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Thread: The use of incentives

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    Member japrovo's avatar
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    The use of incentives

    The story at this link http://www.eugeneweekly.com/coverstory.html criticizes Oregon's use of tax incentives for economic development. What's your experience? Has demand for such things from companies changed in the recession? Are your state or local leaders suggesting new incentive programs?

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    Cyburbian Cardinal's avatar
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    I have been practicing economic development for thirteen years. In that time, I have never given an incentive without strong justification and performance contracts from the company. Even then, most of these incentives are loans which are repaid with intereswt -- we make money. Any sort of grant is almost unheard of, and then usually for a brownfield or something similar. In that "stingy" environment, the communities in which I have worked have excelled. The notion that more than minimal incentives are a necessity for economic development is one held only by incompetent economic developers and politicians who want their picture taken at a ribbon-cutting ceremony. The most sound investment in economic development is in communities, to create the places where businesses want to locate.

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    Forums Administrator & Gallery Moderator NHPlanner's avatar
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    No incentives in NH. Period. State law does not allow for them, yet still we continue to see economic development continue and flourish in Southern NH. Quality of Life. Access to quality transportation. Highly skilled workforce. Those are the things that drive economic development here.
    "Growth is inevitable and desirable, but destruction of community character is not. The question is not whether your part of the world is going to change. The question is how." -- Edward T. McMahon, The Conservation Fund

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    Cyburbian oulevin's avatar
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    Incentives

    Has anybody used incentives to attract residents (in the form of subsidized moderate-income programs) and businesses to their respective downtowns? Have they worked?

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    Cyburbian Emeritus Chet's avatar
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    Re: Incentives

    Originally posted by oulevin
    Has anybody used incentives to attract residents (in the form of subsidized moderate-income programs) and businesses to their respective downtowns? Have they worked?
    In the mid to late 1980's Hartford, Wisconsin had a 24% +/- unemployment rate and zero new development going on. They created a formalized "development incentive program" in which they outlined goals on a point system, and the more goals the devleoper hit, the more infrastructure the City would fund.

    They coupled it with agressive economic development recruitment and retention.

    By 1993 the local and state economies were going gangbusters, and they were able to abandon the program.

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    Member japrovo's avatar
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    Re: Incentives

    Originally posted by oulevin
    Has anybody used incentives to attract residents (in the form of subsidized moderate-income programs) and businesses to their respective downtowns? Have they worked?
    Much of Portland's successful downtown development was built on urban renewal and TIF funded improvements. Of course who knows how it would have fared absent an urban growth boundary. A moderate income component with respect to housing really only came up in the late 80s early 90s. They adopted a city-wide no-net loss policy with respect to affordable housing and some incentive programs. The jury may still be out to their usefulness given the dramatic cost increases that in this market in the 1990s (for reasons that may best be debated in another thread).

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    Cyburbian Cardinal's avatar
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    Re: Incentives

    Originally posted by oulevin
    Has anybody used incentives to attract residents (in the form of subsidized moderate-income programs) and businesses to their respective downtowns? Have they worked?
    This is frequently done. In the case of residential development, the incentive is usually given to the developer, who then passes it along (in theory) to the buyer. The basic argument is that there is a gap between the cost of development and what the market will pay for the unit. The incentive is intended to close the gap. Madison has given incentives to several developers to create downtown condominiums, and has recently realized that there is now a sufficient-enough market that further incentives are generally not required. On a smaller scale, I have done the same with downtown brownfield properties in this city.

    Business incentives have also been used. These have more mixed results. The businesses that locate in a downtown tend to be smaller, and tend to be office or retail businesses. The nature of these businesses means that they will typically need cash for such things as leasehold improvement, furnishings, computer equipment, and working capital -- much more difficult to finance than the land, buildins, machinery and equipment we typically fund in an industrial project. Federal and state rules on monies such as CDBG are really geared to the latter, rather than the former. Still, I have set up a successful micro-loan program that targets the entrepreneurial businesses that often gravitate to downtowns, as well as commercial enterprise and facade loan programs.

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    Cyburbian donk's avatar
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    I know that Saint John, NB provides a credit for new construction of residential units in designated areas of the City. this is primarily done to offset known costs associated with blasting rock and installing services.

    As for incentives/loans granted by a City we are going through this right now here and the courts will decide.
    Too lazy to beat myself up for being to lazy to beat myself up for being too lazy to... well you get the point....

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    Cyburbian Cardinal's avatar
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    My earlier post was very anti-incentive. Perhaps I should back away from that a bit. No doubt, the best investments are still those that make a place attractive, rather than give-aways to corporations. Incentives, though, may be appropriate to bring businesses into the most distressed communities, such as might be found in inner cities or rural areas. They are not for suburbs. I wonder if any state will think to associate the incentives a location may offer to the level of distress (poverty, unemployment, low incomes, etc.) in the community?

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    Member japrovo's avatar
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    I wonder if any state will think to associate the incentives a location may offer to the level of distress (poverty, unemployment, low incomes, etc.) in the community? [/B]
    But don't they all sort of start out that way? I'm thinking about the proliferation of state level enterprise zones (at least in some states) that cover areas of even moderate distress. In Oregon it is TIF financed urban renewal that is used to cover a lot more ground than blight removal.

    This has moved into an interesting discussion of structuring incentives in place, but how about their use over time? During the 1980s recession state government here focused on attracting business to urban areas, sometimes with incentive programs. In the 1990s the state was flush and all attention turned to rural development and structural problems with the rural economy. The business cycle has turned again and urban areas are getting some attention as talk turns to recruitment.

