During tough economic times, how can state and local development agencies promote economic growth? Despite the current economic downturn and enormous budget deficits, economic development incentives remain important tools for communities to attract and retain growing businesses.
These incentives are by no means giveaway programs. They are investments that generate positive economic returns by creating jobs and generating new tax revenue. Incentives are often performance-based, and companies must reach job and investment goals in order to receive benefits.
What types of economic development incentives are state and local development agencies using to attract and retain businesses? The following are some key examples.
Disaster Relief Bonds
Disaster Relief Bonds are a new category of tax-exempt bonds that must be issued in any of the 40 Indiana counties that were declared disaster areas in 2008. The total value of the bonds in Indiana is limited to $3 billion, and must be issued before January 1, 2013.
Disaster Relief Bonds are not subject to the normal volume cap for private activity bonds. Several types of commercial enterprises are also eligible for Disaster Bonds that would typically not qualify for tax-exempt financing. However, privately owned projects must have suffered a weather-related loss, or replace a project that suffered such a loss. Bond proceeds may be used to finance the acquisition, construction or renovation of non-residential property. Please contact us for the complete list of eligible counties.
Tax Increment Financing
Tax Increment Financing (TIF) is a mechanism used by local governments to capture property taxes created by increased assessed value from new development in a designated area. TIF may be used to finance infrastructure improvements and other incentives for private development in the area.
Industrial Development Grant Fund
This grant program provides money to local governments for off-site infrastructure projects that expand an existing Indiana company or that assist an out-of-state company with expansion into Indiana. State funding through this program must be matched by a combination of local government and company financial support.
New Markets Tax Credits
New Markets Tax Credits program (NMTC) is a federal treasury department program to provide tax incentives for private-sector business investments, as well as real estate development in low-income communities. The program, created in 2000, was recently expanded through the Recovery Act of 2009. NMTC can be used to help finance commercial, industrial, retail and other real estate developments. NMTC is complex, yet the benefits can be substantial.
Economic Development for a Growing Economy (EDGE) Tax Credit
The EDGE program provides refundable tax credits to companies that create jobs and contribute to the growth of Indiana’s economy. EDGE credits are calculated as a percentage of payroll tax withholding for net new jobs, and may be awarded for up to ten years.
Skills Enhancement Fund (SEF)
The SEF provides grants to companies that reimburse a portion of eligible training costs over a two-year term. Eligible training expenses include instruction, travel and material and supply costs.
Property Tax Abatements
Local communities have the option to offer property tax abatements on certain real and personal property as an incentive to new and expanding businesses. Property tax abatement allows the property owner to phase in payment of property taxes over a period of up to ten years. Eligible personal property includes new manufacturing, logistics, IT and R&D equipment.
Just as companies invest in facilities, equipment and employees, communities invest in projects by providing incentives to attract growing businesses. And in a successful project, everyone wins – the community, its citizens and the businesses.
Please contact the attorneys of the Government Department at Bingham McHale or FairWinds Advisors to learn more about these and other programs that may be available to assist your community or business.
By Jay Walters, President, FairWinds Advisors
Published: Bingham McHale Newsletter
Presented at Indiana Manufacturer’s Association Seminar 9/22/2010