Copyright 2013 Attracting Resources, LLC.
Joel A. Smiley, M.P.A., Principal.
Office: 314.827.9623 Fax: 314.469.1114
Joel A. Smiley, M.P.A., Principal
Why Are Government Incentives Important for Commercial Development
Joel A. Smiley, M.P.A., Principal
Recent headlines nationally talk about the lack of need or corporate greed for government incentives. What you do not hear is how and why government incentives work to drive the economic development process forward. Tax incentives should be geared at improving infrastructure or develop and create job opportunities with an emphasis in lower performing communities or areas as defined by poverty rates, unemployment rates, median income rates or high vacancy rates.
In a free market economy, development drives the process through supply and demand. In areas with high negative externals, like high unemployment or poverty rates, development naturally moves towards more well established and stable communities. Through tax credits and other government incentives, blighted areas have a chance to level the playing field and offer developers ways to reduce costs to make a project viable.
When accessing a project either from a redevelopment or ground-up construction project, tax credit specialists look to the infrastructure budget of a project. Communities know that even if a project fails after the development, by having adequate infrastructure in place, you have a much better opportunity to attract another commercial business.
For ground-up construction infrastructure may include utilities including gas, electric, water, and sewer. Infrastructure also can include road improvements, parking lots, sidewalks, curb and gutters, storm water, telephone and data line extensions, outside lighting, traffic lights and others.
From a tax credit perspective, we calculate the infrastructure investment and look to off-set a percentage of the costs through tax credits. These credits can be in the form of a bond or other immediate infrastructure assistance. These credits enable the developer to reduce their development costs immediately and can be crucial to determine if the project is able to move forward.
For redevelopment opportunities, clean-up of the site along with replacing outdated infrastructure may be necessary to attract a commercial developer to the site.
As a developer looks at his over-all operating costs including the development, assistance with tax abatement over a period of years can be very beneficial and can also drive a project forward. With these types of incentives we target real and or personal property abatement over a period of years. By lowering the tax liability, the commercial development can hire more employees which is another huge driver for tax incentives.
There are different types of workforce credits that can either be a reduction in tax liability or can be a tax credit or cash rebate back to the employer. Some workforce credits like Work Opportunity Tax Credits target certain demographics like disabled employees, long-term unemployed, employees living below the poverty rate and other criteria. Some credits go to the employer directly as a result of hiring these employees. Other credit programs target the training program of the employer and reimburse the employer directly for the employee to gain the training necessary to perform their specific duty.
For more information, contact Joel Smiley, Principal Attracting Resources, LLC (314) 827-9623.
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