Designing Smart Incentives for Business Attraction

We are going back to basics this week. I recently presented a workshop on incentives at Carnegie Mellon University’s Heinz College focused on balancing the need to maximize economic outcomes with the judicious and transparent use of public funds. Among the takeaways:

Incentive Basics and Trends

  • Incentives are tools that help us achieve our community’s economic development goals. Smart incentive use is not just about winning a deal.
  • Lines are blurring between traditional business incentives and development finance programs.
  • Tax credits are the largest single category of state incentive, but tax incentives account for less than half of all state incentive programs.
  • We addressed tools for competitive analysis and incentive program design options.

Essentials of Due Diligence and Impact Analysis

Deploying incentives to support community outcomes requires strong data and analysis to support decision-making. Due diligence includes background research on applicants as well as careful analysis of the proposed project to minimize risk. Characterizing project attributes and expected gains for the community, complemented by good economic and fiscal impact analyses, help determine whether the proposed project will generate net benefits.

Tracking Incentive Outcomes

Monitoring, measuring and reporting is an essential element of incentive program management. Two key components are:

Reporting & Communication

Communicating effectively with external audiences about incentives and economic development in general is challenging. As elected officials and community groups are demanding better data on incentive use and outcomes, the data and analytical tools described above can help tell the story about effective and responsible incentive use.

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