Foundation capital

The driving force behind economic incentives

The type of industry, the foundation of the four pillars of economic development (location, timing, investment and jobs), is often the primary determinant of a project’s eligibility for economic credits and incentives. Industry type refers to the primary function of the business.

In many states, economic credit and incentive programs include a list of specific North American Industry Classification System codes to determine who can apply for incentives. Businesses that are not recognized by specific NAICS codes are often ineligible for programs. Although a program may limit requests to specific NAICS codes, not all programs do so. Therefore, coordination with a credits and incentives expert is essential to assess customer benefits early in the decision-making process.

Industries that are often courted by economic credits and incentive programs include manufacturing, corporate or global headquarters, and technology research and development, primarily because these industries are seen as good candidates to become major employers. and sources of new capital for the community. Businesses that fit these terms produce a good (or service) and ship that good or service across state and local borders to bring net new investment back into the community.

Manufacturing companies have always been the darling of economic development programs because they meet these criteria perfectly. A maker often becomes a primary employer, creating a widget that they sell to another business (outside the host community’s boundaries), with the profits going to the host community. New money and new jobs have positive tax implications for the host community.

In addition to satisfying primary employer status, manufacturing enterprises, head offices, and R&D-oriented enterprises have always maintained high salaries, high skills, and large investments. Manufacturers often require advanced skills and training, which increases the overall average hourly rate of employees and typically make large investments in machinery and equipment. Corporate and R&D projects include high salaries and highly skilled workers and are often closely tied to similar companies in the supply chain – both upstream and downstream – that may be drawn into the community in the future .

What about companies that don’t fall under these industry types? Well, that depends. For example, the logistics and distribution industry has seen tremendous success and growth across the country. These types of projects often require large buildings, but they have also historically paid lower wages, rented and not owned their buildings, and made less capital investment than the other industries mentioned. Some states are supporting logistics and distribution projects while others are beginning to scale back their support for these types of projects, especially if the business fits more into an e-commerce (direct-to-consumer) role.

Retail operations that interact directly with consumers generally do not receive support in the form of economic credits and incentives. These businesses primarily support the local community, but do not bring in additional investment or stimulate the growth of other major employers. Their salaries and skills are generally lower. Although retail plays a vital role in the local economy, it does not provide value to the wider community and is rarely supported by credit and economic incentives.

Other types of industries can make large investments and create large numbers of jobs, but they still fall into a gray area with economic credits and incentive programs. These can be large-scale commercial developments, healthcare facilities, service-oriented or business-skills businesses, and call centers. States and local authorities have a variable appetite for this type of project.

The discretionary nature of economic credits and incentive programs can be confusing, frustrating and even intimidating. When considering the timing and location of a client’s growth project as well as estimated new investment and headcount, take the time to research if and where the client’s industry type qualifies them for credit programs economics and incentives.