 
• Subsidiary of Daido Steel, multinational 
steel firm headquartered in Japan 
• 40,000 SF addition to support automotive 
sector 
• Current employment: 100 
• Anticipated expansion: 26 jobs 
• Cost of expansion: $20 million 
20
Why do we care? First, OSF will 
spend more 
• OSF will expand purchases of supplies 
• steel 
• energy 
• food services 
• office supplies 
• janitorial services 
• lots of other stuff
Suppliers Will Spend More 
Buy 
more 
local 
tomatoes 
Replace 
delivery 
truck 
Hire 
new 
employees
Adds new PERMANENT jobs in Warren 
Paul, 
Engineer 
Katherine, 
Clinical 
Psychologist
Smart Incentives and Technology
And they’ll spend Paul’s paycheck
And they’ll spend Paul’s paycheck
OSF plus Paul & Katherine will 
pay taxes 
• Warren 
• Income Tax 
• Property Tax 
• Mahoning County Property Tax 
• Ohio 
• Corporate Income Tax 
• Personal Income Tax 
• Sales Tax
Let’s review 
• Direct impact: cash direct from Ohio Star Forge 
• Payments to Pizza Joe’s for pizza bought by the company 
• Salary to Paul 
• Benefits purchased on Paul’s behalf 
• Taxes to Warren, Mahoning County, State of Ohio 
• Spillover 
• Indirect: cash from OSF suppliers 
– Payments to Joe’s suppliers 
– Salaries to Joe’s employees 
• Induced: cash from OSF employees 
– Co-pay for Katherine’s OB/GYN services 
– Baby food for Katherine Jr. 
– Pizza from Joe
Economic Impact of Ohio Star Forge 
• Permanent Jobs – Approximately 50 
• Direct: 26 “New” 
• Spillover: 22 
– Indirect: 9 
– Induced: 13 
• Temporary Construction Jobs: Approximately 40 
• Income 
• Approximately $4.5M
30
31
Smart Incentives and Technology
Smart Incentives and Technology
Smart Incentives and Technology
Smart Incentives and Technology
Smart Incentives and Technology
Smart Incentives and Technology
Total 
Employment 
= 
87 
Direct 
= 
26 
Indirect 
= 
9 
Induced 
= 
13 
Temporary 
ConstrucCon 
= 
38 
State 
Labor 
Income 
= 
$4.5 
Million 
Average 
Salary 
= 
$51,800
Smart Incentives and Technology
Costs 
to 
State 
and 
Region 
= 
$221,000 
Benefits 
to 
State 
= 
$2,000,000 
Benefits 
to 
Region 
= 
$1,000,000 
Benefits/Costs 
= 
13.6
Smart Incentives and Technology
42 
Takeaways 
• Devote some resources to your analysis 
• CDFA can help make the case 
• The analysis has to be customized for your location 
• Band together with others in your community and 
region 
• Pool your resources 
• Look to other governmental departments 
• You’ll never be “right” – need order of magnitude 
estimate 
• Strike a balance between detail and reasonableness 
• Be prepared to communicate your decision and 
rationale
43 
Takeaways (2) 
• Beware of oversimplification/overly precise outputs – 
judgment still needed 
• Share your assumptions/the model’s assumptions 
• Doesn’t have to be set in stone; tweak it over time
Reporting to stakeholders 
• Who are your stakeholders? 
• Board 
• Developer 
• Municipal officials 
• Public 
• Who needs to know what? 
• How do you communicate? 
• How honest should you be? 
• How do you deal with the media? 
44
Compliance and Effectiveness 
• Monitor compliance – project performance 
• Evaluate effectiveness – policy objectives 
• Reporting and policy feedback 
• Transparency 
• Accountability 
45 
DID 
this 
incen+ve 
deal 
generate 
net 
benefits 
for 
your 
community?
Compliance – performance 
agreements 
• Are performance requirements clearly defined? 
• Are expectations laid out in a signed agreement? 
