Step 1: Should an incentive be offered to this firm?

It goes without saying that incentives should only be offered to businesses that would not otherwise locate in the in absence of the incentive. Understanding the difficulties of this requirement we present additional criteria that economic development organizations (EDOs) use to screen potential projects.

  • Target Industries: Incentives should be used to to advance the strategic vision of the community and economic development organization. Therefore the organization should limit the use of incentives to projects in specific target industries.
  • Generate New Economic Activity: Economic development incentives should be limited to businesses that will support new economic activity in the area, rather than reshuffle existing economic activity.
  • Jobs for Current Residents: In addition, the organization should consider the employment impacts of the project. Will the business employ current residents or require in-migration? Will the business result in net new income for residents?

Collecting information from the prospect firm and preparing an economic and fiscal impact analysis will go a long way in answering these questions.

If the EDO has determined that a firm or project is worthy of an incentive, the question becomes: What is the appropriate level of the incentive?