The COVID-19 pandemic has had a significant impact on the way businesses operate and receive tax incentives. Prior to the pandemic, U.S. businesses were receiving around $30 billion annually in local and state tax incentives, often tied to job creation in specific locations. These incentives typically require employees to work from a central office in the designated area. However, the pandemic has forced a reevaluation of these requirements.
It is unlikely that companies are forcing employees back to the office solely to retain tax incentives. Many contracts have force majeure clauses, which acknowledge unforeseen events beyond the control of the parties involved. The pandemic qualifies as such an event and has brought about a fundamental change in the nature and location of work. It wouldn't make sense to penalize employers for adapting to this shift, as it contradicts the original purpose of economic development incentives.
To accommodate the new reality of remote work, several states, including Texas, New Jersey, Michigan, Utah, and Arizona, have made changes to their tax incentive rules, allowing remote workers to qualify for certain benefits. Although there is no centralized database tracking these changes, it is evident that state and local officials have taken a more understanding approach, considering the challenges faced by employers in bringing employees back to the office.
It is important to remember that economic development is not an exact science, and the effectiveness of development programs can vary. The combination of technological advancements in communication and collaboration and the shift to remote work has disrupted traditional workplace structures. Economic development incentives must adapt to these changes, as the way workplaces function has been altered permanently.
While there has been concern about the decline of downtown areas and urban economies, the transformation of workplaces and cities also presents significant opportunities for those who embrace the future. Companies recognize the advantages of in-person collaboration, mentorship, and camaraderie, but employees have become accustomed to the flexibility and convenience of remote work. Governments can assist in shaping a new reality of work that emphasizes both productivity and the social benefits of in-person interactions.
This shift in work culture may require rethinking property tax systems, transforming transit systems, and redesigning public infrastructure to align with the needs of the future. Economic development incentives could focus more on creating public amenities and supporting building owners and tenants in developing workspaces that promote productivity and well-being. By fostering innovation and adopting unconventional approaches, local governments can foster a thriving economy in the post-pandemic era. The world of work is undergoing a transformative period, and it will continue to evolve for years to come.