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Are Government Incentives Worth the Price for Communities?
From a ongoing thread on Linkedin that I participate in. These are my comments. Incentives were created by politicians in the late 1700's to entice the textile industry in Europe to expand to the new world. The growing country could not keep up with the demand for clothing and something needed to be done quickly. 250 years later, politicians have gone wild with incentives all in the name of job creation with little regard for long term impact as their sights are only set on the next election cycle. Meanwhile, communities and states are drained of valuable resources. Clawbacks arn't the answer either as one of two things will happen: the company is large enough to payback the incentive and does what it wants anyway; or, the company closes its doors, files for bankruptcy, and if they choose, reorganizes as a new company in another community. Its time to eliminate incentives across the board. In my 35 years of experience helping industry, most don't require the benefit and in many cases the community talks them into taking it. My most recent experience is just that. A company with $2 billion in annual sales was talked into taking a $178 million dollar State incentive to keep their corporate headquarters in the community. Thankfully, after considerable thought, the company refused to accept the approved incentive. All too often ED professionals and politicians measure success by how many incentives were granted, their worth, and the promise of jobs that seldom materialize, or are later reduced. That's not to say there aren’t some successes out there. But please, enough is enough. ED professionals pay taxes too. Communities need to focus on workforce, resources, and locational advantages.
Keeping with the theme of this discussion thread, “Are Government Incentives Worth the Price for Communities”, my point is no; that communities are concentrating on short-term political and business agenda’s, and not longer term sustainable community interests. Politicians and business come and go in pretty short cycles; politicians who beat the jobs, jobs, jobs drum, live in 2-4 year cycles; business 5-20 year cycles. How many companies that were in your community 20 years ago are there today? On the other hand, communities are here to stay, for better or worse. As ED professionals, we need to be working to make our communities better, not to elect short term politicians or direct resources to companies that in most cases don’t need the subsidy. And if they do, they probably won’t be around long, they will either fold or leave for the next best deal.
To prove my point, consider the following statistics. Site Selection Magazine’s 2011 Governor’s Cup winners are Ohio; Texas; Pennsylvania; North Carolina; Virginia; Georgia; Illinois; Kentucky; Tennessee; and Louisiana. This self serving poll is based on the projects each state submits and Site Selection ranks each state based on the number of projects, total capital investment, and job creation. A less self serving list would be Site Selection’s Top States for Business Climate. This list includes some relevant business statistics, but not community statistics. The top 10 states for 2012 based on business climate are those listed above except for Pennsylvania, Illinois and Kentucky; add to the list above Alabama, South Carolina, and Florida. So for the most part, the list is the same.
If we examine these “winners” against their progress on indicators of sustainable community growth factors such as: change in persons living in poverty, change in median family income, change in education attainment, and population growth; most are “losers”, in a big way. In every state listed, the percent of persons living in poverty increased and the average median family income decreased, except median income in Kentucky. Growth in education attainment was below the national average in 7of of 13 states, and population growth was below the national average in 5 of the 13. Of this group, the worst is Louisiana, the best is Alabama.
Despite what you read, we did go over the fiscal cliff and we can no longer afford to give away community resources for short term goals. This is the old way of doing business. Instead, we need to concentrate on growing our committed local companies that don’t ask for or need incentives. If incentives are needed here is a new twist, instead of investing the incentive into the company, let’s invest in our infrastructure and workforce. Only grant incentives that go to local infrastructure upgrades, that’s easy. If labor concessions are needed, then give it directly to the employee, not the company, through a wage increase, a payroll withholding holiday, or an income tax credit. The incentive stays with the employee as long as they maintain full time employment in the community or state. If the company downsizes or leaves, the remaining employee incentive credit stays with the employee and can be used to encourage expansion at another local company. The company benefits because their wages are subsidized, but the community controls the funds. This way, we are building community capacity, not re-electing politicians or giving our tax dollars away to companies.
Business Development Planning for EDO's
With the start of the New Year, now would be a good time to reflect on your economic development plan for the NewYear. Oh boy, I know another plan to put on the list of things to do. But don'tfret; with a little organization and forethought, it should only take a fewhours and 5-10 pages to get it done. To help you organize your thoughts and thelayout of your plan, here is a guide to follow.
Start with a statistical analysis of you're community's economic indicators. Identify trends in industry, labor force, and indicators of wealth (poverty, population growth, tax collections, wages, etc.). Then devote a half page or so of strategy to each of the sections below. Be action oriented either citing your organizations specific work plan to address the topic; or how you will network with other providers either through leadership positions or through the provision of resources.
1) Business Retention and Expansion - set a goal of how many companies to visit but be realistic. Set a goal you can achieve. Your visits should target three types of companies: your legends, ones that the community was built on, your high growth companies, and your early stage companies. To determine your high growth companies consult the Dun and Bradstreet data base. Or for free, consult the list here ftp://ftp.bls.gov/pub/suppl/empsit.tab2.txt. Match the latest US growth sectors with your local companies in the same sector. If you don't know how to find early stage companies in your community, consult with the University, local incubator, or the Small Business & Technology Development Center.
2) Business Attraction - a successful program results in relationships with about 2-4% of the companies you contact. These relationships must be nurtured and maintained to result in a win. It's also expensive and should be undertaken in cooperation with a region or state. Focus on companies that our in your sweat spot. What are you good at? Either due to resources you have, location, labor skills, or great business parks. Look for companies in the growth mode. Have buildings and sites ready for sale and development. In your BRE program, ask local business who they think would be interested in locating in your community.
3) Business Incubation - nurture your start-up companies. If you don't have an entrepreneurial niche, create one working with local universities and businesses with research departments. Think outside the box here.
4) Entrepreneurs - provide business accelerator grants, up to $35,000, and pre-seed funds, maybe match up to $25,000. If you don't have the resources to go it alone, hook up with an organization that does.
5) Marketing - sell what's cool. It's a whole community effort from housing and schools, to entertainment, workforce, infrastructure, markets, and land. Make a plan to get the word out both locally, particularly if you are dealing with community low self esteem, and advertise nationally mixing tourism with development opportunities.
6) Workforce - get to know it inside and out. Your biggest problem is probably about a mis-match between whose looking for work and the needs of business. Set some goals on how to bridge that gap. It's about talent development and recruitment.
7) Organizational Staff - set some goals for yourself and your staff. Education is very important and opportunities for advancement and certification should be addressed. Don't leave out Board training either.
8) Community Networking and Reporting - if you don't tell your story, they don't know. Implement a communication system with the board, investors, the community, and the media. These are 4 different messages. Communication should occur weekly, through a week summary of activity to the Board, a monthly newsletter to investors, a quarterly economic barometer to the community, and an annual report for all.
9) Community Initiatives - if you don't have one, get one. If you have more that one, that's too many to focus on. Prioritize the most important. Start with one, complete it, and move on to the next.
10) Develop New Business Clusters – medical is the low hanging fruit. Make sure the growth of this sector is at least equal to that in the nation. Other potential new clusters could be film and entertainment; software development; sustainable energy systems; bio fuels; or re-shored manufacturing activity.
If you’re uncomfortable doing thisalone, select a small master mind group with whom you can exchange ideas anddiscuss strategy. Finally, adjust yourplan throughout the year to adapt to the every changing environment in whichyou work.