Relocations, Growth, and Incentives

Posted by Kris Lindahl on Thursday, September 20th, 2018 at 9:22am.

State and Local Incentives Abound for Corporate RelocationsIn light of Amazon's much-publicized city search, municipalities and regions across the country have begun to reexamine the tax incentives and other perks that are appropriate in an effort to attract new business. Deal-making has positive long term benefits for many communities, but there are also some downsides. What are some of the pros and cons of business enticements, and just how much is too much?

Moving a corporate headquarters or opening a major new facility is a major undertaking, no matter how the effort is measured, one that often spans years of planning, negotiation and decision-making. Costs can be staggering in terms of both dollars and disruption, and a relocation frequently affects corporate culture and employee morale in much the same manner.

Considerations include transportation, both to facilitate the move itself, and for future shipment of products, dissemination of services, and employee commutes; location amenities, cost of living, weather, availability of an adequate and well-trained labor force to enable necessary local staffing and growth, educational opportunities, and the perceived desirability quotient and area image.

So, when a major move is planned, particularly by a major player on the corporate scene, there can be a lot of jockeying for position. States, counties and municipalities are sometimes quick to offer enticements that include tax incentives and abatement, zoning adjustments, and/or short-term loans, land options or financial participation in order to secure a commitment. Texas is a state that became well-known for its aggressive business-attracting incentives, but it is by no means the only one.

The Cost of Incentives

While most modern cities of any stature have business development directors and well-defined business incentive guidelines, it is not uncommon for those standards to be altered, amended or ignored when the prospect of a major corporate relocation is deemed worth fighting for. Competition among cities can be stiff. Although the long-term goal of improving the local property tax base, boosting employment and attracting new residents is enticing, there are comparable costs of infrastructure expansion, loss of revenue in the short term, and disruption of the local environment during initial site development and construction.

There is also the ongoing cost of expanded city services and, in the case of a major influx of new residents, additional concerns centering around housing, schooling, utilities, medical and emergency services, recreational, shopping and entertainment needs.

Opponents of major new business relocation incentives, sometimes termed corporate welfare, believe that long-term costs outweigh short-term benefits, but most realistic assessments concede that long-term benefits accrue to the plus column for those cities with a comprehensive growth plan, one that is only minimally altered for special cases.

In one sense, fast growing cities rely on the assumption that growth fosters more growth, and that offering reasonable incentives to desirable business firms breeds additional success in attracting more business, adding to sustainable growth patterns. In truth, no incentives last forever and they are almost always beneficial to both the business and the city.

The Price of Business Relocation

While large companies look upon growth as the lifeblood of the business, the decision to partially or totally relocate to places like St. Louis is based on many factors. While the major immediate consideration may be financial, there are additional non-financial considerations, some of which might be politically motivated. Others include corporate philosophy, a dedication to a particular locale based on availability of raw materials or personnel, future goals and new technology tools.

With the growth of digital communication capabilities and the popularity of telecommuting and work from home options, there may be less future need for corporate campuses, giving way to decentralized business models that utilize regional hubs to greater advantage.

Quality of life considerations have already become instrumental in business decisions among younger firms and entrepreneurial startups. In some cases, such companies have chosen to relocate to smaller cities and less populated states, citing the reduced need for all employees to be housed in a single physical location. Concerns with crime, pollution, transportation and affordable housing are, in some ways, reduced when business moves away from larger population areas. But, as with all things, there are associated disadvantages, including access to state-of-the-art technology and cultural, artistic, entertainment and shopping amenities.

Long-term trends are, at this point, still unknown.

What is a given, perhaps, is that some companies will choose to relocate every year for very sensible reasons. They will no doubt be looking for all possible financial incentives that might be offered to them, and for the best amenities and perks for their employees. The commitment to move involves a sizable investment. And no company will settle for less than the best possible return on investment.

It is unlikely that major cities and forward-thinking communities of all sizes will be willing to reduce their chances to attract new business by doing away with some substantial incentives, particularly if the bidding process is well-publicized and the stakes are high. And, in the case of an opportunity to become the location of Amazon's new HQ2, the most important incentive factor governing those offers may simply be one of prestige.

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