Incentives for the Future

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Incentives for the Future Moving Oklahomas Wind
Industry Forward
Norman, OK June 24, 2009 Ed McCallum, Senior
Principal
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MSC Introduction
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MSC Overview

• MSC specializes in site selection and incentive
  negotiation services
• MSC was established in July 2000 by Ed McCallum
  and Mark Sweeney
• MSC brings more than 50 years of combined
  location consulting experience to our clients
  worldwide
• MSC brings the most comprehensive use of
  Geographic Information Systems technology to bear
  on our projects
• MSC is committed to providing our clients with
  uncompromised service, conducting site selection
  and incentive negotiations with the highest
  standards of integrity

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MSC C.I.R.C.L.E. of Values

• Integrity
• Emphasis on communication, with an open process
  allowing our clients to know what we are doing
  and why
• Redirection of any and all location bonuses
  from communities or developers to the benefit of
  our clients
• Policy not to pursue or accept economic
  development assignments in locations that are, or
  may be, under consideration by our siting clients

• Customer Service
• Unrestricted commitment to our clients
• Active involvement in every project by senior
  principals Ed McCallum and Mark Sweeney
• Independence, allowing sole focus on our clients
  projects (not a platform to sell other services)

• Respect
• For the values of our clients, and the
  responsibility we have in representing them
• For the stewardship role states, provinces, and
  communities have as part of their efforts in
  attracting and retaining investment and
  employment
• For each other here at MSC, creating a supportive
  and collegial environment that thrives on the
  unique strengths we each bring to the company,
  and striving to balance the demands of our
  profession with the rewards of a personal life

• Excellence
• Maintaining the goal of MSC, as a company, to be
  the best in our business
• Creating and maintaining an operating environment
  based on the principles of continuous performance
  improvement
• Conducting our business with an unrestrained
  passion for quality

• Creativity
• Maintaining a broad knowledge of successful
  location strategies
• Emphasizing the promotion of new ideas and
  finding value in them
• Committing to an operating environment that
  fosters innovation and nurtures its development

• Leading-Edge Technology
• Maintaining in-house expertise in geographic
  information systems (GIS) technologies
• Supporting integration of GIS into all our
  assignments, exploring new ways to leverage its
  value for our clients
• Managing the technology as a powerful tool and
  avoiding the temptation to let it serve as a
  substitute for a sound and comprehensive site
  selection process

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Site Selection Experience
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MSC Clients
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Role of Incentives
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Phased Approach
Planning Phase
Phase I
Phase III
Phase II
Conception

Alignment / Criteria

Negotiations





Community Visits

Regional Analysis
Evaluation

Feasibility






Site Evaluation


Areas of Interest




Investment

Comparative Analyses
Site Due Diligence


Decision

RFP

Selection



Finalist Communities

Candidate
Announcement




Communities
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Basic Process
Candidate Locations

• Define Search Region
• - Center of Market Analysis

Regional Screening - Project Criteria (Musts
Wants) RFP Proposal Screening
Site Visits / Comparative Assessment
Cost Modeling / Incentives
Risk Analysis
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Comprehensive Assessment
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Needle Movers of a Project
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Role of Incentives in Economic Development

• Designed to support your development goals by
• Meeting the needs (and influencing the location
  decision) of companies
• Enhancing the strengths of your location
• Mitigating the weaknesses of your location

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Role of Incentives in Economic Development

• Part of overall economic development strategy
• Strategically designed incentives / policies
• Targeted incentives for targeted industries

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Role of Incentives in Economic Development and
Site Selection

• Designed to support your development goals by
• Meeting the needs (and influencing the location
  decision) of companies
• Enhancing the strengths of your location
• Mitigating the weaknesses of your location

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Role of Incentives for the Companys Site
Selection

• Part of the overall Net Present Value Analysis
  for an investment analysis.
• Used to address strategic issues to increase the
  companys competitive position in the market
  place.
• Designed to eliminate risks inherent to not only
  the location but for the existing business
  environment.
• May not even be necessary

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Types of Incentives

• Automatic
• If meet certain thresholds, then qualify
• Administrative effort
• Discretionary
• Granting organization negotiates
• Very effective, but potentially risky
• Combination
• Most effective

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Types of Incentives

• Incentives are important if and when
• They impact the prospects decision
• Reduce and/or eliminate risk
• Differentiate your location from the competition
• Generally, more important later in the decision
  process
• Can be quantified in dollars and sense

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Typical Incentive Evaluation
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Capital Costs

• Infrastructure
• Water-Sewer Extension
• Pretreatment Facilities
• Substation
• Site Development
• Training Equipment
• Facilities

• Grants
• Special Purpose Bonds
• Cash
• In Kind Contributions
• Land
• Sales Tax
• Machinery Equipment
• Construction Materials

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Operating Costs

• Income Tax Credits
• Job Creation
• Bond Debt Service
• Investment Tax Credits
• Property Tax Credits
• 5-25 year abatements
• Fee-in-lieu of Taxes
• Exemptions

• Utility Rates
• Contracts
• Economic Development Rates
• Finance
• Interest Rate Discounts
• Bond Financing(Tax Exempt Status)
• Training
• Retraining / upgrade
• Certifications
• Funding

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Example of Cost Analysis
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Example of Cost Analysis
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Example of Cost Analysis
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Incentives that Make an Impact
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Construction Project Schedule
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Example of Air Permit
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Training
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Cost of Project Delays
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Opportunity Cost Loss Impact
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Example of Potential Cost Penalty
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What can you do?
Investor/Company
Economic Dev. Agency

• De-bottleneck critical paths for permitting
• Customize training to client specifications
• Provide shovel-ready sites
• Expedite permitting by allowing contingency
  permits
• Deliver on incentives as promised

• Identify critical path request guarantees
• Require training performance metrics
• Assure sites are under control and developable
• Insist on phased permitting approach to allow
  continuous build
• Insist on a development agreement or MOU

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Other Considerations

• Traditional capital and operating cost incentives
  are important do not dismiss them.
• Performance is important and translates to
  dollars and cents.
• Make sure any bottlenecks or problems with
  execution are due to the client and not your
  bureaucracy.
• Tailored incentives according to the company and
  the industry provides a competitive advantage to
  both EDA and Company.
• Intangibles (trust, confidence, professionalism)
  have value do not dismiss them
• It is best if the objectives of the EDA and the
  Company are in full agreement
• An economic impact analysis makes good sense for
  both parties
• Play to win

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MSC Contact Information

• Ed McCallum
• Senior Principal
  
• emccallum_at_mccallumsweeney.com
• McCallum Sweeney Consulting
• 550 South Main Street, Suite 550
• Greenville, SC 29601
• 864-672-1600 (main)
• 864-672-1610 (fax)
• 864-553-7031 (direct)
• www.mccallumsweeney.com