Bottomline advice on incentives

In an recent interview with the Buffalo News, I was asked what was my basic view of ED incentives. Here is what I said:

1. Incentives are a necessary evil in many economic development environments, especially in those areas that have a long history of using these programs.

2. Incentives are a catch-22 for areas that are pressured to use them by businesses and competing locations. You are damned if you do and you are damned if you don't. The key is using them in a smart manner. Know what the return on investment (ROI) will be to your area under different investment scenarios.

3. Incentives should be budgeted on an annual basis by state and local governments. State law should require that every city, county, special authority, state development agency using ED incentives create an annual budget that establishes an upper spending limit and defines an expected ROI for that budget.

4. Incentives matter more than companies and EDO's let on. They always matter wherever the competitive environment requires that they be used. If you area uses incentives, then assume that they will matter in future competition for deals.

5. Performance-based incentives are the only way to go. Don't use any incentive that is not guided by explicit performance requirements for companies using these tools. In my assessment, communities and states are only at the starting blocks in making their incentive programs performance-based. All of us have a lot to learn in how to do this successfully.