Ranked #4 - State and Local Incentives
Michael Huber, Cushman & Wakefield – Location Incentives Group (Apr/May 07)
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Put knowledge to practice.
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.