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Ranked #4 - State and Local Incentives

Apr/May 07
(page 2 of 2)
Put knowledge to practice.
Having greater access to information about incentive programs and how they have been utilized has led corporate decision-makers to more routinely include state and local incentives as a criteria in the preliminary phases of location studies. Incentives will be considered as to the cost mitigation effects on a specific location's capital and operating expenses, such as labor cost, rents, utilities, construction costs, etc. that often determine whether a location will be able to support a new operation or facility expansion.

Incentives are a decision factor that can be both qualitatively and quantitatively evaluated early in the site selection process to help determine the relative attractiveness of "long-list" candidate communities, and they become extremely critical in the final location decision. For example, location consultants may often formulate an index, such as a rating or grade that reflects the incentives climate or may even generate a high-level pro-forma in order to understand the potential magnitude of incentive benefits in a candidate community.

It has been well-documented that incentives generally play a much more significant role in the site selection process after a "short-list" of potential locations has been determined. Incentives are often categorized as the "tie-breaker" when two or more sites of equal merit and/or cost profiles are being considered for a project. This is typically due to the fact there are often multiple communities remaining in the final stages of the process that rank similarly in key location factors, like labor availability, quality, or cost. Nevertheless, companies seem to have become increasingly influenced by aggressive incentives packages when making location decisions.

"We have found that communities have a far greater appreciation for the economic impacts associated with the value that jobs and investment bring to both the quality of life and bottom line of their local economies, and that appreciation is manifest in increasingly aggressive incentive packages that are tailored to provide significant benefits to the corporate user," said one client. "In our view, it is critical to tap into these programs as a way to offset the significant costs of these projects." For that reason, less attractive sites may become more attractive simply by virtue of an extremely aggressive incentives package, in some cases tipping a decision in their favor. This is definitely still the exception when reviewing location decisions, but this trend is becoming more prevalent over time.

This shift in preference is due to the increased fiduciary responsibility to reduce costs even if it might mean downplaying the importance of more fundamental location criteria. It might also be argued that it is due to the desire to keep up with competitors who have received front-page headlines because of large incentive awards, as well as a variety of other reasons. Based on my experience, it is clear that employing a strategic cost mitigation approach to site selection through the procurement of economic development incentives is critical to the facilities planning process.

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