smart incentives and technology
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Smart Incentives and Technology - CDFA National Development Finance Summit 2014TRANSCRIPT
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Pre-Summit Workshop Smart Incentives & Technology
Kent Gardner, Ph.D. Chief Economist
Center for Governmental Research
Ellen Harpel Founder
Smart Incentives
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About CGR • Independent, objective nonprofit (501(c)(3)) dedicated to
the public interest
• Consultant to government, business and nonprofit leaders, providing decision support, policy analysis, implementation guidance
• Active throughout NYS with additional engagements in Ohio, Massachusetts, Ohio & New Jersey
• Key areas of focus: local government, education, human services
• Creator of
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About Smart Incentives • Business Development Advisors is an economic
development consulting firm • Works with leaders at the local, state and national levels to
increase business investment and job growth in their communities • Founded 1999
• Smart Incentives helps communities make sound decisions throughout the economic development incentives process • Due diligence and business case analysis for incentive projects • Processes for monitoring compliance and evaluating effectiveness • Launched 2013
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Smart Incentives 4x4 Framework
Recipient Deal
Compliance Effec1veness
Data and analysis to
enable be7er decision-‐making
Greater transparency and accountability
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Analytics for Smart Incentives • Incentives are part of a community’s financing toolkit
• Evaluating deals • Monitoring the return on investment
• Quality data and analysis help you: • Reduce risk • Understand if an incentive deal can generate net benefits for your
community • Refine incentive strategies • Explain and build support for decisions • Achieve better outcomes
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Incentives Basics A working definition of incentives: • Tools to influence business decisions in order to spur
the growth of companies and jobs in specific locations
• Taxpayer-financed programs that support individual businesses
Development finance: • Fostering job creation and economic growth through
the use of tax-exempt and other public-private partnership finance programs
Blurred lines between the two categories
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Incentives Basics (2) • Categories
• Direct business financing • Indirect business financing • Community-oriented • Tax-related
• Types • Bonds • Grants • Investments • Loans • Tax abatements, credits, deductions, exemptions
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Incentives Basics (3) • Business Need
• Capital access • Facility/site location • Infrastructure • Marketing • Product/process improvement • Regulatory climate • Workforce
• Discretionary and non-discretionary • Targeted (or not) by industry or geography
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Pursuing diverse community goals • Economic growth
• Jobs • Investment
• Downtown revitalization • To support remaining business • To provide jobs for center city residents
• Brownfield redevelopment • Improved quality of life
• To support business retention • To support business attraction
• Strengthen local fisc • Taxable income • Property value • Taxable retail sales
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Economic goals also diverse • Jobs for whom?
• Skilled v unskilled • Under & unemployed v. new workers • Is population growth a community good or a community evil?
• Business development • Existing v. new • Traded sector v. support infrastructure
• What are the “investment” goals? • To support construction • To add taxable property
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Analy1cal tools (project orienta1on) Analy1cal tools (project orienta1on)
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Measurement is just as difficult • Core metric: Jobs • Payroll/Payroll per job adds quality dimension • Skills needs will help discern if project is going to
support existing workforce or in-migrants • Cleveland Foundation’s laundry: More cleaning being
done? • What are your incentives buying?
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Can this deal generate net benefits for your community?
• Project Attributes • Fiscal Impact • Economic Impact
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Project attributes (1) • Project characteristics
• Number of jobs • Type of jobs and wages • Investment • Location – where is the project and where will the benefits occur?
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Project attributes (2) • Fit with economic development strategy
• Target industries • Business types • Coordination with state and regional allies • Meets established program criteria
• Would this project harm existing businesses?
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Project attributes (3) • Timeframe
• When will the project begin? • When will investment and hiring occur? • What is the expected lifespan?
• Likelihood of success • Does it make sense? • Other backers (banks, investors) • What is the level of risk?
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Why devote effort to impact assessment? • Heightened sensitivity in use of public dollars • “Good Jobs for All” and similar efforts propose
restrictions in business tax and incentive structure • Efforts to improve public/private partnerships • Increasing skepticism about economic impact claims • What can’t we measure?
