Executive Briefings

More States Demand Their Incentive Money Back if You Can't Keep Economic Development Promises You Made

Over the past decade, states have included and strengthened so-called "clawback" provisions in their economic-development incentive contracts, which allow them to recoup funds from companies that have failed to meet various requirements. The recession has only intensified such efforts. Some states have also shifted to longer-term, performance-based contracts (with clawback provisions) in lieu of upfront cash grants.

Yet, at the same time, many states are adding incentive programs to their budgets in an effort to revitalize local economies. "Generally, there is a pullback on incentives because of budgets," says Kathy Mussio, managing partner at Atlas Insight, which helps companies with site selection and also works with them to obtain incentives. "But there are also states that recognize that they can't do that, because they won't be able to retain certain businesses or attract new ones." As a result, companies need to study their options more carefully than ever.

With 44 states projecting budget shortfalls this year, incentives are becoming stricter and more difficult to secure.

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Over the past decade, states have included and strengthened so-called "clawback" provisions in their economic-development incentive contracts, which allow them to recoup funds from companies that have failed to meet various requirements. The recession has only intensified such efforts. Some states have also shifted to longer-term, performance-based contracts (with clawback provisions) in lieu of upfront cash grants.

Yet, at the same time, many states are adding incentive programs to their budgets in an effort to revitalize local economies. "Generally, there is a pullback on incentives because of budgets," says Kathy Mussio, managing partner at Atlas Insight, which helps companies with site selection and also works with them to obtain incentives. "But there are also states that recognize that they can't do that, because they won't be able to retain certain businesses or attract new ones." As a result, companies need to study their options more carefully than ever.

With 44 states projecting budget shortfalls this year, incentives are becoming stricter and more difficult to secure.

Read Full Article