Economic Development Incentives Strategy Summary
Table of Contents
The provision of financial incentives to influence business locations and retain existing businesses has long been a mainstay of economic development policy for state and local governments. In an ongoing study of incentive expenditures at the state and local government levels, it was estimated that as much as $50 billion is expended annually by state and local governments in the U.S. for these purposes (Peters and Fisher 2004). The role incentives play in job creation and retention is important, and strategic incentive programs may achieve significant benefits.
This strategy paper examines the ways incentives could be addressed in the GO TO 2040 plan. It reviews existing research on this topic to determine to what extent the current use of financial incentives are a cost effective mechanism of achieving economic growth, explores some of the existing uses of incentives in the region, and identifies some potential strategies for the region. Implicit in this paper's treatment of incentives is the notion that successful regional economic development requires regional coordination, at the least in terms of engaging a wide variety of stakeholders, including businesses, the local workforce, and other organizations, in the process.
A sample of findings:
A Widely-Used Tool in the United States:
- Incentives are a widely used economic development tool. In an ongoing study of incentive expenditures at the state and local government levels, it is estimated that as much as $50 billion is expended annually by state and local governments in the U.S. for these purposes (Peters and Fisher 2004).
- In Illinois, state incentives represent a growing share of the budget. Economic development tax expenditures grew at an annual rate of nearly 7% between 1995 and 2001. This is much faster than all tax expenditures annual increase of 4.7% annually (FY 2001 Tax Expenditure Report, Illinois Comptroller's Office). Provided both to businesses and local government, "the most prevalent" form of help, tax breaks, training reimbursements, and debt issues.
In Our Region:
- A study on the use of incentives in the northeastern Illinois region (excluding Kendall County) provides useful summary data for the major and consistent economic development assistance programs from 1990 to 2004. According to this report, the State utilized ten different programs to provide at least 780 different subsidies to specific companies within the region of northeastern Illinois (McCourt et al 2007).
If you're interested in learning more about economic development incentives, please download the following CMAP strategy report. Comments and criticisms are encouraged.