The ultimate market test of the impact of incentives is what they do to bond ratings. Little evidence is available to date that would indicate serious fiscal problems resulting from incentives misuse. These principles call for determining and deciding upon an acceptable rate of return, specifying outcomes and compensating the firm on performance, and requiring tight development agreements, which include clawback provisions. Furthermore, incentives are intended for situations where targets are understood, that is, where goals have been clearly specified. Most jurisdictions fail to tie their incentives to a well-considered strategic development plan.
Incentives are a tool for proactively shaping growth.
Deserved criticisms of their use frequently refer to cases where the jurisdiction is attempting to shoot anything that flies, claim anything that falls. Successful incentive programs also require regular evaluation and personnel training. Where impacts are poorly measured and evaluated, a jurisdiction deserves the wrath of the public and the media when it comes time for reelection, incentives budget requests or public acceptance of a package in support of a major new business coming to town. Since incentives are complex, and crafting development agreements are critical to the success of each package, routine staff and public official training is essential. Get its own fiscal house in order.