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Are Development Incentives Effective?

By Bill R. Shelton CEcD

The recent announcement of the substantial incentive packages Nevada used to attract Telsa has reignited the long simmering debate, “are development incentives effective?”

Opponents have long challenged the practice by contending that incentives have marginal, if any, influence on business location decisions. Many community leaders and development officials contend that incentives are an essential economic development tool. The purpose of this article is neither to critique the validity of the arguments nor to defend the use of incentives. Its purpose is providing recommendations that will make the use of incentives by local governments more effective.

The following recommendations are from the Government Finance Officers Association (GOFA) publication “Developing an Economic Development Incentive Policy” and are considered minimum elements of a policy.

1. Goals and Objectives. Create context and accountability for the use of economic development incentives.

2. Financial Incentive Tools and Limitations. The policy should define the types of incentives and the extent to which the jurisdiction will use them.

3. Evaluation Process. For consistency and transparency, a clearly defined evaluation process should be detailed in the policy. The process should include a detailed cost/benefit analysis.

4. Performance Standards. Establishingstandards that the company receiving the incentives must achieve is an essential component that helps to gauge the effectiveness of the project as well as ensure that the promised benefits are received.

5. Monitoring and Compliance. The monitoring process should examine performance standards and determine if the goals of the project are being achieved in the defined timeframe.

Gaining the maximum benefits and ensuring the effective use of incentives does not end with the granting of incentive but rather begins. Ongoing securitizing and monitoring of the projects must become a part of the overall economic development program and provided with an adequate accounting structure and staffing support.

Journey Awareness Persona Economic Development/Elected Official City Government