United States: Considering A Move? Consider Financial Incentives As Well

With the automotive sector continuing to hum along and economy growing at brisk pace, auto suppliers are always looking for business growth (or maintenance) opportunities. This may come in the form of relocating to a different area to be closer to a key customer or expanding current facilities to meet growing demands.
 
Often, when expanding or changing footprint, suppliers are particularly focused on timing in addition to the location. Although moving into a new space within the planned timeframe is certainly important, it is typically a costly process that involves significant financial risk. As such, suppliers should be careful to not be so focused on the planned timeframe, that they leave money on the table in the form of valuable financial incentives.
 
Instead, at the outset of a new project, in addition to the more obvious considerations, suppliers should be thinking about what incentives are available to help maximize the project’s potential profits. After all, identifying and negotiating the right combination of financial incentive programs early on in the process will no doubt help suppliers eliminate or recoup some of the substantial investment costs that come with expanding or adding a facility.
 
So, when considering the next move in the due diligence process, suppliers should be asking themselves: “Can we receive reimbursements from the city or state to offset our costs?” The answer could be yes. But, suppliers should not stop there. If a supplier has more than one geographic location as an option, it should determine whether other municipalities have better programs available for its particular needs, as incentives come in a variety of forms, such as tax abatements, grants and tax increment funding, each being a specific "tool" for a particular "job."

Assessing the availability of financial incentives early on is monetarily important, but it also may help minimize the various commitments that state and local governments request of the supplier. Incentive packages are a two-way deal, and state and local government often impose obligations or conditions on the supplier’s ability to receive and keep the full incentive package. These can range from specific job creation obligations, including creation of specific quantities and types of jobs within certain time constraints, to compliance with detailed project development timelines.
 
Suppliers should keep in mind their development will benefit local communities, and the local benefit will always be part of the equation. The supplier’s state and local level contacts will want to know what type of project it is, how much the supplier is investing and how many jobs will be created. Certainly, the more a supplier is "bringing to the table" for the community, the more likely it is to drum up local support for a generous incentive package. But, even if a project is relatively small in scale or less "splashy" than others, suppliers shouldn’t let that deter them from pursuing financial incentives, as the project might still involve significant costs that could still be eligible for incentives. No matter the size or complexity of a project, it is always worth considering whether incentives are available to help offset associated costs. 
 
Another important consideration when determining availability of financial incentives may not be so obvious. While suppliers will certainly be focused on what works for their business, employees, and supply chain, they also should consider the role of the property itself because incentives may favor certain properties over others. For example, brownfield tax increment incentives may reimburse you for certain costs, such as demolition, site preparation and asbestos abatement that you may not incur if your project were on a "greenfield." In other words, the old adage of "location, location, location" holds true when determining incentives. Because of the benefits to their communities, local and state economic development departments are often eager to support automotive suppliers in obtaining incentive packages, particularly if the project involves redevelopment of brownfield properties. 
 
As you consider where best to expand your business, be sure to assess at the very beginning how financial incentives fit into the picture.

This article is reprinted with permission from Warner Norcross & Judd LLP. This article is not intended as legal advice. For additional information, please contact the author of this article.