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Questions and discussion
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Case Study: Measuring economic & fiscal impact
• Ohio Star Forge announces expansion in Warren (N of Youngstown)
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OSF: Key Facts • Subsidiary of Daido Steel, multinational
steel firm headquartered in Japan • 40,000 SF addition to support automotive
sector • Current employment: 100 • Anticipated expansion: 26 jobs • Cost of expansion: $20 million
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Why do we care? First, OSF will spend more
• OSF will expand purchases of supplies • steel • energy • food services • office supplies • janitorial services • lots of other stuff
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Suppliers Will Spend More
Buy more local tomatoes
Replace delivery truck
Hire new employees
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Adds new PERMANENT jobs in Warren
Paul, Engineer Katherine, Clinical
Psychologist
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And they’ll spend Paul’s paycheck
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And they’ll spend Paul’s paycheck
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OSF plus Paul & Katherine will pay taxes • Warren
• Income Tax • Property Tax
• Mahoning County Property Tax • Ohio
• Corporate Income Tax • Personal Income Tax • Sales Tax
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Let’s review • Direct impact: cash direct from Ohio Star Forge
• Payments to Pizza Joe’s for pizza bought by the company • Salary to Paul • Benefits purchased on Paul’s behalf • Taxes to Warren, Mahoning County, State of Ohio
• Spillover • Indirect: cash from OSF suppliers – Payments to Joe’s suppliers – Salaries to Joe’s employees
• Induced: cash from OSF employees – Co-pay for Katherine’s OB/GYN services – Baby food for Katherine Jr. – Pizza from Joe
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Economic Impact of Ohio Star Forge • Permanent Jobs – Approximately 50
• Direct: 26 “New” • Spillover: 22 – Indirect: 9 – Induced: 13
• Temporary Construction Jobs: Approximately 40 • Income
• Approximately $4.5M
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Total Employment = 87 Direct = 26 Indirect = 9 Induced = 13 Temporary ConstrucCon = 38 State Labor Income = $4.5 Million Average Salary = $51,800
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Costs to State and Region = $221,000 Benefits to State = $2,000,000 Benefits to Region = $1,000,000 Benefits/Costs = 13.6
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Takeaways • Devote some resources to your analysis
• CDFA can help make the case • The analysis has to be customized for your location • Band together with others in your community and
region • Pool your resources • Look to other governmental departments
• You’ll never be “right” – need order of magnitude estimate
• Strike a balance between detail and reasonableness • Be prepared to communicate your decision and
rationale
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Takeaways (2) • Beware of oversimplification/overly precise outputs –
judgment still needed • Share your assumptions/the model’s assumptions • Doesn’t have to be set in stone; tweak it over time
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Reporting to stakeholders • Who are your stakeholders?
• Board • Developer • Municipal officials • Public
• Who needs to know what? • How do you communicate?
• How honest should you be? • How do you deal with the media?
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Compliance and Effectiveness • Monitor compliance – project performance • Evaluate effectiveness – policy objectives • Reporting and policy feedback
• Transparency • Accountability
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DID this incen+ve deal generate net benefits for your community?
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Compliance – performance agreements • Are performance requirements clearly defined? • Are expectations laid out in a signed agreement?
• Only 56% of local governments report that a performance agreement is required when providing business incentives
• Is the agreement timeframe tied to the ROI break-even point?
• Is the company required to report on its progress in meeting those requirements? • Is there a way to verify reported information?
• Are policies in place to protect the community in the case of non-performance?
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Compliance – monitoring ROI • Whose job is it? • Are there resources available? • Can information be verified?
• Require reporting as part of agreement • Data sharing among agencies to verify key reporting variables
• How is data tracked? • Timeframe • Site visits and closeout interview at end of term
COLLECT THE DATA to figure out what is working and what is not
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Compliance - challenges • Internal/process
• Access to information • Coordinating among agencies/departments • Definitions – e.g., what is a “new job” • Ability to track long-term
• Outcomes • What do you do when the project is not in compliance? • What happens if the project changes? – Economic environment – Changes at the company
• Who enforces the agreement?
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Other challenges? Questions?
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Evaluating incentive programs for effectiveness • Did the incentive affect the choices businesses
made? • Were existing businesses harmed by the incentive? • Did the benefits outweigh the costs? • Is the program meeting the community’s goals? • How could it be improved? • Are the community’s incentives working together
efficiently?
Source: Pew Charitable Trusts
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Business Incentives Initiative
• Identify effective ways to manage and assess incentive policies and practices
• Improve data collection and analysis • Develop national standards and best practices that states can use to
report on economic development incentives • Participating states: IN, MD, MI, OK, TN, VA
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Evaluations should draw clear conclusions based on measurable goals • Metrics should:
• Reflect the goals of the incentive • Consider available data • Use clear and consistent definitions
• Metrics should emphasize strengthening the overall economy • Yes, fiscal impacts but not to the exclusion of economic measures • Focus on outcomes that affect the well-being of state residents • Consider whether incentives are reaching their target areas
Source: Pew Charitable Trusts
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Evaluating incentive programs to inform policy choices • Review your portfolio of incentive offerings • Consider building reviews into the budget process (RI) or
legislative calendar (IN, MS) • Define the goal of each incentive program clearly • Use real data – not imputed or modeled figures • Create a team with agency experience, analytical skills
and subject-matter expertise • Collaborate with other agencies to collect data and share
analytics expertise. • Leadership is critical. Provide a supportive environment,
training, resources and encouragement.
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Questions?
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Contact Information Ellen Harpel President Smart Incentives 571/212.3397 [email protected] www.businessdevelopmentadvisors.com [email protected] http://www.smartincentives.org/ Twitter: @SmartIncentives
Kent Gardner, Ph.D. Chief Economist CGR 585/466.4273 [email protected] www.cgr.org
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