6 New Ways for Tech Companies to Think About—and Win—Government Incentives

March 2020
Jenny Tieu

Ever since Amazon’s highly publicized HQ2 search and other prominent, controversial deals like Foxconn’s $3 billion incentive package from Wisconsin, business incentives have become a heated point of debate across the country.

How has the incentive landscape changed since these deals? And can economic incentives still benefit technology companies looking to expand in other cities? Here’s what you need to know about business incentives today and what you can do to secure them for your company.

What You Need to Know About Incentives

City and state governments have provided tax incentives and grants to companies since as early as 1791, and they can be a powerful tool to encourage companies to invest in communities. The way these programs generally work is the government grants cash or tax breaks to businesses in exchange for creating new jobs or other types of investments.

Most projects don’t come close to the size of the Amazon and Foxconn mega deals, and despite their attention and controversy in the media over the past few years, incentive deals are still regularly supported by governments.

While incentives aren’t the primary reason for companies to expand in a new location, business leaders shouldn’t overlook their potential financial impact.

Companies can procure incentives with the expansion, relocation, or retention of fewer than a couple of hundred employees. Governments will support companies in different ways, but these are the three most common incentive categories:

  1. Cash Grants: Typically discretionary funds given to companies for job creation over a set amount of years.
  2. Tax Incentives: Can be used to reduce or limit a company’s tax liabilities. These can come in tax credits (common with states that have income or payroll tax) or tax abatements/rebates (common for local cities with business personal or property taxes), R&D tax credits, or even sales tax exemptions.
  3. Training or Workforce Funds: Funds for customizable training or to develop a curriculum to upskill employees to the needs of a company. Funds can be used for training new and sometimes existing employees.

How Incentive Programs Have Changed

Due to the recent controversial deals like Amazon and Foxconn and the country’s 10-year economic expansion, city and state governments have now become more selective in how they grant incentives and benefits to companies. Many policy makers share the sentiment expressed by Lieutenant Governor of Utah, Spencer Cox, who has called for a comprehensive overhaul of incentive programs in his home state.

While most local, regional, and state governments haven’t pulled away from supporting businesses, they have increased their criteria and reporting requirements.

Many incentive programs are now gearing towards a certain company profile or industry that aligns with the community’s strategic goals. Governments might request more financial information or give priority to companies hiring a certain demographic, such as veterans or students. The overall process is more competitive, and requires companies to be more transparent and assure a strong return on investment for government funds.

What You Can Do to Secure Incentives

While governments still provide incentives, the process is often confusing. Each incentive program has its own criteria, application, approval process, and procedure—some incentive decisions can take as long as 4 months while others take only 4 weeks—which means companies often don’t allow enough time, losing out on significant savings.

Here are six things you can do to help your company secure an incentive package:

  1. Prepare Your Company Data: Make sure your company evaluates its job projections, annual wages, and capital investment of the project. Typically, the higher the investment and job creation the more likely your business will qualify and be awarded incentives.
  2. Create an RFI: A Request for Information will help you evaluate the potential amount of support available to your company. Some communities have more resources and are more aggressive in granting larger incentive deals. However, you’ll need to actually engage in the process with each community in order to determine what’s available.
  3. Nail Your Positioning: How you position your business and the project impact is important and can boost a community’s support and willingness to incentivize for your company. Determine what unique aspect your company will bring to a community. Will you be among the first tech companies there? Is your company known for giving back to the community?
  4. Assess Your Incentive Options: Many companies don’t realize that certain incentive packages may not provide any benefit to their bottom line. For example, if your company isn’t generating profit yet, an income tax credit won’t be as beneficial as a cash grant to your company’s operation.
  5. Evaluate the Costs: All incentives require compliance and reporting to maintain the benefit. Companies often overlook this part, so be sure that the time and cost won’t outweigh the incentives’ benefits.
  6. Engage the Community: As your company engages with the city or state during the incentive process, take advantage of opportunities to meet with local stakeholders and explore additional local resources. Strategic partnerships with universities, peer companies, tech accelerators, workforce organizations, and tech councils can help you find talent and generally boost your company’s success in the community.

While incentives aren’t the primary reason for companies to expand in a new location, business leaders shouldn’t overlook their potential financial impacts.

For companies planning to hire at least 75 new employees, evaluating multiple office locations, and interested in procuring savings through economic incentives, it’s worthwhile to engage an outside consultant to help navigate the complicated process. Incentive experts can help you evaluate different programs and maximize your award based on your company and project scope.

Interested in learning how we’ve saved millions of dollars for our clients through incentive packages? Send me a note at jenny@t3advisors.com.