Change is sweeping the economy. Already we have seen more automation, higher minimum wages, trade tariffs and FASB updates. Now we are in the midst of a global pandemic. What will those changes mean for the workplace, the workforce and the future of business? And what is the downstream effect for location strategy and the economic incentives that go with it?
With COVID-19, supply chains are disrupted. Unemployment figures have reached levels not seen since the Depression. Shortfalls in tax revenues are hitting state, city and county governments. All those changes can upend the best-laid plans. Economic development incentives are no exception.
Incentives are predicated on the idea that strategic projects create jobs and capital investment and thus a positive ripple effect in the market. During the boom years, that’s what happened. Now, everything is in flux, and companies and localities alike are feeling the impact.
Change is here. What’s the plan?
THE NEW REALITY
Businesses make a lot of decisions. Most of them are based on expectations for future growth. In changing times, some of those expectations may stray from the mark. Headcounts may shrink. Capital expenditures may dial back. Both tie directly to incentives.
What a company sees as a strategic adjustment, a local agency may view as a shortfall—one that puts incentives payouts at risk. Now is the time to communicate with economic development agencies and create a plan that builds in flexibility to navigate these times.
Working with the agencies can often preserve incentives already collected. It can potentially safeguard payouts in the pipeline. And it can typically offer a heads-up about any lags or lapses in future payouts if local agency revenues fall short or are diverted to relief funding.
Incentives are a public-private partnership. Working with local agencies can add more flexibility and potentially avert losses.
MAKING A (NEW) PLAN
When times change, so do plans. Following these checklists can often help businesses find an optimal way forward.
Survey the Incentives Scene
- ✓ Identify recent business closures and wins.
What gains and losses are local incentives agencies seeing?
- ✓ Assess budget constraints or surplus.
Is incentive funding going to emergency aid? Does your company qualify for help?
- ✓ Look into other incentive tools.
Do you have a chance to trade for incentives that may help your business more?
- ✓ Check out any changes in legislation.
How might they alter your economic development agreements?
- ✓ Understand shifts in administration.
Could changes in the agency org chart affect incentives funding?
- ✓ Track relevant metrics.
What would help local agencies better see where your business stands?
Map Out Your Next Steps
- ✓ Review your incentive agreements for performance milestone dates and default provisions. What happens if your business—or the agency—misses the mark?
- ✓ Note any changes in the headcount or capital expenditures you agreed to. Are you on track? Will you default? Do you need more time?
- ✓ Develop financial models to understand the risks. How much do you stand to lose if you default on incentives?
- ✓ Update your company’s leadership on the status of the incentive agreements. What does your team need to know now?
- ✓ Contact the appropriate agencies. What can you work out together?
CBRE’s Location Incentives group is a natural partner in a boom economy. We’re also ready to help during periods of flux. The expertise that makes us valuable in planning for growth makes us essential when it’s time to plan for change. And that time is now.
DOWNLOAD THE LOCATION INCENTIVES 2020 MARKET OUTLOOK