We are in truly unprecedented times both economically and culturally. In the span of one week the S&P 500 suffered its largest loss in one day since 1987 and its largest gain in one day since 1933. We entered a bear market two weeks ago only to have it turn into a bull market by week’s end. According to the US Department of Labor, in the week ending March 28, the advance figure for seasonally adjusted initial claims was 6,648,000, an increase of 3,341,000 from the previous week’s revised level. According to a story in the Washington Post this surpassed the previous high of unemployment claims of 695,000 in 1982. The unemployment claims were the first time in 113 months that companies didn’t add jobs over the previous month.
In economic development we are charged with helping our existing businesses grow and attract new business and along the way assist in retaining and creating new jobs. In order to achieve these goals, we often use economic development incentives to encourage growth and allow projects to move forward that would not otherwise occur. As economic development professionals we work with our elected officials to offer and approve tax abatements, tax credits, grants and loans for worthy economic development projects. All of these programs come with requirements that the business must commit to in order to get the economic development incentives: job creation, job retention, payroll, and capital investment.
In these unprecedented economic times businesses are scrambling to keep their employees working, keep products flowing, manage cash flow and revenues, and try to keep the business afloat until the uncertainty ends. The state of Ohio and most communities in Ohio have a reporting deadline of March 31, 2020 to report jobs and capital investment data related to these economic development incentives. We won’t see the effects of the COVID-19 pandemic in these numbers. It is likely that companies will begin contacting communities and the stat in the 3rd quarter of this year with jobs and capital investment updates as they understand the full impact of the pandemic on their business.
From a public policy perspective communities and states will have several options to deal with missed commitment for new jobs, retained and capital investment:
⦁ Reduce job and capital investment commitments without reducing the incentive level.
⦁ Adjust the timeframe that companies have to meet job and capital investment commitments without adjusting the incentive level. This should be based on the time the company needs to adjust to a post-COVID-19 world.
⦁ Reduce the job and capital investment commitments and reduce the incentive level.
⦁ Cancel the economic development incentives if the company will not able to meet job and capital investment commitments.
⦁ Put the reporting and commitments on hold for one to two years without reducing or adjusting incentive levels.
There are plenty of unknowns as we move through this crisis. Some early estimates have the economic crisis and fallout lasting for 18-24 months. As economic development professionals we need to take these economic considerations into perspective while weighing the public policy implications. We need to offer support to the businesses that help our communities grow and understand that there will be long-term economic damage to our economy from the pandemic. In the near term we will need to deal with these existing economic development incentive agreements and how they impact each business. In the long term we need to be prepared and put plans in place to adequately assist our business partners as we exit the pandemic economy, adjust our communities and states to be prepared for the next disaster, and ensure the economic health of our communities and states are supported by sound incentive programs.