But for” refers to a determination of whether incentives are essential for a project to be initiated or completed or whether incentives induce a company to invest where it otherwise would not have. But this phrase causes a lot of problems, and its role can easily be misunderstood and exaggerated. Check out our recent presentation on the topic, adapted from a discussion at the Incentive Project Accountability and Transparency Workshop.

1. The “But For”
Question in Business
Incentives
ELLEN HARPEL, FOUNDER
SMART INCENTIVES
2015

2. About us
Business Development Advisors
is an economic development
consulting firm
Smart Incentives helps communities
make sound decisions
throughout the incentives process
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3. What does “but for” mean?
Funds are essential for a project to be initiated or
completed; “but for” the funds, the project would
not have occurred.
Incentives induce a company to invest where it
otherwise would not have; “but for” the incentive,
would the investment have occurred?
Sources: Urban Institute, IEDC
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4. Is “but for” integral to
incentives?
“Incentive” has looser definition and general
usage than “but for.”
We use incentives to accomplish our economic
development goals – “but for” ignores this.
Is a “but for” standard the best way to
determine whether we are spending our money
wisely?
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5. How is “but for” used?
Up-front project assessment
◦ Eligibility
◦ Opportunity rating
Post-award evaluation
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6. How is “but for”
determined?
Assessment
◦ Asking the company
◦ Requiring them to certify
◦ Limit to industries likely
to be influenced on
location choice
◦ Professional judgment
Evaluation
◦ Field work (interviews,
site histories, market
conditions)/judgment
and interpretation
◦ External expert
evaluation
◦ Comparison cases
◦ Rules of thumb based
on research
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7. Why “but for” is not a good
project assessment standard
Encourages (or requires) & rewards firms that pit one
location against another
Penalizes businesses that do not wish to move by
making them ineligible for incentives
Requires EDOs to make an impossible determination
Focuses attention on the deal, not the community
benefits
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8. Asking business often does
not clarify the issue
From one state program evaluation:
◦ 55% of businesses cited state incentives as 1 of top
3 reasons for decision
◦ 64% said they would have proceeded without the
incentive
Different perspectives within one company
Depends on when you ask
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9. Asking businesses . . . (2)
Recognized by researchers:
◦ “When financing packages are being assembled for
some community and economic ventures, for
example, even the principals may not know with any
certainty what is likely to happen if a particular
subsidy were not available.”
Source: Urban Institute
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10. When the “but for” concept
is useful
Gap financing for real estate-based projects
◦ Does the project need public sector/TIF money to achieve
a market-level return for the developer?
◦ Are there factors that merit an “extraordinary intervention
in the largely privately-driven real estate market?”
◦ Why is this different from a standard market deal?
◦ What are the extraordinary costs or market failures that need to
be addressed?
Source: CDFA
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11. When “but for” is useful (2)
Program evaluation – still want to know if the
incentive is making a difference
◦ Comparison among funded/not-funded projects
◦ Comparison among similar places
◦ Probability of a project occurring because of an
incentive
◦ Proportion of a program portfolio attributable to an
incentive
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12. For discussion
◦ How do you use “but-for” rule - if at all - in up-front
assessments? What are pros/cons?
◦ Does use differ in your community investment
programs?
◦ Does it create unrealistic expectations among
policymakers and the public?
◦ Can good due diligence take the place of a but-for
standard?
◦ Do you use “but for” in program evaluations? Is this a
promising direction?
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13. Contact
Ellen Harpel
President
571/212.3397
eharpel@businessdevelopmentadvisors.com
www.businessdevelopmentadvisors.com
ellen@smartincentives.org
http://www.smartincentives.org/
@SmartIncentives
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2015
SMART
INCENTIVES