Incentives can be a game-changer

Texas leads the way in the use of this powerful economic development tool—and gets a big return on its investment.



Incentives to lure major corporate locations are a hot topic right now in Texas, and big projects that receive significant incentives, like Toyota, draw focus to the issue. Texas will soon have a new governor and many new members of the legislature, and a select committee of the Texas House of Representatives, chaired by Rep. Angie Chen Button, is conducting hearings and will report on Texas incentives in advance of the 2015 legislative session. 

Companies and location consultants around the nation are paying very close attention to Texas and asking pointed questions about the state’s future disposition toward corporate recruitment and incentives. The big question is, basically, “Will Texas drop the ball?”

Texas should not. Other states are also watching to see if Texas will maintain its leading edge—or pull aside and wave those states on in the pursuit of great opportunities. Our rear- and sideview mirrors are already full of metropolitan areas and states very capable of becoming home for projects we would love to win—projects that would be a substantial net gain for our economy even after incentives are applied. When considered and applied properly, incentives are tools that build, not erode, our state and local economies. 

The Dallas Regional Chamber staff is in a trusted and unique position of frequently

“being in the room” when companies or advisors are requesting local and state incentives; or when local communities and the State of Texas propose incentives. We witness firsthand the competition among states, among DFW and other metro areas, and among our local cities. 

One comment often heard in opposition to incentives is, “They will come anyway.” If true, then Nissan USA would not have moved its headquarters to the Nashville area nearly 10 years ago, the NCAA would today be based near DFW International Airport, and Boeing and Miller Coors would not be in Chicago. Facilities for Pepperidge Farm, Harley Davidson, Google, Genentech, Chiron, and others would also be here, paying millions in taxes and creating tens of thousands of jobs. DFW was a finalist for each of these examples that clearly did not “come anyway.”

Another aspect of the incentives process that I believe is unappreciated or unrecognized by most of those with opinions against incentives is that “no” is more often the answer to incentives requests than “yes.” The image that our state and local economic development leaders are running all over the country handing out blank checks is simply not the case.

Economic development leaders working on behalf of the state and our area cities and taxpayers are very thoughtful and rigorous when considering incentive requests. They all consider, utilize, and offer incentives a bit differently, but are consistent when evaluating whether incentives are necessary and, if so, whether the return on the incentive is a good deal for the taxpayers. We are fortunate to have some of the best economic developers in the nation representing us and guiding the sensible use of the incentive tools available. Rare is the occasion that, as is being debated right now regarding Nevada’s Tesla incentive package, Texas or a local community is viewed as paying too much in incentives relative to the deal’s long-term benefits. 

Multiple factors trigger a “no” answer to incentives requests. Companies that are predisposed to locate in our state or in a particular city are unlikely to be awarded incentives. In fact, one of the requirements a company must meet in order to be eligible for the Texas Enterprise Fund, the state’s much publicized and utilized cash grant program, is to clearly demonstrate that other states are not only suitable but also in consideration and bidding for the project. 

Companies that do not intend to invest substantially in taxable property, create jobs, or pay above average wages are also unlikely to be favorably reviewed for incentives. Texas and our area cities expect when awarding an incentive that dollars are granted or foregone, and any public outlay for services to the company and its employees will be returned in multiples in the near future by the net new taxes generated by the company’s investment, spending, and paychecks it issues.

I have observed cities in our region decline incentives for many other reasons. One said no because the project was not able to commit to using “minority and women-owned” business contractors. Another said no because the project would have placed too much stress on the city’s infrastructure. A third said no because the project was moving from an adjacent city and not really creating any net new tax base or jobs to warrant an incentive. In each of these very different situations, the city’s economic development team determined that awarding incentives was not smart business.

I remember discussing incentives a couple of years ago with a friend outside of my economic development circle and trying to explain why it can make sense for a city or state to give an incentive in a competitive situation. In the end, I pulled out a $20 bill and told him, “I am either going to locate this $20 in your hand or in the hand of the guy over there in the white shirt. But if I locate it in your hand, it will cost you five bucks in incentives to me.” For a while he felt like he was losing $5. In the end, and especially once the $20 was headed for the guy across the room, he realized he was going from an empty hand to being up $15. Three-fourths of a loaf is better, he figured.

The competition for companies is keen. Many states and regions have stepped up their games to compete with Texas and the success of DFW and the state’s other major metro areas. Keeping our incentive tools at the ready makes sense for Texas and for our region’s communities. We don’t always have to use them—and we often don’t. But when used, each deal ought to make a lot of sense and yield a proven return on investment. I have observed, on more occasions than I can count, a high level of stewardship and common sense by local and state leaders when considering incentives for projects.

 

Want to learn more about how to get involved in Blueprint for Prosperity? Contact Mike Rosa, Senior Vice President, Economic Development, Dallas Regional Chamber
214.746.6735 | mrosa@ dallaschamber.org

Blueprint for prosperity

The Dallas Regional Chamber’s economic development program, Blueprint for Prosperity, provides organizations in Dallas-Fort Worth with an accelerated investment opportunity that helps advance our region’s success. This additional investment made by more than 130 organizations in addition to annual chamber membership dues allows organizations to increase their support of our efforts to further economic prosperity throughout the region. This initiative funds efforts related to direct contact with corporations and location consultants examining the DFW Region.