    If this is the pattern who is driving it? Someone mentioned politicians earlier. I sat in on an interesting meeting recently where the politicians in the room described short term recruitment efforts which were being proposed by the practitioners in the room as "feel good" stuff. They wanted to put more effort into the long term thinking about improving education and maintaining quality of life. That's not how the story is supposed to go right? (In the end everything stayed on the table which is probably a typical result.)

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    Cyburbian Seabishop's avatar
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    Originally posted by NHPlanner
    No incentives in NH. Period. State law does not allow for them, yet still we continue to see economic development continue and flourish in Southern NH. Quality of Life. Access to quality transportation. Highly skilled workforce. Those are the things that drive economic development here.
    I wish we would outlaw them - we have 39 cities and towns all competing for businesses in a tiny state. Over time larger employers come to expect tax breaks and demand them "or else."

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    Member japrovo's avatar
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    Originally posted by NHPlanner
    No incentives in NH. Period. State law does not allow for them, yet still we continue to see economic development continue and flourish in Southern NH. Quality of Life. Access to quality transportation. Highly skilled workforce. Those are the things that drive economic development here.
    [i] I wish we would outlaw them - we have 39 cities and towns all competing for businesses in a tiny state. Over time larger employers come to expect tax breaks and demand them "or else."[/B]
    It seems like you need something extra to get out from under the demand for incentives. If I'm not mistaken, in addition to the attributes described above NH has no income tax and proximity to (comparatively high tax) Mass. to build on.

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    Forums Administrator & Gallery Moderator NHPlanner's avatar
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    Originally posted by japrovo
    It seems like you need something extra to get out from under the demand for incentives. If I'm not mistaken, in addition to the attributes described above NH has no income tax and proximity to (comparatively high tax) Mass. to build on.
    No income tax. No sales tax. Property taxes and Business taxes out the a$$ though.
    "Growth is inevitable and desirable, but destruction of community character is not. The question is not whether your part of the world is going to change. The question is how." -- Edward T. McMahon, The Conservation Fund

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    Cyburbian Greenescapist's avatar
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    You know the reputation that Massachusetts is a high tax state is not deserved. I have also lived in Maine and Virginia and pay less sales tax here and about the same for income tax. I believe there was an article on Planetizen a few weeks ago comparing relative state income levels and tax burdens. Massachusetts was in the bottom half! True, that home costs here are sky high, but so are job opportunities and wages. Combining a very well-educated workforce, good highways, decent train systems, public schools and universities, I think Massachusetts can compete pretty well with low-tax NH.

    The states were people paid the most were NY, Maine and Wisconsin. I believe Alabama, NH and Tennessee were near the bottom.

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    Member japrovo's avatar
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    Originally posted by NHPlanner
    No income tax. No sales tax. Property taxes and Business taxes out the a$$ though.
    Apologies to both Mass and NH---Perception often becomes reality in this area no?

    This distinction brings something else to mind...Up to now I think we've been talking about place based incentives in tax structures, but what about incentives for people? According to Richard Florida that's where the action is anyway (See Creative Class Thread). There is a proposal pending in the state legislature here to exempt researchers and venture capitalists who bring in a certain ammount of investment from state income taxes---that's all state income taxes not just the profits on whatever ventures they start. Who knows if it will pass but if it did imagine the grist for the economists' mills in trying to figure out what this all means. Do my place-based incetives trump your people-based incentives or in terms of roi for the state or is it all just a wash?

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    Cyburbian Greenescapist's avatar
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    Gee, I can't imagine Oregon is really proposing to grant tax ememptions to anybody. There has been so much national press about the dearth of tax revenuse in Oregon and the ensuig teacher and police layoffs, school closings, etc. The proposal does sound interesting, though.

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    Cyburbian Cardinal's avatar
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    Originally posted by Greenescapist
    The states were people paid the most were NY, Maine and Wisconsin. I believe Alabama, NH and Tennessee were near the bottom.
    The thing you have to be careful about when you look at these reports is that the structure of state government finance varies considerably across states. On taxes alone, does the study consider all state and local taxes, or just proerty, sales and income taxes? Secondly, do they factor in fees or charges for services?

    When I lived in Illinois I paid an income tax, sales taxes, utility taxes, state and local wheel tax, property tax, and such things as garbage collection were a separate fee paid to the local government. In Wisconsin I pay an income tax, sales tax, and a property tax. Yes, these are high relative to some comparables, but then when you factor in the rest, I am not doing to badly.

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    Cyburbian Greenescapist's avatar
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    Mike -

    Point taken. I was more or less just pointing out that Massachusetts is more average tax-wise than we have the reputation for. The article I read probably was a cursory analysis, but is good enough to make rough comparisons.

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    Member japrovo's avatar
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    Originally posted by Greenescapist
    Gee, I can't imagine Oregon is really proposing to grant tax ememptions to anybody. There has been so much national press about the dearth of tax revenuse in Oregon and the ensuig teacher and police layoffs, school closings, etc. The proposal does sound interesting, though.
    Mark it down as strange but true. I've been here almost four years now and I still don't get how things work in Salem (the state cap.). I can't imagine the bill passing, but just thinking about the idea itself, I can't decide if we should think about this as a "new" idea or simply as the same old type of incentive proposal in a new package.

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