Mike Hickey to Present at Business Facilities LiveXchange

Business FacilitiesMike Hickey, President of Hickey & Associates, LLC, will be a speaker at the Business Facilities LiveXchange, taking place November 9-11, 2008 at the Hyatt Regency, Huntington Beach Resort in Huntington Beach, CA

Hickey’s presentation entitled ” Evaluating Public Financing Incentives:  Case Study Exercise” will focus on business incentives and if they are worth pursuing, and if so, how to manage the internal corporate process.

This is the fourth year Mike Hickey has been asked to be a presenter at the Business Facilities LiveXchange.

For more information, or if you would like to attend, please visit the LiveXchange website:www.bflivexchange.com

60 Seconds with Michael P. Hickey, founder and president of Hickey & Associates

bf logoMichael P. Hickey is the founder and president of Hickey & Associates, a consulting company headquartered in Minneapolis, MN, with four regional offices throughout the United States. Hickey is a site selection and public incentives expert who has spoken at numerous national conferences.

BF: You say that about 75% of financial incentives offered to relocating companies aren’t fully realized. What factors contribute to this high rate of incompletion?

Hickey: The lack of a centralized incentive management system for key corporate team members diminishes their ability to not only manage the incentives they have, but also limits future opportunities to reduce costs. The majority of incentives are never captured and lost permanently, often as a result of missing reporting requirements or sending in incomplete or incorrect data with their company reports.

Another primary reason is lack of planning on the company’s part. Company personnel often don’t understand the process of requesting incentives and the importance of being conservative in promising jobs and capital investments, which drive the value of incentives. As a result, they fall short of their required goals and lose out on the opportunities previously negotiated. However, with proper planning these mistakes can be avoided.

BF: Can you briefly describe your firm’s Public Incentive Management System (PIMS) and some of the benefits it offers to a relocating or expanding company?

Hickey: PIMS is a state-of-the-art, real- time incentive data management and document storage system developed exclusively for the corporate management team. The Web-based system is designed to ensure that the maximum dollar amount and value of incentives are received on a timely basis, and compliance requirements are continually met at the federal, state, and local levels during the life cycle of incentives.

PIMS eliminates 90% of the reporting burden. It offers a notification system that alerts users of impending incentive compliance issues. Important contracts and agreements can be uploaded, so as the corporate team changes, historical documents remain accessible. The corporate management team and field locations can easily access incentive data via real-time reports.

BF:What risks are companies taking if they fail to meet the requirements of their incentive agreements?

Hickey: Nothing positive comes out of lack of compliance, which often is a simple result of not completing reports accurately and when due. Clawbacks and/or discontinuance of incentives will happen without accurate reporting. Clawbacks often require full or prorated payback plus interest of incentives already received, while discontinuance involves programs, such as tax reductions and training grants, being made unavailable due to lack of compliance.

Unfortunately, when problems arise and paybacks or termination of benefits occur, it can become public through the media, which is never a good thing. In addition, the positive relationships developed over the years with public officials can be jeopardized. No one wins. The company’s brand is affected and the public entities are challenged on why they provided support to a risk situation.

BF:Are there any commonly offered incentives that companies should consider rejecting, and why?

Hickey: There are no bad incentives, but there are those of great value and those of no or too little value. It depends on the particular company in the particular community at a certain time.

A rule of thumb: reject any program that will require more administrative work and staff time than it’s worth. Some training programs are excellent while others are too burdensome with their requirements. For example, they may require too much confidential employee information, i.e., Social Security numbers and other sensitive information, or may even require that only public educational institution can provide training. The best programs provide cash to the business to do training with staff or proprietary training by vendors.

Again, depending on the situation, Industrial Revenue Bonds (IRB) can often be expensive, complicated, and bureaucratic. Also, state corporate income tax credits may be of little value depending on the liability of a company in a state. The bottom line is to always thoroughly evaluate all potential programs. There are no requirements that a company accept all of the programs being offered so it is critical to only choose the best and most effective.

Aerospace & Defense – Flying High While Well Grounded

coverAerospace & Defense Flying High While Well Grounded
Location Selection for a Very Specialized Industry
By: Michael P. Hickey

Trade & Industry Development Magazine
Site Selection – “”Taking Off””
Aerospace and Defense are often lumped together as one. For most companies in these fields, the two are almost synonymous, but not always. Some companies only specialize in commercial and private aircraft, while others, (defense) may provide only IT services, Homeland Security or logistical support to government agencies and military ground operations. But then again, ground support often requires close coordination with aircraft, satellites and ships. Most of the basic site requirements for these companies go hand in hand.

