Does your community offer incentives to lure new businesses and development to town? Does it surprise you that the rationale for offering these subsides usually considers only positive outcomes with no offsetting measure of the public costs or negative impacts deducted to determine a true picture of the value of new development?

A myth has spread the country “faster than a speeding bullet”– if you throw enough money at a company they will come to your community with jobs and no matter the cost the future will be better for all. The myth is so institutionalized that every community and every state has played the game. It should be no surprise that the incentive game pits communities in bidding wars to the benefit of large companies bottom lines. The bidding has become outrageous with bankrupting offers of billions to companies by some states to bet on the next bigger than big industry or to steal current top performing companies from other communities. As the incentive game has developed some communities are compelled to practice defensive recruiting and find incentives to prevent resident large employment companies from leaving.

Tighter government budgets cause logical minds to question bad habits. These more rational evaluations of incentives have revealed that companies generally do not locate based on incentives. Certainly if you throw incentives they won’t be turned down, however, location decisions are based more on factors such as workforce, education levels and quality of life. When incentives are the deciding factor they are usually so large that when the negative aspects, such as the cost to provide public services and pay for increased traffic congestion, are factored into the equation the investment results in a reduction in public services or increased taxes for your community. The result is a shrinking ability to make the kinds of public investments that will make you a more sought after destination by both workforce and new business.

The bottom line, incentives should be tied to comprehensive plans and real measures of return on investment. To learn more visit Dr. Dave at the New Rules website for a good overview of the issue and a link to additional studies.

One of the more interesting sources for Dr. Dave is an Economic Policy Institute publication by Robert Lynch, Rethinking Growth Strategies – How State and Local Taxes affect Economic Development.

Also check out these related entries to Competitive Communities: Loosing Good Cents and Leveling the Playing Field.