The Power of Government Incentives
What must a city or a state do in order to attract companies to either relocate or expand in their market?
Every region has a distinct competitive advantage. San Diego, for example, is best known as one of the best cities to live in. The weather, the beach, and the lifestyle are attractive attributes of our region that make businesses want to establish a footprint here. The question then becomes, “What must a city or a state do in order to attract companies to either relocate or expand in their market?”
The simple answer? Incentives. Both state and local governments are always vying to attract new jobs to their municipality which will in turn produce more tax revenue and grow their economy. Incentives consist of items such as property tax abatement, income tax abatement, sales tax abatement, and even offering grants that instantly provide capital for a company. Why would the government offer so many tax abatements if their purpose is to increase tax revenue?
Essentially, when a company creates “X” number of jobs, the locality will experience a multiplier effect, which will result in further job creation to serve the region. For example, a company may like to establish new headquarters in a city that will create 100 new jobs. Additional jobs would have to be created to service this resulting influx of employees (i.e. within hotels, restaurants, and transportation services). The additional tax revenue gained from this job growth would allow for the city to provide the company with incentives and grants, motivating their relocation to the new market. By creating competition between multiple cities or states, companies will obtain the greatest savings, thereby maximizing their bottom line.
I recently had the opportunity to attend a 3-day Live Exchange conference in Fort Lauderdale, FL where over 20 Economic Development Corporations (“EDCs”) from around the country were in attendance. The format was akin to a “speed dating” event, where every EDC had a 30-minute opportunity to showcase their competitive advantage. It became apparent that although most of the states and counties offered similar abatements and training programs, the structure and targeted industries differed greatly. Some were looking to attract regional or national headquarters, while others were more interested in approaching manufacturers. From my perspective as a Commercial Real Estate Advisor, the benefit of such an arrangement was the ability to gain a greater understanding of what regions would most benefit different industries. The result? When a client of McKinney Capital & Advisory is looking to move or expand, we are better equipped to guide them to a region that is conducive to their business model.
Every scenario is unique, and every region has something to offer. McKinney specializes in representing users of commercial real estate across the nation, and worldwide, but our duty goes beyond finding our client’s ideal space. It compels us to do everything in our power to make sure our clients see an increase to their bottom line. We are never finished serving our clients.