Many similarities exist for site needs of the industry. There are also some unique needs independent from one another. For example, the defense industry often requires the same skill and education levels of employees as commercial aerospace (i.e., engineers) but a key discriminator in defense-related work is the classified security clearances and the requirement of only employing American citizens.

Decision Factors

The matrix of key factors and a weighing/scoring system is the essential tool. (What looks like a good opportunity now, or on the surface, may not be the best choice going forward.)

Similarities – the basic essential minimum requirements to choosing the right site are: 

  •        Talent Availability – It is becoming increasingly difficult to hire and retain skilled talent. The communities that have the available talent infrastructure, or are located in a desirable geographic location where the right talent wants to live, have the advantage. Having the critical mass of talent is a key driver in looking at the first swath of communities. There are consultants and software databases to help lead a company to these locations.
  • Clustering – Communities, regions and states that have been able to cluster similar companies, along with suppliers and vendors in close proximity, have an advantage. These are communities one should always consider but be careful of oversaturation, particularly as it relates to talent availability. Supply and demand of labor drives the cost of securing and retaining the right talent. 
  • Educational Centers of Excellence – It is essential to locate in an area that has committed significant resources to higher education, research and development institutions and engineering schools, but also possess a strong K-12 school system, with ample internship and mentoring opportunities. It is generally accepted that if a younger person is not on the math/science track by fifth or sixth grade, they will not pursue engineering, science or math in the future. And as we all are too well aware, the U.S. is not graduating enough skilled workers. A critical challenge for the site team is to devote sufficient time to analyzing the educational awareness and opportunities in a given community or region. 
  • Cost of Doing Business – Not just start up or initial costs, but an analysis of the future expenses of locating in a particular community is critical. Tax structures, lease costs, wages, level of impact fees, and other community-related costs must be factored and fully vetted. In locations that have a strong legacy of industry participation, the existing workforce may add other challenges. Mature workers in the industry are working longer than 10 years ago. This is a good thing but can be expensive as older workers have higher seniority and are often grandfathered in the more expensive health care program. The availability of public incentives to offset start up and ongoing costs often makes a significant difference in the right location.

Companies are looking offshore. This creates a dilemma where only so many H1B VISAS are allowed (60,000 per year) and in the Defense industry “”only Americans need apply.”” In the commercial aerospace field, market global competition has become intense so the ability to deliver product on time at the lowest costs is critical to success. In the defense industry, the bidding for contracts often comes down to the best price at the best quality. (Defense cannot outsource for lower labor costs so this industry is at a disadvantage.) Companies with a strong commercial presence are at an advantage by potentially transferring savings from offshoring to reduce a bid for a defense contract. Incentives can make the difference in a successful bid and help a domestic firm win a commercial contract.

  • Infrastructure – Shovel-ready sites, existing buildings, roads, runways, sufficient power and good transportation networks are essential ingredients to the right location at the right cost. It is best to try to locate in an area that prioritizes the industry and has invested in not just adequate infrastructure, but sufficient infrastructure that can accommodate your future potential growth.
Community Planning

The communities will influence the priority industries that economic development groups ultimately attempt to recruit. Will they prioritize manufacturing, warehouse/distribution, assembly and/or aerospace/defense, or will the future priority be in the office or retail market?

It is essential to understand the community-planning model as an indicator of your company’s worth and value to the local political leaders. It is a delicate balance. Also, if priorities shift in a community, will there be sufficient infrastructure and other vital community resources?

Public Incentives Can Make the Difference

Many communities will offer incentives that may or may not add value to your operation. Always search for the ones that add to the bottom line and will reduce costs for the specific operation, or add revenue to accelerate your growth.

Communities will broadcast their “”As-of-Right”” incentives (more easily captured for job growth, wage rates, capital investments). They are readily available for the asking, but still require significant effort in completing applications, agreements, contracts and administration. They always require diligence in the ongoing tracking and administration, which is often spread out over years.

Discretionary Incentives – Not widely communicated nor advertised. They require sophisticated research and understanding on where they are and how they work. Remember there is a good reason they are called discretionary! These incentives require extensive and experienced negotiations, but at the end of the day, can be very lucrative. Often these become the biggest and have the greatest value.

