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Laying the groundwork: Companies may benefit from public funds to acquire or develop land, and build infrastructure for the project “It’s less risky and expensive for taxpayers,”


says Mr LeRoy. “When done, states rarely announce the clawback. There’s this dogma: if you as a state are seen as being aggressive, you will be seen as less competitive in recruiting deals in the future.”


Refund or restructure? Frequently, he notes, the agencymay not try to compel a refund. Instead, it may try to recap- ture some of the subsidy already awarded, recalibrate the amount due going forward, or rescind future subsidies not yet awarded. One defence against clawbacks and other


penalties that some companies are testing dur- ing the pandemic is the concept of force majeure. It is intended to protect the parties if a contract cannot be performed due to causes beyond their control and which they cannot avoid by the exercise of due care. However, the defence is only available if it


is specifically included in the contract between the parties, says David Marmins, a partner at Atlanta law firm Arnall Golden Gregory. The first question is howthe contract defines force majeure. “By almost any defini- tion, force majeure will apply to what we have now, with few exceptions,” he adds. “Almost always, a shutdown will meet the criteria for force majeure.” A second question is: what is the relief? For


example, if a retail mall closes and a store can- not operate, that would meet most definitions of force majeure. But the shopkeeper may still be contractually bound to pay rent at some point. “They are not entitled to a windfall,” says Mr Marmins. “There will be more litigation the longer this goes on and the more oppressive it is for


August/September 2020 www.fDiIntelligence.com


various industries, and the rebound will take longer,” he predicts. Mr LeRoy agrees that force majeure may be


a valid argument in some cases. However, he says that if states and localities are going to grant forbearance they have to give it equally. “If a deal has to be restructured, it should be in agreement with a uniform policy in a perfor- mance-based way to reduce government risk,” he said.


Debating the cost Meanwhile, the debate continues over whether subsidies, incentives and tax abatements are worth their cost to the public. For Mr Bartik, the argument that “but for” the incentive pack- age the target companywould not have located, expanded, or retained jobs at a particular loca- tion rings hollow. His research shows at least 75% of the time, the same local job creation would have occurred without the incentive. He contends that proponents often hide


from the public the true cost of infrastructure, housing and other factors that governments assume, as well as the projects that are delayed or cancelled because public funds are diverted to the new project, while indirect job creation – themultiplier effect – is often exaggerated. Nathan Jensen, a government professor at


the University of Texas, Austin, agrees. Monitoring by states of whether companies are meeting the conditions for the incentives is so bad, he says, “a lot of times states may not even care”. He cites the example of Texas, where much of the US reserve of oil and gas is located, which nevertheless gives incentives to oil and gas companies to operate there. In the case of subsidies, it seems, hope will always trump experience.■


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