Rethinking Municipal Incentives

Municipal incentives are controversial. Critics argue they're corporate welfare that diverts resources from public services. Proponents argue they're essential tools for economic development. Both are right—depending on how incentives are used.

The problem isn't incentives themselves. It's the lack of rigor in how they're designed, negotiated, and evaluated.

Most municipalities approach incentives backwards. A developer or company requests incentives, and the city scrambles to justify whatever is being asked for. This reactive posture leads to giving away more than necessary to attract projects that would have happened anyway.

A better approach starts with clarity about what you're trying to achieve. What types of development does the community want? What gaps exist in the local economy? What would genuinely require incentives versus what would happen regardless?

With clear goals, you can design incentive programs that target specific outcomes rather than respond to whatever requests come through the door. This shifts the dynamic from reactive to proactive—you're inviting proposals that meet your criteria rather than evaluating whatever shows up.

Performance requirements are essential. Incentives should be contingent on actual outcomes, not promises. Jobs created, wages paid, investment made—these should be verified before incentives are delivered. Clawback provisions for unmet commitments should be standard.

Finally, every incentive should be evaluated after the fact. Did the project deliver what was promised? What was the actual return on the public investment? This data should inform future decisions, creating a feedback loop that improves incentive programs over time.

Used well, incentives can catalyze development that wouldn't otherwise occur. Used poorly, they subsidize development that would have happened anyway while starving other public priorities. The difference is entirely in the implementation.