Key Incentives to Pursue



  • Tax Credits – corporate income, property abatements, sales tax exemptions, impact fees reductions 
  • Special Designated Zones
  • Cash Grants
  • Training Grants
  • Reduced Energy Costs
  • Green Incentives
  • Expedited Permitting
  • Free or reduced land costs  
  • Creative leasing where the public owns and the company leases (thus avoiding property taxes)
  • Many creative local opportunities
Determine the right value incentives to your firm and renegotiate initial offers to meet your specific needs.

Lumping Apart – Or Are the Needs Really Different?

Aerospace is in defense and defense is in aerospace. However, aerospace can be standalone, by only producing commercial and private aircraft. Defense can be in many facets and involve support positions, without providing services to aerospace (planes, missiles, rockets, helicopters, etc.).

In defense-related businesses, locations for growth, expansion or a new site are many times determined by the customers. The Federal Government and the military dictate where to locate, often in a clustered environment with other similar support functions and contractors, or in close proximity to an existing military base. Remember, however, that with the continuous exponential growth of technology, more of the work can be accomplished in virtual remote locations (of course depending on the clearance level of employees and the security of the software interface technology).

Clustering of both industries is most often beneficial. Aerospace, near airports, vendors, suppliers, and a skilled workforce; and defense, where a conglomeration of contractors and subcontractors, with skilled and vetted personnel holding security clearances, can significantly reduce costs and enhance efficiencies.

Key Discriminators – Commercial Aerospace

Where are the best locations and how to pick them? First start with looking at legacy locations that have proven successful for your company or even for a competitor. However, keep your options open – there is a wide universe of locations. Timing and preparation are critical. Give yourself plenty of time to explore all parts of the country or globe. And prepare and understand the key requirements for success.

Starting with the Selection Team, (Real Estate, Human Capital, Finance, Tax, Legal, Public Relations/Government Affairs, Third Party Consultants, Site Selectors), make sure you are prepared to conduct the Macro Analysis. This consists of the broad overview of sites in identifying the general basic Factors and parameters, i.e., sufficient land, proper density/altitude ratings, existing structures, runways in close enough proximity to an airport, rail lines, educational excellence, etc. We call it the 40,000-foot view.

It all starts with the adequate and right infrastructure. We define it as both hard and soft infrastructure, those solid foundations that must be in place. The hard infrastructure is water, sewer, roads, power, etc. The soft is the available talent, education institutions, population growth, etc.

Micro Analysis

The next step is drilling down to the Micro Analysis (determining the Factors assigning weighing criteria and scoring the larger swath of areas.) The scoring will help determine the shorter list of 10 or more sites that can then be reduced to the final two to four locations to visit. We call this the view from 10,000 feet. The process is now getting closer to the landing.


As one industry expert put it, “”in Defense we can’t outsource security.”” Many of the same Factors apply as in aerospace with one major difference, “”American citizens only need apply.”” The market realities are quite different between the two industries. In commercial Aerospace, the market dynamics are in play – cost, supply, demand and delivery. If you build it at the best price with the right quality, and deliver on schedule (your product and service) you win the competitive battle. In defense, the industry is dependent on continued funding and the political process in Washington. The U.S. market is in flux due to the political uncertainty in Washington and the impending Presidential election.

The Growth Quotient – U.S. and Abroad

Okay, so where do you go from here? We established that the difference between a high probability of success with reasonable profits is grounded in people, process, performance and the other three critical elements, location/location/location. The rest of the world has become an opportunity, but also a danger. With the depreciated value of the dollar, and the technology excellence of the U.S., more orders are coming in from around the world. At the same time however, the globe has become smaller and more sophisticated. As a result, serious competition is springing up from Europe, Asia, China, Canada and other areas.

The Northrup Grumman partnership with the European Aeronautic Defense and Space Company (EADS), to build 179 refueling tankers is a prime example of the global penetration into the U.S. markets. The good news is that the project is based in Mobile, Alabama, creating over 2,000 jobs. The Joint Strike Fighter project, a partnership with Lockheed Martin, other U.S. Defense Contractors and NATO countries, is being built principally out of Fort Worth, Texas, with parts and some assembly from other NATO nations.

The Value of Aerospace and Defense – To the U.S. and World

The major U.S. corporations represent a significant contribution to the national GDP. This helps drive many of the economic engines throughout the U.S. They also establish the education standards and expectations that have elevated the status of many communities. Some of the major public companies where data is readily available include: Boeing Company, Lockheed Martin Corporation, General Dynamics, Northrup Grumman Corp. and Raytheon Co. Combined, their impact is significant.

