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ECD Drafting ‘Clawback’ Clauses for Subsidy Agreements

by Andrea Zelinski on July 6, 2012

A state agency that doles out millions in taxpayer dollars to businesses promising to make work for struggling Tennesseans is formulating procedures to take money back from companies that don’t deliver the good jobs.

The Department of Economic and Community Development is working out details of a “clawback” provision it plans to insert into FastTrack grant agreements, according to the agency’s communications director, Clint Brewer.

“It’s not the issue that businesses haven’t done what they said they’re going to do. The issue is we want to be following the best practices we can,” said Brewer, assistant ECD commissioner. “To do that, we have to be the best stewards of public money we can be.”

Most ECD contracts currently don’t include a clawback provision, said Brewer. The lack of such recourse was at one time a particularly frustrating state of affairs to Lt. Gov. Ron Ramsey, a Republican. Ramsey criticized the administration of Democratic Gov. Phil Bredesen for making deals like $101 million in handouts to Electrolux for hinting at the creation of 1,250 jobs, even though the formal arrangement explicitly disallowed state officials from trying to recoup taxpayer resources if the company failed to produce.

Brewer said the department is now “on the brink of beginning to use that language in a new standard FastTrack contract,” but wouldn’t say specifically when the agency would start.

“It has taken us the better part of the last 18 months – obviously with a lot of other things going on – to work through the process of determining what legal precedent and black letter law would allow,” he said.

Making businesses promise to give taxpayers back some of their money should not only be required, but be publicly disclosed, said Dick Williams, with Tennesseans for Fair Taxation, a pro-income tax coalition of progressive activists and public-sector union groups.

“If something doesn’t work out, then the taxpayers ought to get back some, if not all, of the money they gave them,” Williams said. “Certainly, we shouldn’t assume they’ll all be successful.”

This year, lawmakers agreed to more than double the FastTrack program to $80 million. Since 2006, the state has allotted an average of $38.5 million in tax dollars annually to the FastTrack program.

The program offers businesses grants or loans for expenses like job training, infrastructure improvement, equipment, and temporary office space related to relocation or expansion. The taxpayer money is funneled through local governments or their economic development branches to issue to companies.

Changing how grant contracts are written is one of a handful of changes economic development officials are talking about making this year.

Last week, the department loaded agency statistics and records online in an attempt to increase accessibility to government documents, with plans to add a searchable database and other features by the time legislators are back on Capitol Hill next year.

The new “Open ECD” website lists business and incentives information for state-issued FastTrack grants, tax incentives, TNInvestco projects and community block grants — and how many jobs the money has reportedly created.

None of the information is new, says Brewer, but it’s now accessible without having to file open records requests to look at them, “so you can see on the back end how those jobs have stood up.”

Open government advocates generally applaud the effort to make information easier for the public to get to, but warn that the website shouldn’t be a substitute for agencies filling specific open records requests.

“That’s commendable as long as that does not become a substitute for normal, routine public records requests,” said Frank Gibson, director of public policy for the Tennessee Press Association.

“My big concern about them is at some point (when) you make a public records request, they’ll say it’s on their website. But is all the information you’re asking about on their website?” he said.

Tennessee Coalition for Open Government Executive Director Kent Flanagan calls the site “a great starting point,” but says he’s waiting to see how good the department is at updating people who sign up for alerts when ECD documents are posted.

“It’s not about what happened three months ago. It’s about what happened this morning,” he said.

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