While the current health and ensuing economic crisis is unprecedented, we have learned lessons from other major events in U.S. history such as the Los Angeles riots, 9/11, and The Great Recession to help frame potential outcomes as we emerge from COVID-19. The effect on business operations could push companies into incentive non-compliance, creating additional stress relative to potential benefit reductions or recaptures.
This uncertainty looms for companies that established economic incentives pre-COVID-19, as some may be in the midst of compliance reporting or aiming to meet performance goals and requirements. Further, many incentive agreements contain business terms that allow for deferral or reduction of requirements, waiver of penalties, or defaults. For those agreements that do not, the public sector participant may be willing to discuss and provide relief. This could mean that companies would be able to avoid or mitigate the negative incentive ramifications of business pullbacks related to the crisis.
As each state and local government works through this situation, what can companies anticipate for ongoing projects and future incentive agreements?
Today
What to expect for a current project?
- Reset/Renegotiate
As companies recalibrate expectations, this is a good time to press the reset button, redefine the project, and set attainable standards.
- Extensions
Approval process steps and due dates will likely be pushed back to accommodate the disruption.
- Virtual Public Meetings
Due to health concerns, most states are waiving in-person public meetings and utilizing technology to conduct business.
0 – 18 months from now
What to expect if your business is impacted?
- Re-Prioritization of Uncommitted Funds
As state and local governments adjust to immediate funding needs and fiscal impact of COVID-19, expect potential shifting of uncommitted monies in and out of incentive programs.
- Reset/Renegotiate
Public sector participants may consider opportunities to renegotiate or reset benefits and requirements on a case-by-case basis.
- Extensions
We expect case-by-case or program specific extensions for compliance reporting, similar to the federal extensions for income tax filings.
- Performance Waivers
Prepare to see waivers or consideration of force majeure provisions with respect to job, investment, and other performance commitments.
Long-term
What to expect once the volatility decreases?
- Relaxed Eligibility
As communities are suddenly faced with unemployment and reduced fiscal revenue, smaller but solid projects could be sought by public sectors. This may lead to increased competition in “border wars” and reduced minimum standards (i.e. wage, job, investment hurdles).
- Location-based Incentives
Hard hit areas might increase incentives and reduce requirements in order to drive new business. Remediation incentives such as benefits for decontamination, redevelopment, adaptive reuse, or demolition of affected properties are possible.
- Industry Focus
There’s a possibility for public sectors to pursue industries less impacted by the crisis such as Food & Beverage, Life Sciences, Packaging and eCommerce. Impacted industries like Travel, Entertainment and Retail could also receive special attention.
- Creative Monetization Options
While cash is king, states may be hard-pressed for funding. Circular funded programs such as rebates, credits, payroll, and property taxes would likely gain the most traction. Income tax credits that were once hard to use may become transferable or salable to other taxpayers, providing cash value through the open market.
- Policy Shifting or Doubling Down
In the past, we’ve seen local government take one of two approaches. The first approach may be blaming past policy and reversing the course. The second approach may be to double down on prior policies in hopes to replicate past success.
- Retention
During periods of retooling, consolidation and downsizing, communities will be eager to defend existing business. This increases potential for retention or smaller job growth projects.
Amid the uncertainty, Cushman & Wakefield’s Business Incentives Practice (BIP) professionals are continuing to advise and work with companies to develop tax and business assessments, engage state and local officials, negotiate to ensure all benefits are secured, file necessary reports, and monitor terms for compliance. Our goal is singular. Reduce your total real estate cost with the shortest, clearest path to financial success.
While each companies’ situation will vary on a state-by-state basis, proactive planning and renegotiating will help prepare our clients for what’s next.
Learn more about our Business Incentives Practice (BIP)