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REGIONS AMERICAS


STATES RARELYANNOUNCETHE CLAWBACK; IF YOUARE SEEN AS BEING AGGRESSIVE, YOUWILL BE SEEN AS LESSCOMPETITIVE IN THE FUTURE


TheUSshows itsclawbacks F


INVESTORS HAVE ENJOYED RICH INCENTIVES TO LOCATE IN THE US. WILL COVID-19 CHANGE THIS? PHILIPPA MAISTER REPORTS


ew tools in the economic develop- er’s toolbox are used more often to lure prospects to promising loca-


tions than subsidies and tax incentives, especially when a big prize is in view. As a result, large corporations, espe-


cially multinationals, have become adept at squeezing the maximum concessions from each bidder – giving rise to a long- standing debate in economic and policy circles about whether the benefits out-


weigh the costs for the host location. The coronavirus pandemic has added a new


twist to the debate.Many state and local govern- ments are now having to choose whether to insist companies fulfil the conditions of their agreed contracts, or to grant them leeway in view of the global economic disaster caused by Covid-19.


Major spend The stakes are huge. According to Good Jobs First, a Washington DC-based non-partisan organisation that promotes accountability in economic development, US states and localities spend an estimated $70bn a year on corporate subsidies in the fierce competition to entice companies to locate in their jurisdiction. That figure includes tax exemptions, job


creation tax credits, and property tax abate- ments. Tax abatement cost states $10bn and local jurisdictions an additional $5bn in 2019, Good Jobs First calculated. The true costs may bemuchhigher, sincemany investmentpromo- tion agencies shroud their offers to companies in secrecy, and compliance with required tax accounting practices is often lax. Companies may also benefit from govern- ment-authorised bonds to build facilities,


44


acquire or develop land, or the use of public funds to construct infrastructure needed for the project.


Various subsidies There is enormous variation in the value of incentives offered, according to Timothy Bartik, senior economist and authority on incentives at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Michigan. Mr Bartik calculates the average incentive offer in the US is $30,000 per job, but he notes many offer more than $100,000 per job, and in the case of the Taiwanese company Foxconn’s Wisconsin plant ranged from$172,000 to $290,000 per job under various scenarios. “It is definitely the case that largecompanies getmuch higher sub- sidies,” he says. Increasingly, in exchange for the granting


of subsidies or incentives, companies commit to hire a certain number of people, create a cer- tain number of high-wage jobs, or make spe- cific investments in the locality. However, in the Covid-19 environment,many are struggling with stay-at-home consumers, markets that have collapsed, disrupted supply chains, or export barriers and controls that prevent them fromreaching the targets they agreed to. “There are deals that have been faltering or


where companies have asked for extended time- lines or revised schedules,” said Greg LeRoy, executive director of Good Jobs First. In a grow- ing number of cases, the granting agency has the option of demanding a refund, or clawback, of the grant if the terms of the contract are not fulfilled. How often this occurs is unclear. Nevertheless, an increasing number of states have adopted legislation to permit clawbacks, following a series of well-publicised debacles.


www.fDiIntelligence.com August/September 2020


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