Incentive Values: To Be or Not To Be

Feb 21, 2019

The Value Stated in Site Location Incentive Packages Must be Carefully Analyzed

One of the primary purposes of incentives offered by state and local economic development entities related to manufacturing site location projects is to provide additional value to a deal or to offset other cost disadvantages of the site.  Corporations conducting site location searches often select sites offering the highest value incentive packages, which can  result in serious site location errors.

Strategic Development Group strongly urges a thorough professional analysis of the true value of site location incentives and short- and long-term project costs.  Typically, a Net Present Value analysis is used to verify sites that offer the lowest net cost. Several items to consider when evaluating the value of incentives include:

  1. Can the incentives offered actually be used? A large corporate income tax credit, for example, is of little value if there is not a corporate income tax liability.
  2. Significant site preparation grants can be helpful, but corporations must consider the total cost of site development and determine net costs. Low land purchase cost often does not equate to lowest overall development costs.  Often sites have soil or floodplain conditions that make the costs of developing a site relatively high, even with valuable site preparation grants.
  3. Other location characteristics can increase net costs over the long term, even when high value incentives are offered. A valuable incentive package will never offset the costs of poor logistics and lack of labor draw.
  4. Often communities offer large property tax abatements; however, what really matters is not the value of the abatement but the net amount of property tax paid after the abatement is applied.

Incentive negotiations are an important element of site selection deal making and are best handled by unbiased site selection professionals like Strategic Development Group who navigate these issues every day.

Strategic Development Group provides site selection and negotiation services for a diverse range of manufacturing, distribution, office and corporate headquarters location projects.  We would be pleased to discuss your company’s site location needs.

 

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