A World without Economic Development Incentives?

Community and Economic Development – Blog by UNC School of Government

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A World without Economic Development Incentives?

By Jonathan Morgan

Published June 2, 2010

Jonathan Morgan is a School of Government faculty member.

In May 2010, American Express chose Guilford County as the location for a new $400 million data storage center that will initially employ about 50 people, but could eventually grow to 150 workers.  Local officials and economic developers were pleasantly surprised that the company decided to locate what will be two new facilities in Guilford County without asking for a dime in incentives.  It had been assumed that up to $13 million in incentives from the City of Greensboro and Guilford County might be required to close the deal, but no incentive dollars were requested and none were offered.

Does the fact that American Express picked Guilford County with no incentives being put on the table to sway the decision signal the beginning of the end of incentives as we know them?  Could this be the start of a trend in which an increasing number of companies will forgo incentives when making decisions about where to locate new corporate facilities?

While some observers will point to the American Express decision as a game changer with respect to incentives, a closer examination of the project reveals some nuances that must be taken into account.  First, American Express has operated a major customer service center in Greensboro since 1985 that currently employs 2,000 people.   Therefore, it has established some local ties within the community.  So, adding a new data center in a place where the company has done business for years is a decision that may not have required any financial inducements.  American Express is already familiar with the total package of what the area has to offer in terms of its business environment, workforce, quality of life amenities, physical infrastructure, and the like.  For data centers, access to a consistent and large supply of electric power with minimal threat from natural disasters is an essential factor that gives locations throughout the Piedmont Triad an advantage.   A second possibility is that American Express declined to request incentives in order to avoid the public scrutiny that would ensue, thereby minimizing any security concerns related to the planning for and construction of a facility that will store sensitive personal and financial information.

These project details make me less confident that we are seeing the start of a major trend.  But, they do suggest that public officials need to carefully examine the specific contextual elements of individual projects in order to make good decisions about when incentives may be warranted—or not.