Silent on Incentive Performance

ARTICLE | Mar 20, 2017

Why It Is Important

The January/February 2017 PM article on "Why Small Businesses Matter" by author Douglas Martin addressed many significant issues related to the importance of a community's small businesses. The article spoke briefly about incentives, which can be a major problem area for local governments.

The discussion about the new Government Finance Officers Association rules that require analysis of performance measures is useful, yet the article is silent on what happens if performance is found to be subpar or if the incentives are paid and performance is nonexistent.

A short paragraph discussing the use of clawback and renegotiation provisions in concert with incentives would have helped tremendously. Clawback and renegotiation provisions may help local governments obtain a full or partial return of the incentives for nonperformance or less-than-stated performance.

The section on intergovernmental collaboration might have discussed a common issue for many local governments: competing with other local government incentive packages. In such cases, intergovernmental and intragovernmental collaboration is critical to achieving a level playing field with prospective businesses.

I also want to note that the example provided about the Columbus, Ohio, initiative to reshape its transportation system is extremely good. In this case, incentives are employed to help everyone—businesses and the general public alike.


Author's Response

John Duffy is absolutely correct about clawback provisions. This was extremely instrumental in the agreement I referenced [in the PM article that can be found in the archives section of] with Fabrik Industries. Incentives and competing across jurisdictional boundaries are great points and are major issues as well as a reality of economic development in today's world.

The inclusion of clawback provisions in economic incentive agreements is imperative and often necessary in obtaining community support, and it also promotes accountability. Ongoing discussion and study are warranted regarding performance and criteria used to measure the effectiveness of economic inventive agreements. Doing so will help communities use these agreements strategically to achieve short- and long-term economic development goals.

The significance of intergovernmental cooperation in economic development cannot be overstated. Incentive agreements to lure and to retain businesses are becoming commonplace, as is the realization and the acceptance that benefits associated with attracting and retaining small businesses cross jurisdictional boundaries.

Additionally, intergovernmental collaboration is a critical component in obtaining grant or competitive funding, thus endorsing cooperation among multiple entities and supporting a "level playing field," which ultimately produces a much greater benefit across a larger regional area.


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