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Fully loaded

Despite how they might prefer to operate, development professionals offer cache of incentives to remain competitive

July 1, 2000


Ron Wirtz Editor, fedgazette

"If I could find the man that gave out the first [business] incentives, I'd kill him."

While not meant literally, the source of that quote (who shall remain nameless) nonetheless hit on what seems to be a popular sentiment among professionals involved in local economic development at all levels.

As the use of incentives for business expansion and relocation widens—discussed at length in the April fedgazette—a significant portion of the very people offering business incentives nevertheless bemoan their general use, or at least their misuse by other communities. Still more ironic, if you can't put the incentives genie back in the bottle, you might as well get your three wishes while the genie's available.

So it is that local economic development has evolved into just such a juxtaposition. The fedgazette recently conducted a survey of development professionals and found that few appear to be ardent supporters of the current system. Even those taking the fullest advantage of the system and enjoying its spoils acknowledge its shortcomings; many others point to advantages that accrue to every community but theirs.

Regardless of personal opinions, local development professionals point out that theory and practice can be wildly out of sync, and the incentive game is ultimately played by street rules—namely, the highest bidder wins.

As such, local development officials told the fedgazette that they are putting a variety of tools, resources and assistance at their disposal to close deals with businesses—everything from loan programs, to tax credits and abatements, grants, workforce training, even helping businesses fill out applications for assistance.

Different circumstances demand different incentives, they said, and communities need tools to customize incentive packages according to a business's needs—or in some cases, its demands. In aggregate, the number and variety of business incentives available give communities a holster of options in assisting businesses with relocation or expansion needs.

But not all communities come fully loaded with incentives. Rural development professionals, for example, regularly complained about being incentive-poor, particularly in comparison to large cities and metro areas, and getting outbid for projects as a result. Even so, most professionals reported having at least three, and in many cases six or seven, different incentives tools available to them.

Most popular among all incentives is the low-interest loan. Part of the reason is the sheer ubiquity of public or quasi-public organizations that make loans to businesses, which easily number in the hundreds in the Ninth District alone. Some have a loan portfolio you can count on one hand, while others have portfolios that are fiftyfold larger in number and value. Some have delinquency and write-off rates even the private market would envy. Others have rates that would send any bank quickly falling headlong into bankruptcy.

An investigation into public loan programs at the local, state and federal level found a fragmented industry with soft, inconsistent and sometimes absent standards regarding financial and other performance-but also an industry interested in improving both the evaluation and performance of these loan programs.

Related articles:

fedgazette, April 2000
Local Economic Development, Part I

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.