ED Secret from 001: How Frisco Utilizes an Impact Model to Determine Incentives

Last month we sat down with Jim Gandy, President of the Frisco Economic Development Corporation, and he shared some tips on how Frisco works economic development projects. Ever wonder how they come to terms on an incentive offer? Read the snippet below to hear all about Frisco’s process and how they use an economic and fiscal impact model to determine how long it will take a project that is offered an incentive to generate new revenue back to the city of Frisco.

 

How long does the whole process typically take from the very first conversation to possibly offering them an incentive?

 

I would say on a general basis, it’s highly driven by the responsiveness and the time requirements of the client, but it’s generally going to be about a 60-day process. In extreme situations, it could be done in less than that, that might require special board meetings of our board because our board only meets once a month.

 

Typically, we would introduce a project at a meeting and then get direction from our board in hopes that we can bring back a negotiated, completed performance agreement at the next board meeting for their consideration. But before we get into that, there are several steps that we go through.

 

After we source out and screen all these projects to make sure they’re qualified, we have them complete an economic impact survey. This survey basically extracts information from a project that we can enter into an economic impact analysis model. We use that model to basically determine what would be an appropriate economic incentive to offer to a company based upon what economic value that project would bring in way of new revenue to the city should it happen in our community.

 

We measure that primarily in a form of a payback period and also a rate of return on the investment in a form of economic incentives. With this software that we have in-house from Impact DataSource, we’re able to utilize that software and run as many different scenarios as we want, as often as we want on as many projects as we want because we often have to run several [scenarios] before we come down to some specific consensus on an economic incentive offer. Once we come to that decision, then basically, we put that information into a proposal that spells out the performance requirements of the company that they need to accomplish and achieve that we can verify that they have achieved before they can earn an economic incentive.

 

It’s based on a pay-as-you-go basis or the incentives are earned as the company achieves these various performance requirements. Once we agree on an economic incentive proposal that spells out what the company has to accomplish in order to earn the incentives, then we hand that off to our legal counsel and they will draft a legal contract in the form of a performance agreement and the terms and conditions of the deal are taken out of the proposal and put into a legal contract in the performance agreement.

 

Once we have the company sign off on the performance agreement, then we do put that on our agenda for our board of directors to approve. In our case, we average about two or three of those agreements a month which means in our deal flow, we’re approving anywhere from 24 to 30 performance agreements per calendar year.

 

Just to talk about that a little bit further in a form of an example, we had a company in Frisco that was an existing company wanting to move out of leased office space into a new building that was going to be a build-to-suit. The company was going to double their employment as well as more than double their space. They moved into a new 200,000 square-foot class A office building. They’re going to increase their employment to 1,050 jobs up from 250 jobs.

 

In the economic incentive model, we entered in information about these jobs and their investment on this new building. We came out with a proposal to offer $1,500 per job which would be a maximum incentive of $1,575,000 that was going to be the payout schedule that we entered based on these new jobs that were going to be created over probably close to a 10-year period. We came up with a six-year payout schedule for them to earn up to a maximum of $1,575,000.

 

We were pleased with that calculation because basically, the payback period came out to 3.3 years, that’s 3 years and 3 months, and the rate of return on that was going to be 34%. We put that deal together and took that to our board and it was approved unanimously. That’s a good example of how we can use an economic model to determine how long it’s going to take for a project that we offer economic incentives to generate new revenue back to the city of Frisco.

 

In this case, it was enhanced by the fact that they were building a new building, 200,000 square feet with a parking garage. We have a parking garage – had around 800 spaces in it. That was an added economic benefit and the fact that we got the benefit of the construction jobs, the sales tax on the building materials for the project as well as added new tax based on the city tax rules.

 

Like what you read? You can check out our full interview with Jim Gandy below.