PUBLIC ECONOMIC DEVELOPMENT INCENTIVES THE GOOD, BAD AND THE UGLY

1
PUBLIC ECONOMIC DEVELOPMENT INCENTIVESTHE
GOOD, BAD AND THE UGLY
Hickey Associates763-476-88002375 Archer
Lane North, Suite 100Minneapolis, MN
55447mhickey_at_hickeyandassociates.com
2

• PROCESS IS KEY
• Site Selection
• Economic Development Incentives
• Data Management System

3

• SITE SELECTION
• AND THE ROLE OF
• INCENTIVES

4
CRITICAL THREE Rs
right
º The company º In the
community º With the incentives
right
right
5

• SITE SELECTION
• A Cross Industry Model

Disciplined But Adaptable

• Stays focused on objectives,
• milestones, and principles.
• Adapted to fit the business unit
• and corporate needs. 

6
STARTING POINT Identify Drivers

• Talent Type and Levels
• Space
• Cost
• Technology
• Infrastructure
• Utilities

7
LOCATION SELECTION (Narrow the Field)

• Utilize Analysis
• - Qualitative (Big Picture)
• - Quantitative (Site Specific)
• Understand Fit of Community Resources
• Long Term Approach
• Narrow The Choices
• Risk Analysis

8
LOCATION SHORT LIST Research Paper

• Tax Policies
• Business Environment
• Public Incentives
• Pertinent Legislative Updates
• Wage Analysis
• Local Labor Climate
• - Unionization
• - Employer Friendly
• Community Planning
• - Industry Priorities
• - General Plans

9
SITE AND BUILDING(S) SHORT LIST

• Cost of Real Estate
•   Availability of Talent and Labor Laws
•   Cost of Labor
•   Infrastructure
•   Potential Available Incentives

10
QUALITATIVE ANALYSIS (Mitigate Subjectivity)
Rating 1 - 10

• Weighted Based On Business Unit Preferences
• Employee Retention
• Competition For Employees
• Safety
• Parking
• Airport/Rail/Highway Accessibility
• Community Unionization History
• Schools, K-12, Post Secondary
• Employee Amenities
• Many Others

11
ECONOMIC DEVELOPMENT INCENTIVES

• Process
•   Old Faithfuls , Trends, Why Nots,
•   The Real Deal

12
INCENTIVES SURVEYS

• Overall use of credits and incentives have
  increased
• during the last five years.
• Over 80 of Fortune 1000 companies surveyed
• rate incentives important or very important.
• Source KPMG Others

13
PUBLIC INCENTIVES Reality Check

• Not Corporate Welfare They Are Earned
• Perform Risk/Reward Analysis For Every
  Incentive
• Understand Clawback
• Establish a Sophisticated Administrative and
  Tracking Database
• - Master
• - By Location
• - Hot Topics/Watch List
• - Absolute Diligence To Compliance and
  Administration
• (Minimize Issues/Maximize Return)

14
INCENTIVES

• Do they matter?
• - Yes
• Why offer them?
• - Just like business competition
• Who are the competitors?
• - Every state in the union
• Global Players

15
VALUE ADD INCENTIVES The Deal Makers

• They Do Matter - Distributed and
• Managed Properly They Benefit All
• Community New Jobs, Tax Base and Capital
• Circulation
• Business Reduced Cost of Doing Business in a
• Business Friendly Environment
• But With Rewards Comes Risks

16
PUBLIC INCENTIVES
The Good The Bad And the Ugly

• GOOD
• Partner with business to bring jobs and new
  capital
• Lower costs and enhanced ROI
• BAD
• Mitigate bureaucracy, not all things to all
  companies
• UGLY
• Avoid clawbacks - payback

17

• The good, the bad and the ugly
• - GOOD reduces costs and adds value
• - BAD red tape and time consuming
• - UGLY Oops! didnt make the numbers

18
PUBLIC INCENTIVES

• Receive Letter of Commitment/MOU
• Identify True Value
• Some Have Great Value Others Less

