Incentive based business attraction strategies are at the core of almost every local government’s economic development strategy but are they really worth the time and effort?

Business attraction efforts that heavily utilize incentives can create unnecessary competition between neighboring local governments. This can cause businesses to become loyal to a community for only as long as the incentives last. Businesses that are attracted to communities through incentives are rarely held accountable for the economic outcomes that were initially expected by the local government.

Instead of spending money on business attraction incentives with unpredictable outcomes local governments can consider using that money to create a generally attractive business climate in their community by streamlining permitting processes, offering community courses to build up a skilled workforce, and creating a more walkable downtown area.

Additionally, local governments can foster economic development within the community instead of focusing on outside business opportunities. Local governments can encourage members of the creative class along with young, highly educated professionals to remain in their community by providing high quality infrastructure, affordable housing, potential business sites, and neighborhoods with mixed land use. Local governments can also take stock of the businesses already present in their community and then nurture the creation of businesses to fill gaps in the business mix by creating community incentives. This is a great strategy because locally owned businesses build loyal followers and can help communities bounce back more quickly from recessions.  

If business attraction strategies are important for the economic development of your jurisdiction, then consider engaging in incentives negotiations with businesses thinking about moving to your community. This will allow your local government to consider businesses on a case by case basis and complete a cost benefit analysis instead of offering a one size fits all incentives that are usually based off inadequate evaluation.

For more resources on local government economic development strategies check out the links below and comment to add to the discussion!

• The article, “Incentives for Business Attraction and Retention” discusses types of incentives for attraction and retention, and how cost effective they are for local governments.
• The article, “Cluster-Based Economic Development Strategies” illustrates the benefits that clusters of competing and collaborating businesses can bring to a region.
• “Economic Development and Branding at the City/Regional Level” highlights how community branding can play a role in your local government’s economic development plan in this informative blog post. 
• The article, “Economic Development in Hard Times”  outlines five strategies for addressing economic development during a recession.
• “Community Based Entrepreneurship Development” is a  guide that focuses using community based economic development to revitalize a community in favor of traditional incentive based economic development strategies.
• “Role of Entrepreneurship and Innovation in Regional Economic Development” addresses entrepreneurship and developing local businesses at the regional level.

Robin Saywitz

ICMA Knowledge Network Intern

rsaywitz@icma.org