The Importance of Economic Development Incentives in Site Selection

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While opinions regarding the appropriate use of economic development incentives vary amongst reasonable people, there is no question that incentives play a vital role in the site selection decision making process. Companies can conduct business from more global locations than ever due to greater telecommunications connectivity. And, since the recession that began in 2008, they think differently about where to invest capital. This has created a drastically more complex economic development environment.

In today's world, companies are concerned about many things. Some can be controlled by the company, while others cannot. One of the most important things that a company can control relates to financial costs of a site selection project. Expenses related to a site selection project are typically broken down into two groups: project costs and operating costs. It is important for economic development organizations and governmental entities to look at ways they can help address these two areas.

Project costs are very impactful due to the upfront nature of the costs. Items such as real estate acquisition, infrastructure improvements, workforce recruitment, equipment purchases, and furniture & fixtures impact the cash flow of a company. Incentives that can help offset these costs are highly valued by corporate decision makers during the site selection process.

Operating costs are impactful in terms of the company's facility's annual financial performance. Expenses such as local and state taxes, utility costs, labor costs, and transportation costs impact a company's annual profit and loss. This is the area where incentives that result in the lowering of ongoing operating costs become important to companies when deciding where to locate or expand.

Recently, our firm had the pleasure of serving a global company considering different potential locations to invest capital and add team members. The company has several large facilities throughout the world. We worked closely with our client to complete an exhaustive location modeling process to present the client with a set of findings to position them to make a well informed decision.

The client assembled an outstanding internal team to work with us. Representatives from the company's Governmental Affairs, Finance, Operations, Real Estate and Tax teams were all involved in the process. This approach ensured that all key disciplines were at the table throughout the process to evaluate key data. In addition, the personal involvement of the senior leadership of the company positioned the project for success. The project team worked collaboratively to achieve its goals, which made our job easier when working with local, regional, and state economic development and governmental entities. This allowed us to clearly present the project and the best ways for key officials to address project and operating costs associated with the project.

Larry Gigerich serves as Managing Director of Ginovus.

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