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Evaluate and maximize return on incentives
The IEDC webinar presented by Ellen Harpel outlines the importance of using incentives in economic development to achieve community goals such as job creation and business growth. It emphasizes the need for thorough analysis and transparency in assessing the return on incentives to ensure accountability and effective decision-making. The document highlights best practices for compliance monitoring, program evaluation, and communication with stakeholders to maximize the impact of incentives.
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Evaluate and maximize return on incentives
- 1. Evaluate and Maximize YourReturn on Incentives IEDC WEBINAR, JANUARY 2016 ELLEN HARPEL, SMART INCENTIVES
- 2. About us Business DevelopmentAdvisors is an economic development consulting firm Smart Incentives helps communities make sound decisions throughout the incentives process 2 © 2016 SMART INCENTIVES
- 3. Why do weuse 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. 3 © 2016 SMART INCENTIVES
- 4. Today’s environment requires betteranalytics Reduce risk Quantify net benefits Refine incentive strategies Explain and build support for decisions Achieve better outcomes 4 © 2016 SMART INCENTIVES
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- 6. Due diligence Recipient ◦ Background researchon the applicant Deal ◦ Business case analysis of the project ◦ What could go wrong? 6 © 2016 SMART INCENTIVES
- 7. Can this dealgenerate net benefits for your community? 3 steps to assess return on incentives Project Attributes Fiscal Impact Economic Impact 7 © 2016 SMART INCENTIVES
- 8. Project attributes Project characteristics Fitwith economic development strategy Effect on existing businesses Location Timeframe Likelihood of success 8 © 2016 SMART INCENTIVES
- 9. Fiscal impact Tax andbudgetary 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 9 © 2016 SMART INCENTIVES
- 10. Economic Impact Traces theflow 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 10 © 2016 SMART INCENTIVES
- 11. Takeaways Devote resources tothe analysis ◦ Organizations like IEDC 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 11 © 2016 SMART INCENTIVES
- 12. Did this dealgenerate net benefits for your community? “Monitor, measure and report” Project performance Achieving economic development goals © 2016 SMART INCENTIVES 12
- 13. Compliance monitoring What isrequired in the performance agreement? How is data obtained and tracked? Whose job is it? Can information be verified? What do you do with the information? Is there a closeout process? Collect the data to see what is working and what is not 13 © 2016 SMART INCENTIVES
- 14. Program evaluation Define programgoals clearly Align metrics with program goals Consider data sources when choosing metrics Go beyond job counts Use consistent definitions and reporting mechanisms Communicate findings © 2016 SMART INCENTIVES 14
- 15. Reporting & communication Electedofficials and community groups are demanding better data from EDOs on incentive use. Transparency ◦ How much are we spending? ◦ Who is receiving incentives? Accountability ◦ What are we getting out of our incentives spending? ◦ Reporting the results of the evaluations 15 © 2016 SMART INCENTIVES
- 16. GASB: State &Local Tax Abatement Disclosure Requires disclosure of financial information about tax abatement agreements between individual taxpayers and the government Why? To make transparent the financial impact of transactions that can limit a government’s revenue-raising ability 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) ◦ Dollar amount of taxes abated during the reporting period ◦ Tax abatements entered into by other governments that reduce the reporting entity’s tax revenues In effect for financial statements for periods beginning after Dec. 15, 2015 16 © 2016 SMART INCENTIVES
- 17. GASB (2) Individual agreementsdo not need to be disclosed. The guidance for disclosure is limited to tax abatements. It does not include all tax expenditures and it does not include other forms of assistance to businesses. The disclosure rules are not limited to tax abatements for business attraction. Disclosure does not depend on the existence of a written agreement. © 2016 SMART INCENTIVES 17
- 18. GASB (3) An exampleprovided by GASB (“illustrative only”): © 2016 SMART INCENTIVES 18 Tax abatement program Amount of taxes abated during FY ($000) Film & Television ProducGon IncenGve Sales tax $13,345 Corporate income tax $12,479 Dept. of Economic Assistance Economic Assistance IniGaGve $18,566 High-Tech Investment Program $9,578 CompeGGve County Credit $11,158
- 19. Concluding thoughts Incentives shouldbe used to accomplish community goals – not just win a deal. Economic developers need better data and analytics to identify what works and enable sound decisions when awarding incentives in order to maximize ROI. These tools can also help us communicate our work to external stakeholders. © 2016 SMART INCENTIVES 19
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