Perspectives on business
and economic incentives
Business Tax Credits & Incentives: A primer for good Public-Private Partnerships
Governmental entities have long used financial tools to enhance and induce private investment in an effort to promote desired growth. Federal
land grants encouraged westward expansion throughout the 1800s, state bond financing encouraged new industrial expansion during the 1930s,
public electric utilities reduced power rates to encourage manufacturing expansion in the 1950s, and cities developed geographic economic zones
to encourage job growth from the 1970s to the present. Today, financial programs designed to encourage private investment and job growth are
strong and applicable to many varieties of projects. Credits and Incentives may be secured at the federal, state, and local government jurisdictions
and may involve tax and non-tax-related benefits. Numerous corporate business actions promote an opportunity to create a healthy return on
project investment (ROI). The ROI may reside within a detailed evaluation of the project and an analysis of the matching components or common
ground with federal, state, or local economic development policies.
Credits & Incentives
State and local governments enact tax legislation to: 1) provide
equitable services for citizens and: 2) create quality of life and
professional opportunities. This desire by government in turn creates
the primary tool for encouraging investment and/or job creation–tax
credits, rebates, abatements, reductions, and many other forms
of public/private partnerships and agreements. Governments also
enact legislation that allow for grants of public money in exchange for
investment and/or job creation.
Local and state Credits & Incentives components
Credits & Incentives can be derived and secured with both state and
local jurisdictions. As mentioned in the introduction, these can also
be tax-related and non-tax-related. Most states support a department
focused on economic development. These departments work with
companies considering investment or job creation and create and
execute “financial partnerships” in exchange for investment and job
growth. A state may consider a portion of new taxes resulting from
an expansion as better than no taxes from the lack of a company
expansion.
Incentive examples
Typical local incentives may include:
Taking advantage of Credits & Incentives –
act prior to committing to a location
The two most important components for qualifying for Credit & Incentive
programs are job creation and investment. For a company to fully take
advantage of entering into a Credit or Incentive agreement with a state
or city upon recognizing a need to expand its business, the company
must take action prior to committing to a location for adding those jobs
or investment. Job creation places new payroll in the local and state
economy and results in a host of new tax creation including sales
taxes from retail spending, home ownership taxes, payroll taxes, and
personal income taxes. Job creation is considered a result of effective
legislative policy and heavily monitored by elected officials.
Investment by business creates long-term roots in a community and
also creates many new taxing opportunities. Basic industry (industry
that exports products and imports wealth, i.e., salaries) is the most
coveted form of business. Project investment in real and personal
property is highly monitored by officials holding fiscal responsibilities.
Typical state incentives may include:
1.Property tax abatements or rebates
1.Corporate income tax rebates or credits
2.Sales & use tax credits or rebates
2.Refundable corporate income tax credits
3.Infrastructure grants
3.State sales and use tax rebates or credits
4.Job creation grants
4.Payroll credits or rebates
5.Job training grants
5.State economic development grants
6.Permit fee reductions/waivers
6.Bond financing opportunities
Other situations may qualify a company to engage in a financial
partnership including job retention, new spending in research and
development, upgrading skills, adding a new product line, consolidating
business operations, and employing people from a particular geography
including enterprise zones. As noted previously, it is critical that the
company begins its necessary due diligence early in the process and
closely analyzes the proposed project including number of jobs, payroll,
job skill level, type of investment, type of product being produced,
location of investment, and the timing of the project prior to making any
commitments to a location. This information will then be used when
“positioning” the project strategically during the site location or incentive
negotiation phase.
Common examples of a successful project
This example assumes the following project parameters and further
assumes that the negotiations with state and local governmental bodies
have occurred prior to a commitment to a location:
1. The creation of 300 new jobs
2. Average wage = $65,000 per year
3. Investment: $50,000,000
a. New building: $15,000,000
b. Machinery & Equipment: $25,000,000
c. Infrastructure: $10,000,000
(water, waste water, retention pond, road)
In an ideal situation, the project should commence by evaluating
four sites and narrowing the selection to two for analyzing a public/
private financial partnership. The project would need to begin with an
examination of financial programs offered by each jurisdiction. Then
strategic meetings would “position” the project for success within
a jurisdiction. The result of a successful strategy may look like the
following:
Property tax abatement
• City: 75% for 10 years = $2,000,000
• County: 50% for 10 years = $1,200,000
Local infrastructure grant
$4,000,000 (provided with local bond financing)
State corporate income tax credit
• Equals 10% of qualified capital investment
• Not to exceed 50% of total state liability in any one year
• Allowed to carry forward for up to 10 years
• Program = $800,000 over 10 years
State payroll rebate
• Equals 4% of total payroll due to location in a tier II county
• Rebate offered during first 5 years of project
• Program = $3,900,000
State job creation grant
• $5,000 per new job
• Payable upon holding new job for one year
• Requires competitive out-of-state location
• Program = $1,500,000
State enterprise zone program
• Sales and Use tax rebates based on job creation
• $2,500 per new job created
• Payable upon job creation
• Program = $750,000
Note: Programs will vary significantly by state and locality
Evaluating a Credits & Incentives opportunity
In evaluating its opportunities related to Credits & Incentives,
the company should assemble various company divisions and
departments to ascertain the company’s strategic plans. This grouping
will highlight and incorporate all segments of the company to better
identify Credit & Incentive opportunities. Groups valuable to this effort
include tax, real estate, product development, strategic corporate
segments (i.e., drilling, evaluation, completion, production and
intervention products), executive leadership, etc. Evaluating company
direction for the next three to five years could also help shed light on
potential Credit & Incentive opportunities.
Jones Lang LaSalle’s (JLL) Business and Economic
Incentives (BEI) practice
JLL supports and maintains a national practice of professional
individuals focused solely on consulting companies in the
identification, negotiating, and securing of Credits & Incentives.
JLL’s BEI practice consists of a team from varying backgrounds and
disciplines to create a well rounded and detailed expertise.
For more information, please contact:
Jubal Smith
Managing Director
+ 1 214 438 6235
[email protected]
Eric Stavriotis
Senior Vice President
+ 1 312 228 2682
[email protected]
Ann Marie Woessner-Collins
Managing Director
+ 1 612 217 5144
[email protected]
Amy Gerber
Executive Vice President
+ 1 404 995 2447
[email protected]