Anatomy of a Deal

Economic development deals are packages built out of many different services, subsidies, and cost or tax breaks. It can be difficult for someone coming to the issue for the first time to see where the investments and programs come from, and to understand how these resources are assembled into a package. Any deal can have many parts and be funded from many sources.

Some economic development activity, like site assembly and development, takes place before a specific company is even identified.

Because development projects are specific to a particular business and a particular location, each “deal” looks different. Often these packages depend on state agency experts to tailor a customized collection of benefits from the available resources and programs. When the full incentive package is added up, it can be substantial, with states sometimes spending millions of dollars to land a single large manufacturing facility. In this way, public tax dollars shape private investments.

Incentives are offered to industry by bundling federal, state, and local public resources and using grants, loans, and tax incentives. Often the regional business community and local utility and telecommunications providers play important roles in building a package of financial benefits that can close the deal and draw new or expanding firms into a regional economy.

The following outline shows the “life cycle” of this process and provides some information on how a variety of commonly subsidized benefits are available at each step of the development process:

Step 1—Attracting new industry
              Marketing and information
              Site assembly and preparation
              Infrastructure upgrades
              Speculative development

Step 2—Locating the plant
              Construction subsidies
              Free buildings or land
              Gap financing
              Transportation infrastructure
              Tax breaks and bond issues

Step 3—Getting up and running
              Recruiting, screening, hiring workers
              Training through direct services and tax breaks
              Modernization, process re-engineering
              Equipment purchasing

Step 4—Ongoing subsidies
              Ongoing tax abatements and credits
              Ongoing reduction in capital costs