Smart Incentives & Technology
Kent Gardner, Ph.D.
Center for Governmental Research
• Independent, objective nonprofit (501(c)(3)) dedicated to
the public interest
• Consultant to government, business and nonprofit
leaders, providing decision support, policy analysis,
• Active throughout NYS with additional engagements in
Ohio, Massachusetts, Ohio & New Jersey
• Key areas of focus: local government, education, human
• Creator of
About Smart Incentives
• Business Development Advisors is an economic
development consulting firm
• Works with leaders at the local, state and national levels to
increase business investment and job growth in their communities
• Founded 1999
• Smart Incentives helps communities make sound
decisions throughout the economic development
• Due diligence and business case analysis for incentive projects
• Processes for monitoring compliance and evaluating effectiveness
• Launched 2013
Smart Incentives 4x4 Framework
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
• Refine incentive strategies
• Explain and build support for decisions
• Achieve better outcomes
A working definition of incentives:
• Tools to influence business decisions in order to spur
the growth of companies and jobs in specific
• Taxpayer-financed programs that support individual
• 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 (3)
• Business Need
• Capital access
• Facility/site location
• Product/process improvement
• Regulatory climate
• Discretionary and non-discretionary
• Targeted (or not) by industry or geography
Pursuing diverse community goals
• Economic growth
• 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
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
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
• What are your incentives buying?
Can this deal generate net benefits for
• Project Attributes
• Fiscal Impact
• Economic Impact
Project attributes (1)
• Project characteristics
• Number of jobs
• Type of jobs and wages
• Location – where is the project and where will the benefits occur?
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?
Project attributes (3)
• 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?
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?
OSF: Key Facts
• Subsidiary of Daido Steel, multinational
steel firm headquartered in Japan
• 40,000 SF addition to support automotive
• Current employment: 100
• Anticipated expansion: 26 jobs
• Cost of expansion: $20 million
Why do we care? First, OSF will
• OSF will expand purchases of supplies
• food services
• office supplies
• janitorial services
• lots of other stuff
Suppliers Will Spend More
Adds new PERMANENT jobs in Warren
OSF plus Paul & Katherine will
• Income Tax
• Property Tax
• Mahoning County Property Tax
• Corporate Income Tax
• Personal Income Tax
• Sales Tax
• 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
• 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
• Approximately $4.5M
• 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
• Pool your resources
• Look to other governmental departments
• You’ll never be “right” – need order of magnitude
• Strike a balance between detail and reasonableness
• Be prepared to communicate your decision and
• 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?
• Municipal officials
• Who needs to know what?
• How do you communicate?
• How honest should you be?
• How do you deal with the media?
Compliance and Effectiveness
• Monitor compliance – project performance
• Evaluate effectiveness – policy objectives
• Reporting and policy feedback
Compliance – performance
• 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
• 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
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?
• Site visits and closeout interview at end of term
COLLECT THE DATA to figure out what is working and
what is not
Compliance - challenges
• Access to information
• Coordinating among agencies/departments
• Definitions – e.g., what is a “new job”
• Ability to track long-term
• 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?
Evaluating incentive programs for
• Did the incentive affect the choices businesses
• 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
Source: Pew Charitable Trusts
Business Incentives Initiative
• Identify effective ways to manage and assess incentive policies and
• 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
• 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
Evaluating incentive programs to inform
• 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
• Leadership is critical. Provide a supportive environment,
training, resources and encouragement.