Deficit Hawks Driving the Debate in Washington and State Capitals

As the reality of deficits loom in state capitals, efforts to cut discretionary programs and reform the corporate tax code may place longstanding investment and other business incentive programs in serious jeopardy.  California's current consideration of reductions in their economic development incentives and the Obama Administration's efforts to curtail oil and gas subsidies -- as well as forthcoming EPA carbon rules --  are but harbingers of trends that may eventually impact most American industries.  Business needs to make the case to Congress and state governments why valuable programs should be preserved or needed legislation should be passed.  In order to do so effectively, companies should be able to point to the value their businesses and industries bring to the economies of the states and Congressional districts they operate in.

Traditionally, incentis group has provided our clients with economic impact studies to support their proposals for economic incentive packages tied to specific investments.  These studies have shown the direct and indirect employment, economic income (state and local GDP), and tax revenue effects of the proposed investment.  More recently, incentis group has undertaken studiesfor our clients to prove the value of theirexisting operations in defense of specific legislative or state budgetary objectives.  We are now offering this product more broadly to businesses and Industry Trade Associations, as a flexible tool to promote their legislative and regulatory agendas.

The input-output model we utilize can be adapted to show the broad economic impact of individual company operations or of an entire industry on state or even Congressional district economies.  In addition, we can isolate the impact of specific activities, such as exports or new investments on these geographic areas.  We can do this analysis for a select number of states or Congressional Districts, or for all of them, according to the size of operations and legislative strategies of the particular client.  The outputs of the study can be crafted in such a way to maintain the confidentiality of proprietary company data inputs, e.g. revenue or employment figures, if the client so desires. 

We believe this product would be an invaluable tool for companies and industry trade associations to show the overall economic impact of their presence in a state or Congressional District.  In the final analysis, every Governor and state legislature, every member of Congress has to determine what is good for the wellbeing of his or her constituents.  Our model goes beyond the direct employment, payroll and revenue effects, and captures all the ripple effects of a company or industry on the state or District economy, giving the elected official a full appreciation of the critical role played by the company/industry.

For more information about this product, please contact:  Bob Kramer, Senior Policy Advisor, Washington, D.C., at 571-215-9806  or rkramer@incentisgroup.com or Larry Kramer, CEO, at 216-408-1133 or lkramer@incentisgroup.com.   

Data Centers On The Move   

In recent years, corporations making significant investments in data centers and server farms have begun to migrate their facilities from cities with robust technological infrastructure to rural communities due to significantly lower utility costs.  In most cases, the job creation per dollar of investment in a data center is lower than communities are accustomed to making an incentives offer for a project, however, data center construction supports current government efforts to upgrade the technological infrastructure and can have a substantial impact on property values.  Data centers in rural communities also tend to cluster, with corporations making investments in facilities nearby competitors to piggyback off of the infrastructure build out.  For these reasons, savvy communities and states have taken note and become more aggressive in their efforts to attract data center investments with incentives packages as shown by legislation recently crafted in several states, including, but not limited to: Missouri, North Carolina, Tennessee, Virginia, Washington and Oregon.  The incentives vary from state to state but typically come in the form of grants, tax exemptions and abatements. Furthermore, large utility providers have created programs to help offset expenses and investment related to the significant energy consumption of data centers.  incentis group has experience with both negotiating tax and cash incentives for data center, as well as analyzing utility issues and finding utility solutions for our clients.  Incentis group has engaged Martin Flynn as our industry utilities advisor to assist our clients with utilities incentives and other issues.  If your company is considering data center investments or would like more information related to data center site selection and incentives, please contact James Gomochak, Senior Consultant, at 312-421-3482.

Showing Success as States Enact Penalties   

As mentioned in a Wall Street Journal article from April, "Give our Cash Back," some states are now billing various businesses that received incentives and have not delivered on promises.   The driving factors are the budgetary strains for many states and the lack of revenue sources.  Republican Governor of Ohio, John Kasich, signed over a dozen "Clawback" orders from various Ohio companies not meeting the requirements each company committed upon signing the incentive package.  As a comparison, Massachusetts revoked tax incentives to over 74 companies not meeting the incentive commitment in 2010.  Prior to the recession there were less than 20 companies whose incentives were terminated based on the same set of circumstances.   Change in the competitive market and companies moving their workforce to China have triggered this behavior from states and will likely continue.

Recently, incentis group assisted a Company in the mid-west who had as similar fact pattern as many industries today.  The company received an incentive package from the State, County and City to purchase and renovate an existing building with the intention of increasing employment and increased capital investment.  As a result of economic conditions and factors beyond the control of the company, the total project investment and employment totaled to less than the company committed to the State.   The State's initial intent was to terminate the Companies Incentive Package prospectively.  Incentis Group assisted the company to secure the original term of the incentive with a small reduction in rate prospectively.  As many companies are faced with these situations, we feel it is important to keep our clients informed that the clawback provisions of an agreement may be negotiated to a lesser degree based on the facts of the company and the terms of the agreement.  Feel free to contact us for information pertaining to" Clawbacks" for companies of all sizes.

Message from the CEO 

In speaking with a number of our Clients and separately with Trade Associations that represent multiple companies within select industries, it is apparent that many Corporations and Associations are looking for additional means to demonstrate to public officials the value that their companies bring to state and local economies and federal jurisdictions.  Likewise, we believe that it is safe to say that state and municipal officials do not understand the full value of many of the businesses that drive their economies.

The value that businesses provide to state and local economies goes well beyond the visible facilities that these companies directly operate.  Their activity is responsible for generating other significant activity within the economies including additional jobs and earnings and substantial additional economic output.    In many cases, this indirect activity equals billions of dollars, of which state and local officials need to be aware. 

A little "Self-Promotion" can go a long way when it comes time to discuss Economic Incentives support from state and local officials or when changes to statutes or the adoption of new legislation is being sought.  It is most helpful when public officials have an on-going and regularly updated understanding of the significance of the economic impacts of a company upon their economies.

incentis group has conducted Economic and Fiscal Impact Analyses for numerous companies and other entities in order to demonstrate the true value that these organizations provide to states and communities.  These analyses can cover an entire state, single or multiple counties and cities, or individual or multiple Congressional Districts.  The analyses can illustrate the impacts of all business operations or extract specific activities such as trade and exports. 

I encourage each of you to consider the positive results that such analyses can provide to your Corporation or Trade Association.  Is it time for some Self-Promotion?   

Larry Kramer