Public Resources for Private Development: Evaluating the Need For Financial Assistance

The conversation around the value of public authorities providing financial assistance to private entities to encourage development is not going anywhere anytime soon, and it shouldn’t. Municipal governments across the United States have been strapped for cash for years, a trend that has been exacerbated in many places by COVID-19. It is only normal for constituents to question whether it is the best use of taxpayer money to provide assistance to companies to encourage them to locate in their community. There are many questions that community members have when assistance is being offered, including:

• What will the return on that investment be for my community?
• Does the company actually need the assistance or are they just milking the system?
• How does the financial assistance impact my property tax bill?
• Will the company just get the money and then run?
• I heard on Facebook that the company was going to use all the financial assistance to build a giant chocolate fountain for the breakroom, is that true?

While most of the questions being raised are good ones, it is more important than ever for public authorities and those providing financial assistance to ensure and demonstrate that the public resources are being protected. Projects of all shapes, sizes, and locations are being scrutinized more than ever, especially as the country comes out of the pandemic with many municipal governments having taken a hit over the last year in terms of revenues received.

The development regulations and tax policies that are put in place with, hopefully, good intentions, can make it difficult for certain types of projects to be built without financial assistance. Projects like market and affordable housing are two that we have seen be extremely in-demand (housing crisis, anyone?) but for which the finances don’t always make sense for a developer to take the risk. Economic developers are recognizing the connection between housing, workforce, and economic development and see that housing projects are indeed economic drivers but that they often are in need of financial assistance in order to close the gap and make the project financially feasible.

Even once the need for financial assistance is identified and the desire by the community for the project is confirmed, there still remain a series of questions that are a good idea for economic developers to be considering:

• What level of financial assistance is truly required for the developer to take the risk without being overly generous?
• What is the benefit to the community compared to the cost of foregone tax revenue?
• How can we ensure that the project and economic activity remain in the community long after the benefit has run out?

Conducting an analysis of the level of financial assistance needed as part of the overall review process can help economic developers and decision-makers feel more confident when questions arise from the public.

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