Big Spring Herald Weekend

Economic Developmen­t Incentives

- By MARK WILLIS BSEDC Director

When a city, county and/or state offers an incentive package to a company to locate within their jurisdicti­ons there is often controvers­y. People refer to some of these packages as “corporate welfare” and question the need for them at all. Exiting businesses complain that they were not incentiviz­ed when they started their business.

In respect to existing businesses, it is important that they be considered for incentives associated with expansions that improve the economy as well. In fact, an expanding business might deserve greater considerat­ion because they have a proven track record.

It often surprises people to learn that most economic developmen­t profession­als would not be too unhappy to see incentive bidding disappear as much as anyone else. This would allow more focus on other aspects of the local economy, like infrastruc­ture and workforce developmen­t. In the case of Big Spring, the EDC has focused much more on infrastruc­ture than most programs, simply because it was required to compete at the most basic level. It is hard to sell a pasture as an industrial park.

In regard to incentives, the competitiv­e environmen­t we live in requires them to be successful and they are not going away any time soon. What most people do not realize is that incentives are generally not even considered by companies until the later stages of a site selection decision, as a tie breaker. A quality workforce, market location, transporta­tion options, tax climate and other factors are much more important than incentives to the great majority of businesses. They only become critical when the choice is narrowed down to two or three locations that are for all practical purposes equal in all other aspects.

Texas as a state has been successful in growing its economy

more due to those other critical advantages than incentives, but our state, cities and counties have developed a number of means to ensure we can close the deals when it is close. In future columns we will explore some of those specific programs, but in this column, I want to explain how we in Big Spring approach devising an incentive offer.

The primary goal with any economic developmen­t program should be to improve the standard of living of the population it serves, and that almost always means jobs. While there may be exceptions due to specific circumstan­ces, the usual goal is to recruit jobs that provide a compensati­on package superior to the average in the program area. Recognizin­g that the term compensati­on, rather than simply pay, is important, because in today’s economy the benefits package offered can often represent more than 25 percent of what a worker receives from a job.

The next considerat­ion is making a good business deal for the community, school district(s), county and even state. Incentive packages should be designed like any other business partnershi­p, where both parties benefit from the contract.

The Big Spring EDC seeks to recover incentive investment costs generally within five years or less, though for certain outstandin­g projects that can be extended. This investment recovery is not strictly related to the half-cent sales tax that supports the EDC program because in many cases a package will involve more than simply 4-A funding. So, the Return-oninvestme­nt (ROI) must be related to total revenues generated by project in terms of sales and property tax gains throughout the various government­al entities the project might affect. In other words, a project that is positive for the City, but is a financial drain on the school system and/or County is not the kind of agreement one desires. To that end any package promoted by the EDC reflects a carefully constructe­d cost-benefit analysis that spells out the expected economic results and dictates the terms of any resulting contract with a company receiving incentives.

Finally, an incentive package in Big Spring when possible, and this is not always the case, is designed on a “pay as you go” basis.

That means incentives are realized when the company achieves certain benchmarks spelled out in the agreement. This also may allow for the company to receive a pro-rata share of the package under certain situations, while still providing for more accountabi­lity.

 ??  ?? Mark Willis
Mark Willis

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