CREC Research Fellow Ellen Harpel (of Smart Incentives and Business Development Advisors LLC) recently gave an informative webinar on evaluating incentives programs where she gave an overview of types of incentives programs, frameworks for evaluation, and trends in incentives transparency and accountability.
Economic development organizations across the country use a wealth of incentives to attract businesses and encourage investment. But how do they make sure that they are getting the biggest bang for their buck? Unfortunately, until recently many states still did not mandate evaluation of program effectiveness. Increased scrutiny of incentives programs has led to calls for increased transparency, and now more there is more data than ever before in the hands of officials.
Caps, clawbacks, performance agreements, and sunset clauses work to ensure that companies deliver on their promise of jobs or other contractual obligations by limiting or recovering available resources and evaluating progress midstream. For example, clawbacks enable economic development organizations to limit damage from bad incentives programs by mandating a level of performance on a loan, tax incentive, grant, or bond. If a company does not reach certain milestones, such as jobs created by a point in time, EDOs have the ability to take back financial resources provided to the underperforming business. These new forms of accountability combine the proverbial carrot and stick to authorities to make incentives programs more efficient and effective.