Agenda - 05-18-2010 - 8b - Laserfiche WebLink

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The Role of Incentives in Economic Development Incentives are a necessary tool for jurisdictions and economic development professionals. Whereas access to capital is key for entrepreneurs and start -ups, incentives play a significant role in the ability to attract and retain established businesses, which are the source of the majority of job and wealth creation in a community (refer to sidebar). Whether they are in the form of rebates, tax abatements, cash grants, free land/facilities, or infrastructure development, competition has led to the rising importance of incentives as a standard economic development tool. Although incentives are offered by just under 50% of local and county governments state -wide, 100% of Orange County's closest competitors have effectively use them to attract and retain business 14. It is safe to say that few in government like the practice; however, jurisdictions such as Orange County that fail to offer incentives are bypassed before most companies compile their short lists of relocation or expansion sites for consideration. Therefore, it is important for Orange County policy- makers to understand the forces that drive business to depend on incentives as a key decision criteria. So critical are incentives that the process of and activities associated with identifying and maximizing incentives is formalized as a C -suite responsibility or as a full- time position. On average, established businesses are finding margins shrinking and costs of operations ever-increasing. Competition from low -cost farm- or off - shored locations have commoditized a range of goods and services which used to be considered high value. As a result of commoditization, price and convenience drive sales. With fewer resources available, businesses find themselves hiring and operating in just -in- time mode, with cost containment and expense management serving as primary strategies in maintaining overall business health. Whether relocating or expanding, the cost of establishing new facilities affects the bottom -line -not only in terms of direct costs but also in opportunity costs due to lost sales, revenues, and access to market. As a result, businesses look for and consider every option for reducing these costs and depending on its needs and availability of sites that fit its needs. Although incentives will not make a poor choice desirable, they frequently serve as differentiators between competing sites whose attributes are comparable in the eyes of the business and/or its shareholders. In addition, just as small business loans tend to increase ties between an entrepreneur and its lending community, incentives tend to increase the ties of the recipient business to the area. Acknowledging the Risk Just as bad news travels faster than good, horror stories of incentives gone wrong garner attention whenever they occur. Although the majority of incentive awards go un- publicized and lead to long -term business growth, some simply go south for a variety of reasons, including over- bidding, the lack of claw - back provisions, the lack of structured award process and decision - making, changing market conditions, and declining health of the recipient business. Therefore, it is incumbent for decision - makers to understand the opportunity cost of losing employment, investment, and tax revenue gains up -firont over the possible risk of losing those gains at some point in the future. Meeting Business Needs: A Look a! State and Regional Economic Development The next sections address the current economic development environment at the state and regional level, with an eye towards strategies currently driving economic activity. State Priorities The state of North Carolina has held Site Selection's top ranking in best business climate in the country for eight of the past nine years. To maintain this level of competitiveness, North Carolina, through the Department of Commerce and the regional economic development partnerships has focused on three 14 Examples of incentive usage in Alamance, Chatham, Durham, and Wake counties are included in the County-Level Economic Development Best Practices Detail section, with copies of area incentive policies included as Appendices. glPage