• Only 56% of local governments report that a performance agreement 
is required when providing business incentives 
• Is the agreement timeframe tied to the ROI break-even 
point? 
• Is the company required to report on its progress in 
meeting those requirements? 
• Is there a way to verify reported information? 
• Are policies in place to protect the community in the case 
of non-performance? 
46
47 
Compliance – monitoring ROI 
• Whose job is it? 
• Are there resources available? 
• 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 at end of term 
COLLECT THE DATA to figure out what is working and 
what is not
Compliance - challenges 
• Internal/process 
• Access to information 
• Coordinating among agencies/departments 
• Definitions – e.g., what is a “new job” 
• Ability to track long-term 
• Outcomes 
• What do you do when the project is not in compliance? 
• What happens if the project changes? 
– Economic environment 
– Changes at the company 
• Who enforces the agreement? 
48
Other challenges? Questions? 
49
Evaluating incentive programs for 
effectiveness 
• 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? 
Source: Pew Charitable Trusts 
50
Business Incentives Initiative 
51 
• 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
Evaluations should draw clear 
conclusions based on measurable goals 
• Metrics should: 
• Reflect the goals of the incentive 
• Consider available data 
• Use clear and consistent definitions 
• Metrics should emphasize strengthening the overall 
economy 
• Yes, fiscal impacts but not to the exclusion of economic measures 
• Focus on outcomes that affect the well-being of state residents 
• Consider whether incentives are reaching their target areas 
Source: Pew Charitable Trusts 
52
53 
Evaluating incentive programs to inform 
policy choices 
• Review your portfolio of incentive offerings 
• Consider building reviews into the budget process (RI) or 
legislative calendar (IN, MS) 
• Define the goal of each incentive program clearly 
• Use real data – not imputed or modeled figures 
• 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. Provide a supportive environment, 
training, resources and encouragement.
Questions? 
54
Contact Information 
Ellen Harpel 
President 
Smart Incentives 
571/212.3397 
eharpel@businessdevelopmentadvisors.com 
www.businessdevelopmentadvisors.com 
ellen@smartincentives.org 
http://www.smartincentives.org/ 
Twitter: @SmartIncentives 
Kent Gardner, Ph.D. 
Chief Economist 
CGR 
585/466.4273 
kgardner@cgr.org 
www.cgr.org 
55

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Smart Incentives and Technology

  • 1. Pre-Summit Workshop Smart Incentives & Technology Kent Gardner, Ph.D. Chief Economist Center for Governmental Research Ellen Harpel Founder Smart Incentives
  • 2. About CGR • Independent, objective nonprofit (501(c)(3)) dedicated to the public interest • Consultant to government, business and nonprofit leaders, providing decision support, policy analysis, implementation guidance • Active throughout NYS with additional engagements in Ohio, Massachusetts, Ohio & New Jersey • Key areas of focus: local government, education, human services • Creator of 2
  • 3. About Smart Incentives • Business Development Advisors is an economic development consulting firm • Works with leaders at the local, state and national levels to 3 increase business investment and job growth in their communities • Founded 1999 • Smart Incentives helps communities make sound decisions throughout the economic development incentives process • Due diligence and business case analysis for incentive projects • Processes for monitoring compliance and evaluating effectiveness • Launched 2013
  • 4. Smart Incentives 4x4 Framework Recipient Deal Compliance Effec1veness Data and analysis to enable be7er decision-­‐making Greater 4 transparency and accountability
  • 5. Analytics for Smart Incentives • Incentives are part of a community’s financing toolkit • Evaluating deals • Monitoring the return on investment • Quality data and analysis help you: • Reduce risk • Understand if an incentive deal can generate net benefits for your community • Refine incentive strategies • Explain and build support for decisions • Achieve better outcomes 5
