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How to Stay on Top of Incentive Compliance in 2023 and Beyond

Azad Khan offers tips on managing incentive compliance, the often overlooked, but critical component, of site selection & economic development

  • News, Client Alerts
  • January 05, 2023

Rebounding from the effects of COVID-19, 2022 was an exceptional year in economic development and site selection for countless communities and companies across the nation. Billion-dollar greenfield site selection projects were commonplace, the automotive industry continued its rapid shift to electrification, unprecedented real estate demand continued to drive speculative construction, and supply chain constraints spurred companies to reshore operations. Many of these ubiquitous site selection and economic development trends impacted project activity in 2022. As we reflect on the successes of 2022 and look forward to 2023, Azad Khan offers tips on how to manage incentive compliance, the often overlooked, but critical component, of site selection & economic development.

Corporate Incentive Compliance

More often than not, corporate location decision-makers are C-suite executives focused on major business decisions, such as where to locate a new corporate office, warehouse, production facility, etc. The task of implementing location decisions is frequently relegated to other business professionals that may, or may not, have participated in the site selection process. As a result, state and local incentive offerings, which in some cases can be awarded years before a new facility becomes operational, are neglected or never claimed. The many compliance-related tasks that accompany state and local incentives (i.e. reporting obligations, corporate filing requirements, program fees, etc.) are left unattended by those either unaware or unfamiliar with incentive compliance requirements.

Corporate incentive compliance is necessary to ensure the realization of incentive awards, minimize or avoid clawbacks, repayment or forfeiture of incentives, and maximize the value of the incentive benefits when possible. Failure to comply with incentive programs can also turn into a public relations nightmare, particularly when government subsidy watchdog organizations or economic development organizations bring compliance violations to light.

How can C-suite executives and corporations avoid incentive compliance pitfalls?

  1. Delegate responsibility for incentive compliance to an internal team of cross-functional professionals.
  2. Establish and implement processes to ensure incentive-related timelines, deadlines and reporting obligations are mapped out and monitored regularly.
  3. Seek training from incentive awarding agencies for internal teams responsible for maintaining incentive compliance or engage an experienced consultant well-versed in incentive compliance.

Government Incentive Compliance

Corporations are not alone in their struggles with incentive compliance. Incentive-awarding governments and economic development organizations are routinely criticized for the magnitude of incentive offerings, failing to ensure corporations meet the contractual commitments under which the incentive offerings were based, and occasionally failing to correctly administer incentive awards.

Incentive compliance from the government’s perspective is multifaceted and arguably more challenging compared to corporate incentive compliance. Governments are tasked with monitoring compliance for dozens, hundreds and sometimes thousands of companies. Governments must abide by Governmental Accounting Standards Board (“GASB”) Statement No. 77, which, among other things, requires the disclosure of tax abatements in governmental financial statements. Government officials that establish, negotiate and approve incentive awards are not the same employees charged with monitoring company performance or fulfilling the government’s obligations under the awarded incentives.

Adding to the challenge and importance of governmental incentive compliance is recent pressure from elected officials and the general public demanding increased transparency and accountability around state and local incentives practices. At least one state has gone so far as to enact legislation requiring a company’s contractors to disclose specific employment information specifically for one very large project. Governments and economic development organizations must find a balance between protecting confidential company/project information and keeping the public informed of its incentive-awarding and compliance policies.

How can governments streamline incentive compliance, avoid non-compliance issues and meet transparency and accountability goals?

  1. Simplify corporate compliance requirements. To the extent possible, without foregoing critical information needs, simplify corporate compliance by relying on information or data companies are already producing as part of their existing regulatory compliance efforts, rather than instituting new/additional compliance responsibilities.
  2. Routinely evaluate incentive programs, incentive-related written materials, program manuals, resources, etc. to identify ways to improve compliance initiatives.  
  3. Offer incentive compliance training to companies participating in incentive programs and make some form of corporate participation in compliance training sessions mandatory.

Incentive-granting governments and economic development organizations should be readily able to answer “are companies that have been awarded incentives meeting the performance requirements of the incentives?” and also “are we in compliance with the incentive agreements?” As part of our public incentive compliance engagements, we encounter situations where incentive-granting organizations have over-delivered (and also, on several occasions, underdelivered) incentive offerings.

Incentive compliance doesn’t have to be a burden. Planning, sound policy/practices and teamwork can make incentive compliance a breeze and hopefully lead to the positive outcomes intended by state and local incentives.

Parker Poe Consulting is a corporate site selection and economic incentives consulting firm. The Parker Poe Consulting team provides site selection services to find data-driven solutions for clients who are expanding their footprints and considering new capital investments and job creation. Parker Poe Consulting also provides economic incentives consulting services to growing companies, helping clients navigate and negotiate incentives for economic development projects. From global conglomerates to family-owned businesses, Parker Poe Consulting positions companies to make informed project decisions that will maximize operational effectiveness while reducing costs.