The importance of corporate incentives depends on whom you ask. While economists take a dim view of corporate incentive programs, location advisers who help companies find the right home say incentives can make a difference in location decisions.
“This country was founded on incentives. The early settlers got incentives. The great Oklahoma land rush was an incentive,” said Mark Sweeney, senior principal with McCallum Sweeney Consulting, a location consulting firm in South Carolina. “Academics take a theoretical view on the value of incentives, but it makes a big difference to small municipalities.”
Matt Jacobson, former president and chief executive of Maine & Co., an economic development organization that provides services to companies relocating to Maine or expanding within the state, said many factors need to fall into place before companies even start thinking about incentives.
The workforce, airport access, seaport access, energy costs, real estate availability all get factored in before a company narrows its site search, he said.
“Incentives matter, but they matter only after everything else fits,” Jacobson said.
When athenahealth was weighing locating in Belfast or Burlington, Vt., Jacobson said, something as simple as offering to plow its parking lot made the difference. The company never took the town up on the offer of plowing, but the offer alone was enough to sway it, he said.
“Companies want to be lured. They want to be wooed,” Jacobson said.
Every state needs to have something to offer, Jacobson said.
“Some people say ‘corporate welfare’ is bad. I’d agree if we could pass a federal law against it. But that’s not the game we’re in,” Jacobson said. “You’ve got to have something to stay in the conversation.”
Some states take on the cost of training workers, donating land to a project or providing grants. In 1992, for example, South Carolina lured BMW with a $130 million package, while Alabama spent more than $300 million the next year to win the hand of Mercedes-Benz.
“States get locked into these battles with very little to show for them,” said Peter Enrich, a professor of law at Northeastern University’s School of Law, who specializes in tax policy and government. “These are tremendously destructive situations.”
“If you’re a state senator, it’s easy to vote in favor of tax breaks. The state senator thinks ‘I’ll get all the credit if they come here. If they don’t come, I can say I did everything I could,’ ” Enrich said. “It’s very hard to vote against these things. The politicians (say) they don’t know if it will help, but why not try?”
Location choices for companies are based on a lot of factors, such as labor costs and quality, utility costs, quality of life factors. Incentives often don’t come into play until bigger issues have been sorted, Sweeney said.
“Projects drive incentives. Incentives don’t drive projects. Companies don’t go on incentive hunts, they go on location hunts,” Sweeney said. “Incentives can make a big difference for the final decision-making process. The highest incentive location, however, doesn’t always win because there are several factors at play.”
Depending on the types of jobs and the state and community selected, corporate incentives typically range from $25,000 to $100,000 per job, according to Pollina Corporate Real Estate Inc., a corporate relocation company in Park Ridge, Ill.
“Right now, if a company goes without a consultant, they might only get 10 to 15 percent of what they could receive in incentives. Some companies miss the boat entirely,” said company president Ronald Pollina, who is also an economist. “Every governor talks the talk, but they don’t all walk the walk. I’ve never met a mayor or governor who doesn’t say they aren’t all about jobs. There’s a wide range of willingness to provide incentives.”
A recently released report by Investment Consulting Associates, based in Massachusetts, assessed the effectiveness of Maine corporate incentive programs and acknowledges the difference in opinions of their effectiveness between academia and industry.
“Between those two extremes is a more mixed and balanced view that claims that incentives do matter, but within a larger context of factors like competitiveness of business environment, industry, business activities of investment, investment motives, availability of labor and resources, access to market, etc.,” the report said.
“To sum up, incentives and credits are part of the overall business environment and are often (and should be) regarded as the end game or ‘cherry on top’ or ‘icing on the cake.’ Incentives are, in most cases, not the key driver of an investment location decision by a company,” the report said.
Jessica Hall can be contacted at 791-6316 or at: