The Rise of Sector-Specific Incentives: States Double Down on Advanced Manufacturing
The Rise of Sector-Specific Incentives: States Double Down on Advanced Manufacturing
Across the U.S, state economic development strategies are changing. Incentives for advanced manufacturing are becoming more focused, more strategic, and more closely aligned with national goals.
Advanced manufacturing uses cutting-edge technologies like automation, software, and smart sensors to improve how products are made or to create entirely new ones. These industries bring more than just a few factories; they create high-paying jobs, offer chances for workers to gain new skills, and help ensure long-term economic strength. Incentives that support these sectors tend to deliver strong returns on public investment.
States are moving away from generic incentive packages and instead are building tools tailored to high-value industries like semiconductors, clean tech, biotech, and quantum technologies.
For C2ER members and the wider economic development field, understanding these shifts is key to shaping smarter policies that attract capital and talent to transform local economies.
A New Wave of Incentive Programs
States are increasingly moving away from broad-based incentive programs in favor of development finance tools tailored to high-priority, innovation-driven sectors, and are leading the charge in different sectors of advanced manufacturing. This strategic targeting allows states to better compete for transformative investments and align more closely with federal priorities, including increasing manufacturing within the United States. In addition to bond financing, tax exemption and tax credits programs were added recently to the State Incentives database.
such as California, Arizona, New York, and Texas have long established programs targeting manufacturing and R&D. However, other states are also tailoring their own incentives to build advanced manufacturing industries. Some highlights of recent programs added to the State Incentives database include Colorado’s Industrial Tax Credit and Quantum Fund, West Virginia’s Five for Ten Program, and Massachusetts Clean Energy Center – Innovation Ecosystem Program.
Colorado: Industrial Tax Credit and Quantum Fund
Colorado’s Industrial Tax Credit Offering supports manufacturing investments that align with state priorities such as sustainability and innovation. [i] Meanwhile, their Quantum Fund for Innovative Lending is unique in providing flexible, non-dilutive capital to startups and scale-ups in the emerging quantum tech space – a sector where capital is often scarce. Eligible lenders incurred losses on previous loans receive full refundable tax credit. [ii] This fund highlights Colorado’s commitment to aligning financial tools for lenders with long-term R&D and commercialization cycles.
West Virginia: Five for Ten Program
This incentive may look familiar at first glance – a property tax abatement for manufacturers – but what makes it stand out is its long-term structure and clear alignment with job creation goals. Eligible facilities receive a 95% reduction in property taxes for 10 years, provided they commit to significant capital investment and employment thresholds. [iii] In a state seeking to diversify beyond traditional energy and extraction industries, Five for Ten represents a strategic pivot toward advanced and additive manufacturing, particularly in rural and mid-sized communities.
Massachusetts: Clean Energy Center – Innovation Ecosystem Program
The Innovation Ecosystem Program (IEP) provides funding to Massachusetts Electricity System Operators (ESOs) in developing climate tech innovation ecosystem and commercializing early-stage climate tech startups. Each year, ESOs can receive grants ranging from $120,000 to $175,000, fueling everything from project deliverables to startup scholarships. [iv] It’s part of a strategic push to turn bold ideas into real-world impact and make the state a leader in clean energy innovation.
Forces Driving the Trend
- Federal Matching Opportunities
Major federal initiatives – including the CHIPS and Science Act, the Inflation Reduction Act, and recent tariffs – are reshaping capital flows into advanced manufacturing. States that tailor their programs to account for federal initiatives are better positioned to attract co-investment and national attention.
- Supply Chain Resiliency
The COVID-19 pandemic and recent geopolitical disruptions exposed vulnerabilities in global supply chains. As seen in the programs highlighted, states are prioritizing domestic production capacity, focusing on workforce development along with sectors such as semiconductors and climate tech.
Implications for Economic Developers
As incentive strategies evolve, tools and priorities of regional economic developers must also change. Key considerations include:
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- Aligning Local Strategies with State and Federal Priorities
Tailoring local incentive programs to complement state and federal initiatives can improve competitiveness and funding potential. - Building Industry 4.0 Talent Pipelines
Investments in advanced training, K-12 STEM pathways, and community college partnerships can position a region as workforce-ready. - Promoting Regional Assets Strategically
Highlighting infrastructure, permitting speed, and sector-specific clusters can differentiate regions vying for the same advanced manufacturing projects. - Strengthening Cross-Sector Partnerships
Collaboration with utilities, higher education institutions, and regional consortia is becoming essential for project execution and long-term success.
- Aligning Local Strategies with State and Federal Priorities
What to Watch Moving Forward
Looking ahead, expect continued growth in manufacturing-focused incentive programs, especially those tied to clean technology, semiconductors, and emerging technologies. The competitive landscape will only intensify as more states and regions pursue similar strategic investments.
Success will depend not only on the size of the incentive, but on how quickly and flexibly a region can respond to evolving industry needs. Incentive tools will need to remain adaptable, data-driven, and outcomes-focused.
A Call to Action for the C2ER Community
As this next chapter of industrial policy unfolds, C2ER members have a critical role to play in tracking, shaping, and sharing effective incentive strategies.
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- Highlight success stories and innovative programs from your region.
- Engage in cross-regional learning to identify what works – and what doesn’t.
- Leverage C2ER research forums to ensure new programs are rooted in data and long-term impact.
We look forward to seeing you at the 65th C2ER + LMI Institute Conference next week, where these issues will be front and center. It will be a great opportunity to connect with peers, share insights, and shape the future of economic development incentives.
[i] Colorado Energy Office, “Colorado Industrial Tax Credit Offering,” State of Colorado. https://energyoffice.colorado.gov/citco
[ii] Colorado Office of Economic Development & International Trade, “Colorado Quantum Fund (CQF) for Innovative Lending,” State of Colorado.
[iii] Wester Virginia Economic Development, “WB Incentives”, State of West Virginia. https://westvirginia.gov/wv-incentives/
[iv] Massachusetts Clean Energy Center, “Innovation Ecosystem,” State of Massachusetts. https://www.masscec.com/program/innovation-ecosystem