So, you’ve heard about tax incentives and would like to explore how your business could benefit from these government programs?

Well, here is a simplified guide to help you prepare.

Point one: Oftentimes, people and businesses believe that incentives are provided in the form of cash. They are not. Typically:

1) Programs freeze tax rates of a building so that developer-paid improvements are not taxed for a certain amount of time.

2) Business/developer is reimbursed for their upfront development costs, over a number of years, for property improvements.

3) Taxes are cut in half or eliminated on new machinery and equipment purchases.

4) In limited instances, the state can award tax credits on new revenue generated by a project.

In other words, you should first ask yourself: Do I have money to make an investment that will improve a property or will be used to buy equipment that will lead to job creation? If yes, this is typically a trigger point to engage a municipal economic development organization about incentives.

Point two: Different kinds of municipalities offer different kinds of incentives. Core communities (in our region that is Lansing, East Lansing and the county seats) can offer a much wider array of incentives than non-core communities. In particular, when a project involves real estate, core communities have a lot to offer including how a brownfield site qualifies (blight and functional obsolescence is added to contamination as a qualifying factor). There is also the Obsolete Property Rehabilitation Act (OPRA) which allows for a current building’s taxes to be frozen while improvements are not taxed (other than school mills). These are just two core community tool examples. From a business standpoint, non-core communities can offer 50 percent tax abatements on industrial machinery and equipment while core communities can go to 100 percent.

Urban areas have access to these special tools because, generally speaking, their sites have extraordinary liabilities such as contamination and/or blight issues as well as aged and obsolete infrastructure. In fact, core community tools are about the only semblance of an actual urban policy that has existed in the state, somewhat leveling the playing field between brownfield and greenfield sites (remember the cost to the public sector for new infrastructure to accommodate sprawl development). Thus, core community tools are also excellent environmental, public budget and land use policies rolled into one effective policy.

And then there may be additional state incentives (credits or grants) which the local economic development agency can help you with at the Michigan Economic Development Corporation (MEDC). This would be true for core or non-core communities.

Point three: After you have determined that you have access to capital, that you have a place or places selected as choices for investment and that your business and your project are eligible for incentives, you must then hone your pro forma. If a financial gap exists, in part, this is what an incentive should fill.

Point four: Together, the economic development agency and you should also determine an overall public good; that is, how the project will improve the municipality with increased income taxes from new jobs and the value of improved property as well as intangibles that the business will bring to the community (suppliers, customers, a bright future for further key business growth, the physical improvement to the exterior of a site and more).

Point five: Be aware that this is a public process. Anything written between you and the economic development agency may very well be subject to scrutiny by the local press and citizenry, so take care with confidential financial records, trade secrets and other proprietary issues (this can be figured out in a legal and ethical way). On the other hand, you need to make your case in the public square as to why you need the incentives. You must be comfortable with a fairly open discussion about your plans and needs. You must also be ready and willing to participate in educational efforts with the community, which includes the use of press releases, press conferences, ribbon cuttings, public hearing appearances and so forth.

Finally, you are going to have to be prepared for criticism by some members of the public who disagree with the philosophy of incentives. Generally speaking, the public approval process of incentives can range from 30 days to 90 days.

Point six: Never begin your project until all incentives have been approved. Otherwise you have lost your “but for” and the project will no longer be eligible for approval.

Point seven: With an incentive comes an obligation. It is quite simple. Most agencies will require you to report annually as to the progress toward your goals spelled out in the incentive agreement. As an example, did you improve the property as agreed upon? Did you create the number of jobs through new investment? Once you have reached these goals, the reporting element to the project is closed, while the incentive will continue until its conclusion.

For some businesses and developers, the use of incentives is too public and too cumbersome. For many others, especially when you are dealing with an excellent economic development agency, the experience can be a real win-win for you and the community.

Incentives can be a powerful tool to help a business grow when appropriately implemented in an open and trustful partnership between the public and private sector. For further information please visit www.lansingedc.com.

		Bob Trezise is the President and CEO of the Lansing Economic Development Corporation (LEDC).