  • 6. Incentives Basics A working definition of incentives: • Tools to influence business decisions in order to spur the growth of companies and jobs in specific locations • Taxpayer-financed programs that support individual businesses Development finance: • Fostering job creation and economic growth through the use of tax-exempt and other public-private partnership finance programs Blurred lines between the two categories
  • 7. Incentives Basics (2) • Categories • Direct business financing • Indirect business financing • Community-oriented • Tax-related • Types • Bonds • Grants • Investments • Loans • Tax abatements, credits, deductions, exemptions 7
  • 8. Incentives Basics (3) • Business Need • Capital access • Facility/site location • Infrastructure • Marketing • Product/process improvement • Regulatory climate • Workforce • Discretionary and non-discretionary • Targeted (or not) by industry or geography 8
  • 9. Pursuing diverse community goals • Economic growth • Jobs • Investment • Downtown revitalization • To support remaining business • To provide jobs for center city residents • Brownfield redevelopment • Improved quality of life • To support business retention • To support business attraction • Strengthen local fisc • Taxable income • Property value • Taxable retail sales 9
  • 10. Economic goals also diverse • Jobs for whom? • Skilled v unskilled • Under & unemployed v. new workers • Is population growth a community good or a community evil? • Business development • Existing v. new • Traded sector v. support infrastructure • What are the “investment” goals? • To support construction • To add taxable property 10 Analy1cal tools ((pprroojjeecctt oorriieennttaa1oonn))
  • 11. Measurement is just as difficult • Core metric: Jobs • Payroll/Payroll per job adds quality dimension • Skills needs will help discern if project is going to support existing workforce or in-migrants • Cleveland Foundation’s laundry: More cleaning being done? • What are your incentives buying? 11
  • 12. Can this deal generate net benefits for your community? • Project Attributes • Fiscal Impact • Economic Impact 12
  • 13. Project attributes (1) • Project characteristics • Number of jobs • Type of jobs and wages • Investment • Location – where is the project and where will the benefits occur? 13
  • 14. Project attributes (2) • Fit with economic development strategy • Target industries • Business types • Coordination with state and regional allies • Meets established program criteria • Would this project harm existing businesses? 14
  • 15. Project attributes (3) • Timeframe • When will the project begin? • When will investment and hiring occur? • What is the expected lifespan? • Likelihood of success • Does it make sense? • Other backers (banks, investors) • What is the level of risk? 15
  • 16. Why devote effort to impact assessment? • Heightened sensitivity in use of public dollars • “Good Jobs for All” and similar efforts propose restrictions in business tax and incentive structure • Efforts to improve public/private partnerships • Increasing skepticism about economic impact claims • What can’t we measure?
  • 18. Case Study: Measuring economic & fiscal impact • Ohio Star Forge announces expansion in Warren (N of Youngstown)
  • 19. 19
  • 20. OSF: Key Facts • Subsidiary of Daido Steel, multinational steel firm headquartered in Japan • 40,000 SF addition to support automotive sector • Current employment: 100 • Anticipated expansion: 26 jobs • Cost of expansion: $20 million 20
  • 21. Why do we care? First, OSF will spend more • OSF will expand purchases of supplies • steel • energy • food services • office supplies • janitorial services • lots of other stuff
  • 22. Suppliers Will Spend More Buy more local tomatoes Replace delivery truck Hire new employees
  • 23. Adds new PERMANENT jobs in Warren Paul, Engineer Katherine, Clinical Psychologist
  • 25. And they’ll spend Paul’s paycheck
  • 26. And they’ll spend Paul’s paycheck
  • 27. OSF plus Paul & Katherine will pay taxes • Warren • Income Tax • Property Tax • Mahoning County Property Tax • Ohio • Corporate Income Tax • Personal Income Tax • Sales Tax
  • 28. Let’s review • Direct impact: cash direct from Ohio Star Forge • Payments to Pizza Joe’s for pizza bought by the company • Salary to Paul • Benefits purchased on Paul’s behalf • Taxes to Warren, Mahoning County, State of Ohio • Spillover • Indirect: cash from OSF suppliers – Payments to Joe’s suppliers – Salaries to Joe’s employees • Induced: cash from OSF employees – Co-pay for Katherine’s OB/GYN services – Baby food for Katherine Jr. – Pizza from Joe
