State incentives can be a major plus for small and midsize businesses, either to start up or to relocate. These can take many forms, including tax breaks and incentives for alternative fuels and energy efficiency.

Fred Tuffile, director of entrepreneurial studies at Bentley University in Waltham, Mass., was recently featured by the Wall Street Journal. Tuffile says states will naturally try to shift new businesses to areas that are “economically depressed.” But the location has to make sense.

The Boston area, for example, is an ideal spot for a biotech company, he says. For social media or information technology, he recommends California. Despite calling the state’s regulations “crazy,” he says Silicon Valley is a prime area to raise money.

“If you’re going to locate in a certain spot, it’s because the business belongs there,” Tuffile says. “If you locate in a bad spot, it’s going to be bad for your business and bad when the business shuts down. In the case of a shutdown, when it goes up on the auction block, it doesn’t make a difference where you are.”

NY Program Pairs Businesses with Universities

There’s an interesting incentives program happening in New York. Gov. Andrew Cuomo launched Start-Up NY in October, which aims to boost startups and relocating businesses in the state.

Eligible businesses in the “high technology” sector will partner with New York universities, and will operate tax-free for 10 years. Cuomo calls it “the most ambitious economic development program in New York state’s recent history.”

“In a tax-free environment, no one can match what New York has to offer,” Cuomo said. “Businesses that are looking to start up or expand, and most importantly create jobs, should look no further. We are leveraging our world-class SUNY system and prestigious private universities to partner with new businesses, providing direct access to advanced research, development resources, experts in high-tech and other industries, and all with zero taxes for 10 whole years.”

(A down side to the plan: less projected state revenue than anticipated, as detailed here.)

Do Programs Make Good Policy?

Politicians can certainly play a role on state incentives. Tom Foley, founder of the Connecticut Policy Institute and a 2010 nominee for governor of the state, co-wrote an article for the Wall Street Journal in February. In it, he detailed several instances of incentives and tax credits that showed poor results in jobs created and costs for the states involved. It poses the question: “If many job incentives are poor public investments, why do states get away with offering them?”

“Because good policy and good politics are often at odds,” the story answers.

“Politicians want to be re-elected, and a solid record on nominal job growth — regardless of the cost — tends to be more important to officials’ re-election prospects than is the prudent management of public funds. That is one reason most such programs are structured to yield job creation immediately while deferring the cost of the incentive into the future — preferably when other politicians will be in office.”

In 2012, the Pew Center on the States conducted a study about the evaluation of tax incentives. It found 13 states that are successfully evaluating their incentive programs: Arizona, Arkansas, Connecticut, Iowa, Kansas, Louisiana, Minnesota, Missouri, New Jersey, North Carolina, Oregon, Washington and Wisconsin.

Twelve states got mixed results. And half the states “have not taken the basic steps needed to know whether their incentives are effective.”

Pew senior researcher Jeff Chapman said in the report that investment decisions come with “policy choices with significant implications.”

“When states forgo revenue by offering economic development tax incentives, they have less money to spend on education, transportation, health care and other critical services,” he said. “Conversely, if states do not use incentives or use them well, they may be missing opportunities to create jobs and attract new businesses.”