Adding a Stick to the Carrot: Location Incentives with Clawbacks, Recisions, and Recalibrations

Abstract

The escalation of incentive awards to attract and retain new business has emerged as a major concern in state and local development policy. This article addresses claw-back provisions, a largely neglected part of the bargaining process between governments and businesses in the location of new plants and offices. Just as private business transactions work within a framework of legally binding contracts, clawbacks provide some recourse to reclaim all or some of a financing package when a firm fails to meet performance requirements. Besides analyzing clawbacks, the authors identify three related areas for policy intervention: penalties, recisions, and recalibrations. The aim of this article is to show that U.S. policymakers can avoid expensive mistakes if they tie incentives to written guarantees of job creation and other benefits. European regional policymakers have used a carrot-and-stick approach to industrial recruitment. Increasingly, state and city governments in the United States also recognize that public-private bargaining requires some form of reasonable, guaranteed quid pro quo.

Getting the Max for the Tax: An Examination of BID Performance Measures

“…[20][21][22] Performance measures are a means of regularly measuring the results (i.e., outcomes) of services or programs. [23] The preoccupation with outcomes represents a shift away from monitoring compliance in terms of inputs and process standards and a movement toward measuring program efficiency in terms of the public benefits produced by public funding.…”

Mobilizing Resources for Public Services: Financing Urban Governments

“…Census Bureau data for 1986 show that exemptions of certain properties (of all types) that generally are taxable reduced gross assessed values about 4% (U.S. Bureau of the Census, 1989, Table 2). None have studied the long-term effects of such programs on local finance, but more governments are using provisions that reclaim parts of incentive packages when firms fail to meet performance promises on employment or other public returns (Ledebur & Woodward, 1990).…”

Business Subsidies Ad Municipal Controls

“…Evaluation policies may also examine whether prospective firms have a history of being solid corporate citizens in environmental compliance and community support (National Council for Urban Economic Development [NCUED], 1996, p. 81). Local governments may even find that after determining the predicted impact of a firm, the community would be better off using the funds on education, infrastructure, and other programs that both firms and citizens want (Green, Fleischmann, & Kwong, 1996;Ledebur & Woodward, 1990).…”

“…Yet, intense competition for firms between communities makes it imperative that subsidy packages be prepared quickly and professionally. Local governments that have standardized evaluation procedures are more likely to put together a subsidy package that more closely corresponds to the predicted benefits of the firm (Ledebur & Woodward, 1990).…”

“…Politicians view ribbon-cutting ceremonies as high-profile photo opportunities to demonstrate to their constituents that they are successful promoters of economic growth. Thus, local politicians often prefer to give subsidies to large, highly visible projects, even when it may be in the best interest of their community to promote less visible and less politically advantageous projects such as business retention and small business development (Ledebur & Woodward, 1990). Formal evaluation policies standardize the process by which local governments determine which firms are most deserving of subsidies.…”