19
INCENTIVES
CAPITAL Grants Land/Facilities Infrastructure
Improvements Sales Tax Abatement Low Interest
Loans/Revenue Bonds Land Use/Zoning/Regulations M
ARGIN ENHANCEMENT Tax Abatements/Reductions Trai
ning Programs/Grants Utility Rate
Reduction Workmen Comp Rate Reductions
20
INCENTIVE TRENDS

• Payroll Tax Cash back based on new employee
  income taxes
• Creative Discretionary Funds
• Recognition that non-manufacturing jobs also
  add value
• Bureaucratic Reform
• Utility Companies
• - Involvement
• - Economic Development Rates
• Private Investments

21
TRENDS

• Sellable Credits Businesses can sell unused
  tax credits
• Federal Government Involved
• - Expanded Empowerment Zones
• - Work Opportunities Tax Credits
• - Rural Renaissance
• - Competitive EDGE
• Tax Reform

22
TRENDS

• Greater Corporate Accountability Size of Prize
  But if you
• play, you may have to pay
• High Impact Industries
• Greater Return on Investment
• Partnerships with Communities Relationships
  are Important

23
INCENTIVE WHY NOTS

• Flexible Training Programs Allow the company
  to design,
• implement and train
• Reimburse Partial Employee Wages OJT Model
• Surgical Incentives by Priority Industry
• Disclaimers Company as well as public
  contingent on
• continued funding

24
THE CUNO CASE

• Constitutionality of Incentives Commerce
  Clause
• Sixth Circuit Court (OH, MI, KY, TN) Some
  violated
• Commerce Clause
• Supreme Court agreed to hear
• EFFECT
• - Opened up other suits, e.g., NC
• - Some states aggressively move forward,
• others skiddish

25

• Overall operating costs first filter at long
  and medium list stages
• All costs included (labor, tax, RE, utilities,
  etc.)
• Incentives usually offset an un-alterable
  deficiency
• Ability to operate primary focus once reasonable
  cost structure verified
• Low cost irrelevant if cant effectively do
  business
• Total cost returns as key driver at shortlist
  and/or finalist stage
• Typically several locations offer close to equal
  operating environments
• Additional negotiable incentives often rule
  the day
• Timing is everything
• Dont underestimate compliance
• More time and resources required than one would
  expect
• Most approved incentives never captured

26
MANAGING AND ADMINISTERING INCENTIVES
27
PUBLIC INCENTIVES Administration Tracking
Systems

• PUBLIC INCENTIVE APPROVAL TO PROCEED FORM
• Insert Date
• Project Summary
• Location
• Business Unit(s)
• Project Summary
• Public Incentive Summary/ Current Status
• Received over __million in total incentive
  commitments (see detailed summary below)
• Individual Incentive Summary
• Incentive Type Negotiated
  Yrs 2004 2005 2006
  2007 2008 2009 2010
  2011

Detailed Incentive Summary
CASH PROGRAM NAME ? Next Steps ? Estimated
Value of Incentives Commitments/Conditions/Pena
lties/Failure to Comply
28
PUBLIC INCENTIVES Administration Tracking
Systems
29
PUBLIC INCENTIVES Administration Tracking
Systems
30
COMMUNITY Economic Assets A Fortune 100
Companys View Are the attitudes of state and
local government favorable to a new industry and
generally conducive to community progress? Tax
rates and structure Right to work
legislation Zoning legislation and
practice Workmens Unemployment Comp
Programs Strong Non-Political Leadership State/L
ocal History Support Services Social/Cultural/Re
creational Services Educational Facilities All
Levels
31
CORPORATE VIEW CONTINUED
Success is no longer measured in economic terms
alone. To be successful today, site selection
must give consideration to location, social and
political consideration, while complex,
industrial growth can be both profitable and
compatible with community goals.
32
THEREFORE
Incentives are usually a good opportunity for
business and communities to partner. - They will
play a growing role in site selection - States
and communities will continue to be creative
and forceful with value add incentives - CUNO
impact to be seen