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All Quiet on the Eastern Front of Incentives?

Nov 06, 2017 Amy McDonald, CPA Tags: , , ,
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Katie Culp, president of KSM Location Advisors, recently spoke at the 2017 Credits and Incentives Symposium in Chicago, hosted by the Institute for Professionals in Taxation. Culp, alongside EY’s Brandon Pyers, presented a session titled, “What’s New on the Eastern Front? An Evaluation of Strategic Changes to Economic Development Incentives and Policy in the Eastern United States.”

Culp and Byers discussed policy, statutory, and other economic development trends in the Eastern United States over the past fiscal year. Highlights included:

  1. ROI modeling: If ever there was a time when communities consulted with gut checks or the wind changes to determine the amount of incentives awarded, those days are over. ROI modeling is a tool that has become prevalent for many designating bodies awarding incentives. Whether it’s due to an increased focus on incentive packages in the press or budget constraints, all governmental and quasi-governmental bodies now want to confirm that the awards they are giving will recover – and even exceed – their cost. Anything that can show a greater positive economic impact is important, and ROI modeling is one way to do so.
  2. Renewed emphasis on the manufacturing sector: It’s true that the importance of the manufacturing sector to states, communities, and economic development organizations has never really gone away. However, in looking at recent data, it appears that some Eastern States that do not normally give incentives freely to “just anyone” are starting to make more incentives available for manufacturing corporations specifically. It could be because the areas that have focused heavily on high-tech jobs now feel behind in this sector, or because the current administration has been so vocal about the need for manufacturers to onshore production versus offshoring it. We can’t be sure, but both may be contributing to this trend.
  3. Compliance, compliance, compliance! Designating bodies in the Eastern United States – and the rest of the country, really – are cracking down on the back-end compliance process. For example, there is increased scrutiny on items such as:
    • The composition of an employee’s average hourly wage (i.e., base vs. benefit vs. overtime);
    • Whether a company has met their projected targets by the goal date; and
    • Supporting documentation for award receipt.

Beyond compliance, vigilant follow-up is also critical. The entire incentives award can be derailed if you or your consultant are not determined to actually implement and follow up on what was promised on both sides of the deal. Failure to do so can often decrease the value of the incentive itself.

The bottom line is this: The negotiation process of an incentives package can be a breeze, but the actual implementation and ongoing compliance of the incentive is critical to receiving the benefit. Consultants are not just pushing paperwork because they like it (although, admittedly, our CPAs do); they want to ensure their clients get every dollar they deserve.