If anyone thinks the states of our country are not united, the New York Times has coined a term that suggests otherwise: “The United States of Subsidy” . The Times is referring to the subsidies, often referred to as government incentives, that are currently being offered by all levels of government to companies across the nation in order to attract business to their jurisdiction and to stimulate investment.
These incentives are booming. There are over 87,000 government municipalities across America, and every one uses a different strategy to decide how to give out their incentives. This multi-billion dollar field is becoming an increasing complex puzzle being addressed at both the C-level and by top elected officials.
But up until recent years, the incentives field did not receive the type of attention received by other verticals with a similar impact. The media were not focused on it, corporations did not have departments and teams dedicated to it, and tech companies were not building software specifically for it. On the public side, as the Times reports, there has been little to no public accounting for government incentives. As the incentives market became increasingly powerful and complex, and yet remained under the radar in terms of analysis, the Times conducted a 10-month investigation of business incentives awarded by hundreds of cities, counties and states.
Their comprehensive report, which can be seen here, estimates that governments provided approximately $80.4 billion in incentives in 2012, a number that has only grown larger since then. This New York Times article shows the incentives budget for each state, and exactly how they much money they spent in their effort to woo corporations. Texas, for example, gave out the most incentives of any state with $19.1 billion. How significant in this sum? It amounts to approximately $759 per capita in Texas, and 51 cents per dollar of the state budget!
The top three recipients in Texas were Amazon at $272M, Samsung at $232M, and Anadarko Petroleum at $17M. The largest expenditures were in sales tax refunds, property tax abatement, and corporate income tax credit. The top receiving industries were manufacturing, agriculture, and technology. So much money was given out in Texas that constituents questioned the program, and the New York Times reported that Lines Blur as Texas Gives Industries a Bonanza.
California gave the fourth most in incentives with $4.17 billion dollars, and the top three recipient industries were agriculture, film, and technology. How does each government decide which industries and companies to choose? Governments do not publish their criteria, but it is clear that they focus on many different industries, and that opportunity exists for a wide variety of companies in this new world of incentives.
All this money in government incentives creates a huge motivation for companies to try to win their share of this windfall. But it’s a lot easier said than done. Corporations are faced with the challenge of managing all of the incentives data relating to all the options, as well as garnering effective communication among all the stakeholders within different departments and accessing the necessary metrics to make the right strategic decisions. This is a big challenge and any competitive advantage gained is money to the bottom line.
Another thing is evident: anything that requires a ten-month investigation by the New York Times is tremendously complex and important. Government incentives have mushroomed into a growing multi-billion dollar industry that is on the upswing.