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Michael P. Hickey is the founder and president of Hickey & Associates, a consulting company headquartered in Minneapolis, MN, with four regional offices throughout the United States. Hickey is a site selection and public incentives expert who has spoken at numerous national conferences.
BF: You say that about 75% of financial incentives offered to relocating companies aren’t fully realized. What factors contribute to this high rate of incompletion?
Hickey: The lack of a centralized incentive management system for key corporate team members diminishes their ability to not only manage the incentives they have, but also limits future opportunities to reduce costs. The majority of incentives are never captured and lost permanently, often as a result of missing reporting requirements or sending in incomplete or incorrect data with their company reports.
Another primary reason is lack of planning on the company’s part. Company personnel often don’t understand the process of requesting incentives and the importance of being conservative in promising jobs and capital investments, which drive the value of incentives. As a result, they fall short of their required goals and lose out on the opportunities previously negotiated. However, with proper planning these mistakes can be avoided.
BF: Can you briefly describe your firm’s Public Incentive Management System (PIMS) and some of the benefits it offers to a relocating or expanding company?
Hickey: PIMS is a state-of-the-art, real- time incentive data management and document storage system developed exclusively for the corporate management team. The Web-based system is designed to ensure that the maximum dollar amount and value of incentives are received on a timely basis, and compliance requirements are continually met at the federal, state, and local levels during the life cycle of incentives.
PIMS eliminates 90% of the reporting burden. It offers a notification system that alerts users of impending incentive compliance issues. Important contracts and agreements can be uploaded, so as the corporate team changes, historical documents remain accessible. The corporate management team and field locations can easily access incentive data via real-time reports.
BF: What risks are companies taking if they fail to meet the requirements of their incentive agreements?
Hickey: Nothing positive comes out of lack of compliance, which often is a simple result of not completing reports accurately and when due. Clawbacks and/or discontinuance of incentives will happen without accurate reporting. Clawbacks often require full or prorated payback plus interest of incentives already received, while discontinuance involves programs, such as tax reductions and training grants, being made unavailable due to lack of compliance.
Unfortunately, when problems arise and paybacks or termination of benefits occur, it can become public through the media, which is never a good thing. In addition, the positive relationships developed over the years with public officials can be jeopardized. No one wins. The company’s brand is affected and the public entities are challenged on why they provided support to a risk situation.
BF: Are there any commonly offered incentives that companies should consider rejecting, and why?
Hickey: There are no bad incentives, but there are those of great value and those of no or too little value. It depends on the particular company in the particular community at a certain time.
A rule of thumb: reject any program that will require more administrative work and staff time than it’s worth. Some training programs are excellent while others are too burdensome with their requirements. For example, they may require too much confidential employee information, i.e., Social Security numbers and other sensitive information, or may even require that only public educational institution can provide training. The best programs provide cash to the business to do training with staff or proprietary training by vendors.
Again, depending on the situation, Industrial Revenue Bonds (IRB) can often be expensive, complicated, and bureaucratic. Also, state corporate income tax credits may be of little value depending on the liability of a company in a state. The bottom line is to always thoroughly evaluate all potential programs. There are no requirements that a company accept all of the programs being offered so it is critical to only choose the best and most effective.
Top Five Community Concerns of Economic Development Organizations
|1. Retain existing businesses||5.5|
|2. Create better paying jobs||5.4|
|3. Create more jobs||5.1|
|4. Expand infrastructure||4.9|
|5. Boost entrepreneurship||4.7|
Source: 2007 Regionalism and Clusters for Local Development Needs Assessment Results, funded by the Economic Development Administration, U.S. Department of Commerce. Results are based on a survey taken of economic development organizations.
*On a scale of one to six, respondents rated the degree to which their organizations identified the above issues as community concerns.
Compliance and Clawbacks Around the Country
While many businesses meet the conditions of their financial incentive packages, some companies struggle with compliance. As a result, state agencies offering monetary benefits outline the repercussions companies face if they fall short of their agreements. The details of these clawbacks vary depending on the type of incentive and the granting state, but here are a few examples of what can result from noncompliance.
In Arizona, companies that accept Military Reuse Zone or Environmental Technology Tax Credits must agree to a “memo of understanding” that lays out their employment goals. Each year, they must report their actual employment numbers and, if they fall short of their promised amount, Arizona maintains the right to stop, readjust, or recapture all or part of their subsidy. Illinois’ Community Investment Recovery Act states that a company receiving state or local aid to build, improve, or modify property for projects attracting or retaining jobs must refund the value of the assistance if it terminates operations at the site within two years of receiving the subsidy.
Similarly, companies that take advantage of Michigan’s Economic Growth Tax Credit must not move more than 51% of newly created qualified jobs out of Michigan within three years of claiming the credit or else the entire subsidy must be repaid.