In Defense of ED Incentives

“I’ll stop using economic development incentives when Walmart stops having sales.”
– Some Economic Developer, Somewhere, Sometime

It’s an intriguing comparison, but are economic development incentives analogous to retail sales?

During this webinar, we compared economic development incentives to some common pricing strategies and provided some wider context to economic development incentives by discussing economic metrics, economic development goals, and site location factors. The ultimate goal of economic development is improving the social welfare of your citizens and one way to achieve this is through monitoring and cultivating the economic and fiscal impact of business growth in your community.

A couple common discounting techniques used by some retailers are price discrimination and loss leader pricing. Price discrimination is selling the same product to different buyers at different prices. Loss leader pricing is selling certain products below their cost to attract new customers. While incentives can appear to practice both price discrimination and loss leader pricing at times by giving businesses local tax cuts, economic development differs from retail sales since incentives are granted with the intent of a greater cause.

So, how can you take a private sector approach to economic development? Create a vetting process to stress how important your taxpayers’ money is (i.e. mortgage underwriting, car insurance). Set up performance requirements so that the company only receives the incentive if it maintains it’s promised impact on your community. Both of these actions create value in your product (community) and tell the business that you are serious. Further, it shows community stakeholders that you are being smart with their taxpayer money.

Finally, it important to practice due diligence when working on incentives – let your board/council and the business know that you have done your research and thought through the incentive package (see Due Diligence Checklist on slides). Knowing the facts about the business, how it fits in your community, and the economic and fiscal impact of the business’ relocation will strengthen your defense of the incentive.

Check out the slides and recorded webinar:

Slides