Incentives as a Public Investment

<p>State and local governments are getting smarter about how they use financial and tax incentives to support economic development. As incentive deals face greater scrutiny, public officials can take a number of steps to ensure that they are: 1) getting the best returns on the investment of public dollars, and 2) minimizing any downside risks associated with the deals. </p> <p>The International Economic Development Council (IEDC) recently released a report that provides a framework for using incentives as a prudent public investment. The report, titled “Seeding Growth: Maximizing the Return on Incentives”, discusses best practices in designing incentive programs and managing “incentives portfolios”. These best practices include strategic planning, regional incentive pacts, non-financial incentives, program monitoring, eligibility and investment criteria, performance metrics, incentive agreements, and shareholder communication. A part of the report that I found particularly useful is the identification of commonly used investment criteria:</p> <p>• Minimum private investment<br /> • Requirements for on-site business activity<br /> • Local purchasing requirements<br /> • Caps on public investment per new job created<br /> • Wage standards<br /> • Job quality standards (hours and benefits)<br /> • Hiring targets for local residents, minorities, women, youth, displaced workers, etc.<br /> • Time requirements staying at site<br /> • Requirements for corporate financial condition and performance<br /> • Expectations for payback period and ROI</p> <p>The IEDC report emphasizes the importance of using analytical tools to calculate the return on investment (ROI) for incentive deals. Among many sources, it cites an article I wrote that discusses various approaches to conducting economic and fiscal impact [...]</p>