  • 29. Economic Impact of Ohio Star Forge • Permanent Jobs – Approximately 50 • Direct: 26 “New” • Spillover: 22 – Indirect: 9 – Induced: 13 • Temporary Construction Jobs: Approximately 40 • Income • Approximately $4.5M
  • 30. 30
  • 31. 31
  • 38. Total Employment = 87 Direct = 26 Indirect = 9 Induced = 13 Temporary ConstrucCon = 38 State Labor Income = $4.5 Million Average Salary = $51,800
  • 40. Costs to State and Region = $221,000 Benefits to State = $2,000,000 Benefits to Region = $1,000,000 Benefits/Costs = 13.6
  • 42. 42 Takeaways • Devote some resources to your analysis • CDFA can help make the case • The analysis has to be customized for your location • Band together with others in your community and region • Pool your resources • Look to other governmental departments • You’ll never be “right” – need order of magnitude estimate • Strike a balance between detail and reasonableness • Be prepared to communicate your decision and rationale
  • 43. 43 Takeaways (2) • Beware of oversimplification/overly precise outputs – judgment still needed • Share your assumptions/the model’s assumptions • Doesn’t have to be set in stone; tweak it over time
  • 44. Reporting to stakeholders • Who are your stakeholders? • Board • Developer • Municipal officials • Public • Who needs to know what? • How do you communicate? • How honest should you be? • How do you deal with the media? 44
  • 45. Compliance and Effectiveness • Monitor compliance – project performance • Evaluate effectiveness – policy objectives • Reporting and policy feedback • Transparency • Accountability 45 DID this incen+ve deal generate net benefits for your community?
  • 46. Compliance – performance agreements • Are performance requirements clearly defined? • Are expectations laid out in a signed agreement? • Only 56% of local governments report that a performance agreement is required when providing business incentives • Is the agreement timeframe tied to the ROI break-even point? • Is the company required to report on its progress in meeting those requirements? • Is there a way to verify reported information? • Are policies in place to protect the community in the case of non-performance? 46
  • 47. 47 Compliance – monitoring ROI • Whose job is it? • Are there resources available? • 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 at end of term COLLECT THE DATA to figure out what is working and what is not
  • 48. Compliance - challenges • Internal/process • Access to information • Coordinating among agencies/departments • Definitions – e.g., what is a “new job” • Ability to track long-term • Outcomes • What do you do when the project is not in compliance? • What happens if the project changes? – Economic environment – Changes at the company • Who enforces the agreement? 48
  • 50. Evaluating incentive programs for effectiveness • 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? Source: Pew Charitable Trusts 50
  • 51. Business Incentives Initiative 51 • 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
  • 52. Evaluations should draw clear conclusions based on measurable goals • Metrics should: • Reflect the goals of the incentive • Consider available data • Use clear and consistent definitions • Metrics should emphasize strengthening the overall economy • Yes, fiscal impacts but not to the exclusion of economic measures • Focus on outcomes that affect the well-being of state residents • Consider whether incentives are reaching their target areas Source: Pew Charitable Trusts 52
  • 53. 53 Evaluating incentive programs to inform policy choices • Review your portfolio of incentive offerings • Consider building reviews into the budget process (RI) or legislative calendar (IN, MS) • Define the goal of each incentive program clearly • Use real data – not imputed or modeled figures • 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. Provide a supportive environment, training, resources and encouragement.
  • 55. Contact Information Ellen Harpel President Smart Incentives 571/212.3397 eharpel@businessdevelopmentadvisors.com www.businessdevelopmentadvisors.com ellen@smartincentives.org http://www.smartincentives.org/ Twitter: @SmartIncentives Kent Gardner, Ph.D. Chief Economist CGR 585/466.4273 kgardner@cgr.org www.cgr.org 55