Publications: Industrial Development Incentives Offered by Federal, State and Local Governments

In an effort to attract business investment and jobs, the federal government and many states, counties and cities have created economic incentive programs, particularly supporting industrial development.

The primary objectives of these incentives are to create new jobs paying good wages or to retain existing jobs.

The greatest incentives are available in areas that need jobs the most.  These tend to be in low-income areas of large cities or in rural areas.  A business willing to locate in one of these areas can often benefit from numerous and varied economic programs.

Industrial economic incentive programs can be classified into four main categories: cash grants, tax credits, below market financing, and infrastructure improvements.

Incentive Menu

Economic incentives vary from state-to-state and from city-to-city. However, there are some basic goals shared by all local governments, such as increasing employment, raising wage rates, fostering environmental responsibility, developing underserved areas, and encouraging research and development.  The only aspects of those incentives that vary are in the amount of the funds available and the exact requirements businesses must meet in order to be eligible for them.  Below is a list of the most common of these incentives.

A. Cash Grant Programs

Tax Increment Financing (“TIF”) Programs (Municipal)

• TIF incentives have become the most important economic development tool for many local governments and the most important source of incentives for developers.  Prior to a TIF designation taking effect, the amount allocated to each of the taxing bodies is frozen.  Any increase in real estate taxes collected within the TIF district is available to fund improvements and new development in the TIF district.
• TIF financing can take the form of bonds, construction payments, dollar-for-dollar reimbursements for TIF-eligible costs incurred by the developer, municipality-issued notes.
• Typically, cities will provide this type of funding to companies based on the number of jobs that company intends to create and the average wages of those jobs.
• The TIF process involves interface with municipal planning staff, city council members and the city law department. Negotiation of a detailed Redevelopment Agreement and approval of the city council are the final steps.

Research & Development (“R&D”) Programs (State)

• Virtually every state provides some type of incentive for companies that engage in R&D activities.
• The most frequent incentive is in the form of grants to businesses to fund their research, but bond financing options as well as tax credits or exemptions for the cost of the research are also popular forms.

Recycling/Environmental Programs (State and Federal)

• Many states have programs that provide funding for companies to institute recycling programs in their locations, or to update old equipment in order to make it more environmentally-friendly.
• The Federal Environmental Protection Agency’s Brownfields Program has been adopted by many states. Brownfields incentives involve the expansion, redevelopment, or reuse of property.
• Many states provide tax credits to companies that institute mechanisms to control pollution and other emissions problems.

B. Tax Credits (State, County, and City)

Credits against income taxes and real estate taxes

• These credits often run 10 years and in some states are renewable for an additional 10 years, resulting in 20 years of tax credits, which can result in significant savings.

Enterprise / Empowerment/Renaissance Zones (State and Federal)

• Tax incentives to expanding businesses whose projects affect distressed areas.
• Typically an area that suffers from high unemployment, low incomes, declining population or property values, and plant closings.
• Incentives range from tax credits per job created to property tax exemptions.

Worrk Opportunity Tax Credit (WOTC)

Tax incentives to hire individuals from “targeted groups,” such as those of a certain socioeconomic level.

Property Preservation Tax Credit

• For historically significant buildings.

Workforce Training Programs (State, County, and City)

• Grants or tax credits to businesses that train employees in skills.

C. Low-Cost Financing (State and City)

Industrial Revenue Bonds (“IRBs”)

• Financing instruments issued by local industrial development boards (“IDBs”) or other issuers authorized by state law.
• Proceeds used to finance the cost of land, construction of new or expanded facilities, purchase of equipment, and the payment of certain costs incurred in the issuance of bonds.

Minority-Owned or Women-Owned Business Incentives

• Usually loans with low interest rates, as well as preferences and set-asides.

Below Market Loans (City, State, bank participation)

D. Applying for Benefits

Any company planning to make a substantial investment and planning to seek economic incentives should develop first a comprehensive business plan.  Typically, such a business plan will involve a ten-year projection of investments, sales, income, expenses, taxes, profit, and loss.  Many government agencies require such a plan with the application.

Businesses should be prepared to disclose all current and projected financial information about the company and provide complete disclosure of their ownership structure and beneficiaries.

Often, even in advance of a formal approval, state and local governments are willing to give informal guidance and feedback on the prospects for and scope of incentives.

An applicant is well-advised to consult with professionals before approaching local governments, as an experienced professional will know what the realistic parameters are for that negotiation and will help the client avoid asking for or accepting less than what could otherwise be obtained.

Some Recent Incentive Examples:

Kentucky

Furniture manufacturer

200 new jobs

$15 million investment

$1.7 million economic incentives

Indiana

Medical technology company expansion

70 new jobs, 94 retained

$40 million investment

$560,000 in grants and infrastructure

Michigan

Auto component manufacturer

75 new jobs

$10 million investment

$2.1 million economic incentives

Illinois

High tech manufacturer

20 new jobs, 30 retained

$5 million investment

$875,000 economic incentives

Chicago

New distribution center

100 new jobs, 125 retained

$7 million investment

$3.25 million in TIF incentives

Summary

Particularly in the Midwest and Southeast United States, any company or developer considering industrial development (new facility or expansion) is well-advised to explore with professional assistance – before committing to the investment and before approaching the government agency - the availability of economic incentives offered by state and local governments.  To do otherwise is leaving “money on the table.”

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