- Many businesses are deciding where to settle or grow based on financial incentives.
- There are several kinds of incentives, some of which are specially made to benefit a certain sized business or businesses in a certain industry.
- The final decision on where to settle or expand should take into account factors that aren’t purely about incentives, like the quality of a city’s neighborhoods.
Recently Amazon has been in the news for their search for a second headquarters. Two months ago it completed visits to the 20 cities in its finalist list. These 20 finalists have been narrowed down from 238 cities that applied to be the online giant’s second home. Going from over 200 cities to less than two dozen is a huge step, but just what attracts Amazon to one city over another and what should businesses be looking for when deciding where to settle?
Learning From the Best
It’s not all about big companies or Amazon, but understanding what other businesses look at when drafting proposals for cities is as helpful for other businesses as it is for the cities who want to attract them. In their proposal, Amazon mentioned financial incentives. While specific incentive options aren’t advocated for or against some of the incentives mentioned include tax credits or exemptions, relocation grants, and workforce grants.
Looking at the subsidies they received in other cities they did business in, a huge motivation were the more than $600 million they received from local government subsidies. These funds went towards things like building warehouses. They also received another $147 million in subsidies for their data centers. In addition to direct funds, Amazon has been able to avoid taxes with tax breaks in 16 states, helping them keep even more revenue.
Down to Earth
Most businesses aren’t as large as Amazon, in fact, readers may be small or medium sized business owners, so what should those business owners look for when choosing a city to settle down?
Some companies (like Amazon) look for a city culture that matches their own. This makes sense. To uphold company values making sure to do business with others in an atmosphere that is aligned with company beliefs and policies is beneficial. The culture of the city is also what keeps it alive and makes it the kind of place employees want to live in and work.
Cities that have already adopted a "culture" or "climate" for a certain business or industry should be studied closely. These cities are more likely to have incentives specifically geared towards the industries or businesses their city is known for. This may be especially interesting for companies looking to avoid the hype and high cost of cities that are already known as "boom towns" for a particular industry. Incentives for a particular industry could exist in a well connected, smaller city that is more affordable for business and employees.
Tax Credits and Grants
Tax credits can be a big help for any business, especially small or medium-sized businesses. Sometimes a small business credit is specifically available to companies with a certain number of employees or any business who hires certain groups. In the past, the IRS has provided special tax credits for any business that hired employees from certain groups like felons and veterans. Tax credits are also frequently provided for businesses depending on their function.
For instance, Kentucky has a Business Investment Program that includes income tax credits and wage assessments for agribusiness, manufacturing companies, and non-retail or tech-related companies that benefit the state. Grants are also especially helpful. Businesses should initially identify which cities offer grants related to their business side, scope or needs. For instance, some cities offer special grant programs to small business while others may provide grants for research and development in general or for businesses that operate in specific industries.
Cost of Operation
Another reason businesses may want to ditch the big cities is that small and mid-sized city has a lower cost of operation, increasing a company’s overall profit. Sometimes additional financial incentives are provided to expand brick and mortar locations as well. Memphis offers bonds for companies looking to finance the building or expansion of industrial facilities along with other state incentives. Their offers are especially welcoming for small businesses and Memphis is still much cheaper to live and operate in than bigger business cities.
The Big Picture
When choosing a new city to do business or expand in, businesses should look at the big picture, the picture that isn’t made visible by incentives alone. Identifying which cities are vying to become a significant hub for a particular business can ensure that the grants and other incentives available are suitable to a company’s business needs but looking for a city that is up-and-coming, as opposed to already "the next big thing" means that company may avoid paying the big bucks just to be situated in a place that has already taken off. Getting to a location before the cost of living and doing business has exploded would be ideal.
Looking at the atmosphere of the city is the rest of the picture that incentives, complement but do not replace. Building in a city that provides financial and structural support for successful business development is just as important as settling in a city where people want to live and where employees can find reasonably priced homes in safe neighborhoods.
This isn’t a linear process and the take off one business or a group of businesses can enhance a neighborhood, so that should be kept in mind. In the end, however, neighborhood surveys should be part of the deciding factors when looking to resettle.