It’s time for the next installment of Strategic Development Group’s countdown. Our SDG “Top Ten” list covers the most frequent mistakes companies make in the site selection process. Check out the other installments of our countdown!
Mistake #7: Comparing Apples to Oranges
Incentive packages come in many forms based on the state or locality, and they are difficult to compare. Those not familiar with the comparative analysis of incentives may not understand their true value. Valuation should include the work required to secure them, the timing of receipt, and the risk that the incentives may not be secured.
Let’s use state income tax credits as an example. When offered, they typically require a company to have an income tax liability to use the credits and may limit the credits used in a specified period. So, a company may receive an incentive proposal that highlights a “high”’ value for income tax credits that they will never be able to use. The value of these credits should not counted at the stated value.
Analysis of property tax abatements or reductions can present another challenge for those not experienced in incentive analysis. For example, one locality may offer a large tax abatement, and another a smaller tax abatement. However, the net property tax to be paid at the location with the higher abatement is actually much more because the initial tax bill is higher. The net tax to be paid is what matters, not the value of the discount.
Another example is job creation incentives which count only full-time equivalent jobs as qualifying for grant and tax credit programs. Often companies include contract employees when estimating the value of incentives, which could result in a reduction in the value of incentives or clawbacks for non-performance.
Solution: Understanding the True Value of Incentive Packages
Understanding the true value of incentives, their related timing, and the likelihood of being secured means financial models are more accurate. With a site selection expert providing an accurate comparative analysis, business leaders make informed decisions. The understanding can also lead to better negotiations with the locality officials.
Strategic Development Group
Our experienced team is singularly focused on finding your project the best site for long-term success. We take a holistic approach and have the expertise to negotiate and navigate the intricacies of your unique company and needs.
Founded in 1999, SDG is a highly specialized site selection consulting firm. We focus on identifying optimum locations promptly, maximizing the value of incentives, and minimizing risk for corporations from across the globe. SDG has managed projects with capital investment from $15 million to over $1 billion for companies in a wide range of industries including automotive, chemical, steel, and life science.
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