Clawbacks in economic development
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Clawbacks in economic development have been used primarily in securing tax incentives, abatements, refunds and grants. Clawbacks are distinguished from repayments or refunds as they involve a penalty in addition to a repayment. The use of tax incentives for attracting jobs and capital investment has grown over the past twenty odd years to include performance measures from which to gauge a company's growth. Typical measures are:
- number of created jobs over 5 or 10 years
- annual payroll
- amount of capital investment over a similar time frame, and
- amount of depreciated value in a given time.
Other more unusual measures are retaining a headquarters at a specific site for a period of time, amount of production increase or production cost decrease per unit or the requirement to bring a given technology to a commercial market. If a recipient fails to meet one or more performance measures defined in an executed incentive contract within a given time, a clawback can be initiated by the granting authority. The recipient will be required to return the monetary value of the incentive plus a penalty and/or interest to the grantor of the incentive, usually a local or state taxing authority. As the use of incentives mature over time, the triggering of clawbacks for non performance will likely become more ubiquitous.
Clawbacks can be understood to be the contractual elements that stand between the drive for economic development and community development and the slippery slope of corporate welfare.
Clawbacks are highly controversial and are utilized as community based guarantees for some expectation of performance. The site location industry normally tries to eliminate or reduce any such promises as part of their negotiations.