The value of these companies and economic impact go way beyond these numbers. Often utilizing the U.S. Department of Commerce, Regional Input Output Model (RIMS II) the indirect and induced jobs and capital circulation multiply two to four times throughout the community. For example, a $200 million dollar investment with 300 jobs can translate into over $600 million and 700 – 800 jobs. Also, the technology spinoff from the military and space programs have added an incredible value throughout the country. Cell phones, BlackBerry devices, voice recognition, microwave technology, etc, are just a few of the spin-off products and services spread throughout the economy.

The Ground Game – The Landing

No site decision can be made without the key business stakeholders visiting several short-listed sites. The “”ground game”” is a vital part of the process. There have been numerous occasions where the site location Decision Matrix evaluates communities high or low only to change and reprioritize once the team gets on the ground, views the community up close and meets the key people.

Company officials must personally visit each location and not rely solely on site selectors or real estate brokers. These consultants are an important part of the team; however, companies should never rely on outside council to make the selection.

When visiting a potential location, the team needs to meet more than just the economic development and elected officials. They should insist on meeting other companies operating in the community without public officials present. Candid discussions should involve an available and realized workforce, regulatory environment, costs of doing business and perceived business friendliness with an appreciation for the manufacturing sector. Always ask, “”If you had it to do over again, would you choose this community? Why or why not?”” There is no substitute for face-to-face discussions with other businesses.

Closing the Deal

Now that the appropriate process has been followed, the Decision Matrix has been absolutely evaluated, vetted and scrubbed through the key Stakeholder Team, the Site Team has been thoroughly utilized, the short list locations visited, costs research has been vetted, demographic studies completed, public incentives that add revenue and value have been secured, and the ink from the final signature of approval has dried – what’s next? Let the game begin; choose the proper position players who will contribute to the construction and implementation phase. Stay diligent and follow the process that got you where you need to be – on target with a perfect landing.

Inside Business Facilities LiveXchange – April 2008

exchange logoBy Michelle Janowitz

Business Facilities LiveXchange is an invitation-only event for corporate executives responsible for choosing a new location for their companies’ next facility. Delegates meet with senior economic developers from across North America to discuss their locations as potential solutions; attend seminars, workshops, and think tanks led by experts in the field of relocation and expansion; and network with other corporate executives faced with the same corporate growth challenges. We spoke with Mike Hickey, president of Hickey & Associates, about his experience presenting at 2007’s LiveXchange.

BF: Can you give an overview of the think-tank you led at LiveXchange 2007? What did attendees gain from participating in your session?

Mike Hickey: My session was a 90 minute think-tank with corporate executives focusing on public financial incentives. I tried to help the attendees understand how to evaluate the potential benefits of incentives, as well as realize the responsibilities that come with them. I started with a 15 minute PowerPoint presentation that gave an overview of different types of incentives, and then moved on to some interactive case studies.

Public incentives have become a key part of site selection because of two primary factors: The first one is making sure you can find and retain the right kind of talent at the right wages. The second is the cost of doing business, part of which can be reduced through public incentives such as cash grants, training grants, infrastructure support, and property tax reductions.

One PowerPoint slide that the participants were especially interested in dealt with “”clawbacks.”” If an economic development agency provides opportunities to a company that can’t comply with the provisions of the incentives, then the agency is forced to recover, or claw back, some parts of the benefits package. That’s not a good reflection on the company or the agency, and I think participants got a better understanding of this.

The bulk of the session was spent analyzing two case studies. We selected two communities and presented the incentives they offer. We broke up the participants into different parts of a senior leadership team in charge of site selection; we had teams representing finances, human resources, real estate, taxes, and so on. The participants then analyzed the incentives offered and had to choose which they would recommend accepting, and why, to their company’s CEO, who was also a participant of the session. I walked around and helped the different teams understand how this process works since these folks don’t do this every day.

I think the session played out very well. The human resources team dug into their part of it saying, “”OK, they expect us to commit this many jobs at this wage. What happens if we don’t? Or how aggressive do we want to be on our commitment?”” The finance team played their part saying, “”OK, this is a good incentive and this is how much it’s worth, but we have to commit so much in capital investment to achieve it.”” The tax people weighed in saying, “”The way we’re positioned in this state versus that state, the incentives may not be worth as much as they seem. However, the property tax abatements always have a great value because they roll down directly to the bottom line.”” The real estate people were talking about how the incentives influence the whole project in terms of infrastructure support, property tax abatement, etc.

