Clawbacks are provisions written into an economic development act or bill that provide the taxpayers a guarantee that if the company receiving tax dollars does not live up to the standards of the legislation, that the company must payback all subsidies plus incur a penalty of some type. Greg Leroy of Good Jobs First explains that, “Many remain puzzled as to how taxpayers spend so much and get so little. One explanation is that most development agreements between corporations and municipalities, lack basic accountability safeguards or fail to contain money-back guarantee language (know as a “clawback”) for protection if a deal fails to create or retain jobs or generate new capital investment.”

There is a necessity that clawbacks and/or disclosure provisions are written into the agreement so that the recipients are held accountable. This way the public can be assured that if a Wal-Mart or other business fails to keep their promises they will have to give the money back plus penalties. A few states and cities have clawback and disclosure provisions currently on the books.

Examples

The State of Maine put through, “An Act to Encourage Accountability and Return on Investment for Maine Taxpayers from Economic Development Incentives”. This Act (L.D. 2243), is a prime example of a clawback. This Act states that any company that receiving over $10,000 in subsidies or tax abatements, must report how many jobs have been created or maintained due to their incentive package. In addition, conditions within the Act dictate that the company must provide health and retirement benefits and pay a living wage to its employees. If a company doesn’t comply with the standards laid forth in the Act or fails to create or maintain the jobs as promised in its incentive package, the clawback provision of the Act kicks in and mandates that the violating company must return all money back to the state.