Without third-party support, incentive deals often miss available benefits and competitive offers.
Key takeaways
Timing matters—announce too soon and you may lose incentive eligibility.
Poor documentation can void negotiated benefits and delay resolution.
Businesses that start or relocate operations can often realize significant economic benefits through state and local tax credits and incentives. However, businesses that attempt to navigate this process without experienced guidance often miss out on key opportunities. Sometimes they end up receiving benefits that fall short of what they thought they negotiated.
Why? There are three key reasons:
Volume
The sheer volume of incentives available can be challenging to sort through.
For example, there are tax increment financing districts, statutory credit and incentive programs tied to investment, and employment targets for customized incentives negotiated directly with the taxing jurisdictions involved—to name a few. A business is unlikely to understand the full scope of help that might be available without experience in identifying and securing incentives.
Timing
Businesses often make the mistake of picking and announcing a location before investigating the incentives available to them.
In some instances, incentives designed to lure a company to a jurisdiction may no longer be available to a company that has already announced its decision. Credits and incentives cannot be an afterthought. They must be an integral part of your site selection strategy.
Documentation
The economic benefit you receive results from a contract between you and the jurisdiction granting the incentive. Even with the best intentions on both sides, the agreement documenting the deal often fails to deliver the full benefit intended because the business fails to execute an agreement that accurately reflects the verbal commitments made by the company and the jurisdiction.
Governmental economic developers’ role
Businesses sometimes take a do-it-yourself approach to credits and incentives because they rely on economic development teams in their respective jurisdictions to drive the process. Although local economic developers are motivated to attract your business, you should not count on them exclusively to guide the process.
First and foremost, developers are charged with attracting investment and jobs to their communities. They will be well-versed in the benefits their jurisdiction offers. But it is not their responsibility to inform your business about the incentives that might be available from a competing jurisdiction.
Additionally, they may not be fully versed about the options available at the state or federal level, including those that may run concurrently with the local programs.
The deal you have is the deal you document
Getting the best offer is just the beginning. Next, you have to ensure that the deal you document is the deal you negotiated. This is another area where good intentions may get lost in the details if you lack deep experience working with the distinct language of incentive packages.
Consider this example:
A company is planning to build a new manufacturing facility. They negotiate a package of credits and incentives based on the total investment in the plant and on the number of jobs created.
Working with a local economic development representative, they document and sign the deal. But the deal is with the company itself, while the actual project is far more complicated.
A commonly owned, but separate, real estate entity is actually procuring the property and building the plant, which is then leased back to the company. The company is also staffing the plant through contract employment relationships with another party.
Both the company and the economic developer documented the deal in good faith. Because the developer was not aware of the internal workings of the deal, and the company did not understand how they would affect the final document, the company finds, when it files to collect the benefit, that it does not qualify. This is because it neither made the investment in the plant, nor employs the personnel working there. Those investments were made by separate legal entities that are not parties to the incentive contract.
Such mistakes are usually resolved so that the company receives all or most of the benefits it was promised. Economic developers operate in good faith, and they truly want you to receive the benefits they offer.
However, resolving these situations takes time and money—and sometimes a lot of both. That resolution can also be complicated by the political environment. Sometimes, before a revised agreement can be finalized, it must go through public hearings. Depending on the timing of the revised agreement, the board that approves the revised agreement may differ from the board that approved the original agreement and may be less inclined to approve changes.
Credits and incentives: How an advisor can help your business
Professionals with experience in the credits and incentives process can help you negotiate the best deal for your business. They can investigate what benefits are available from the sites you are considering and understand exactly how competing offers compare.
An experienced advisor can also use the competitive atmosphere to enhance the benefits for your company. While many credits and incentives are defined by statute, jurisdictions will often offer customized incentive programs.
An objective third party can help you investigate your full range of options, handle negotiations with potential locations and enhance the relationships you will rely on as new members of the business community.
With that support, the benefits you negotiate will be the ones you receive.
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