I think the participants understood and focused on what they needed to do to present these offers to the CEO, and the two people we had as CEOs were good at challenging the teams and asking the right questions. It was a real live situation duplicated in a lot of the boardrooms and senior leadership meetings I’ve been in.

I also think the participants walked out with a better sense of how public financial incentives really work. I can stand up there and present and people can take a few notes and forget about it. But, when they’re actually doing it and have to dig into it and offer recommendations, they want more information and knowledge. I think they walked out understanding some key points that could be important to their companies.

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Federal Economic Stimulus – Summary of Business Incentives


The FEDERAL ECONOMIC STIMULUS ACT OF 2008 provides businesses with two tax incentives accelerated all in one year, 2008. The two incentives are:
1.        Enhanced Code Sec. 179 expensing and;
2.        Bonus depreciation.
*Congress did not provide for extended net operating loss (NOL) carryback treatment.
The new law almost doubles the amount of deductible Code Sec. 179 expensing for 2008 to $250,000 and increases the threshold for reducing the deduction to $800,000. It applies to property purchased and placed in service in tax years beginning in 2008. Unlike the amounts under current law, the amounts in the stimulus package are not indexed for inflation.
While Code Sec. 179 expensing is commonly referred to as “”small business”” expensing, technically, being a small business is not one of the requirements. However, purchases of all equipment otherwise qualifying are subject to the phase-out cap, which rules out most large corporations that purchase much more equipment each year in the normal course of business.   On the other side of the spectrum is the small business with losses. The deduction is disallowed if the taxpayer does not have taxable income for the year the property is placed in service. However, the disallowed deduction may be carried forward to a non-loss year.
Qualifying Property
The new law makes no changes to the general rules for the types of property that are eligible for expensing. Generally, the property must be tangible personal property, which is actively used in the taxpayer’s business and for which a depreciation deduction would be allowed.   The property must be used more than 50 percent for business and must be newly purchased property. The existing exception for computer software applies to the enhanced expensing amounts under the new law. If a taxpayer claims the expensing election and subsequently sells the property or stops using it more than 50 percent in its business, the taxpayer may have to recapture part of the tax benefit that was previously claimed.  The recapture amount equals the difference between the amount expensed and the amount that the taxpayer would have been able to recapture under the normal rules. Businesses that lease equipment rather than purchase continue to be allowed a full write-off of lease expenses each year, irrespective of the size of the business or dollar value of the leases entered into.
The new law provides qualifying taxpayers 50 percent first-year bonus depreciation of the adjusted basis of qualifying property (similar to bonus depreciation initiated after 9/11 and under the Gulf Opportunity Zone.
To be eligible to claim bonus depreciation, property must be (1) eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less; (2) water utility property; (3) computer software (off-the-shelf); or (4) qualified leasehold property. The property generally must be purchased and placed in service during 2008.
Thus, the original use of the property must begin with the taxpayer and must occur after December 31, 2007, and before January 1, 2009. The placed in service date is extended one year, through December 31, 2009, for property with a recovery period of 10 years or longer, for transportation property (tangible personal property used to transport people or property), and for certain aircraft.
There cannot be a binding written contract before January 1, 2008, to acquire the property.   Property qualifies only if it is acquired under a binding written contract entered into during 2008. In addition, the taxpayer must begin the manufacture, construction or production of qualifying property for the taxpayer’s own use during 2008.
Luxury autos
The new law also raises the Code Sec. 280F limitations on “”luxury”” auto depreciation. Ordinarily, the first-year limit on depreciation for passenger automobiles cannot exceed $3,060 (inflation adjusted). However, this limit was increased when bonus depreciation was previously available to $4,600.
The new law raises the cap once again, this time to $8,000 if bonus depreciation is claimed for a qualifying vehicle (for a maximum first-year depreciation of no more than $11,060; $11,260 for vans or trucks).   If the vehicle is not predominantly used for business in a subsequent year, then bonus depreciation must be recaptured.
Sources Consulted:
White House Press Release: President Bush Signs H.R. 5140, the Economic Stimulus Act of 2008   February 13, 2008
CCH Tax Briefing: Economic Stimulus Package   President Signs Economic Stimulus Act of 2008 With Rebates and Business Incentives   February 13, 2008