Boston Globe: Strings Attached

By Todd Wallack
March 9, 2011

When businesses win tax incentives and other lucrative subsidies in exchange for a promise to create jobs, taxpayers expect companies to deliver. But some Massachusetts agencies give firms more leeway than others to honor the deals.

For example, the state’s main economic development agency allows companies to miss their job targets by as much as 50 percent before cutting off the public aid and getting its money back. But another agency, the Massachusetts Life Sciences Center, is much tougher: Companies have to create at least 70 percent of their promised jobs or face losing the money. A third agency that doles out corporate tax incentives sets different performance thresholds for each recipient.

But the requirements — called clawbacks because they allow the government to take back awards — have received fresh attention with Evergreen Solar Inc.’s recent announcement it plans to shutter its massive solar panel manufacturing plant in Devens, which was built three years ago with tens of millions of dollars in government aid. State officials said they would probably be able to recover only $3 million of the $21 million in cash assistance Evergreen received, sparking fresh debate on whether to tighten the rules.

Dozens of state lawmakers are already backing a proposal to make the requirements tougher and more uniform.

“We need a consistent clawback standard for all economic development programs,’’ said state Senator James Eldridge, Democrat of Acton, who has been pushing for more oversight of tax incentives for several years.

Eldridge and Representative Carl Sciortino, Democrat of Medford, filed legislation that would force companies to return some of the aid they receive if they create only a portion of the jobs they have promised within two years. And if companies fail to create at least 90 percent of promised jobs for three straight years, the state would be required to void the tax break altogether.

Both Senate President Therese Murray and House Speaker Robert DeLeo also have said they support tightening the rules for subsidies, though they haven’t provided details.

Gregory Bialecki, secretary of housing and economic development, said the administration also wants the job creation standards to be tougher and more consistent for future awards. For too long, he said, companies didn’t expect to be held accountable for their promises.

“The attitude has been that ‘We tried to produce the jobs, but times are tough,’ ’’ Bialecki said, adding that the Patrick administration is trying to change that mentality. “It doesn’t make you a bad company, but you simply didn’t earn the benefit.’’

The proposals, however, could face opposition from business groups.

John Regan, executive vice president of Associated Industries of Massachusetts, said he thinks some of the current standards are too stringent.

For instance, Regan said the state should not be able to force companies to repay tax incentives; instead, officials should simply cut off awards that firms have not yet received. He also said government officials need to acknowledge that sometimes companies don’t fulfill their obligations because of factors beyond their control, such as an economic downturn, and should be given more leeway.

The Patrick administration tightened the rules a year ago for its flagship Economic Development Incentive Program after the Globe raised questions about whether companies were allowed to skirt their obligations.

Historically, the law allowed the state to end a tax break early when companies failed to create the jobs they promised, but the law also made it difficult for the state to get some of the money back. Under the new rules, the state can force companies to pay back awards if they create fewer than half the promised jobs.

And Bialecki said the administration is considering ways to make the rules tougher and more consistent across different programs.

Bialecki said he believes the best approach is the one used by the Massachusetts Life Sciences Center. The center has aggressively enforced its requirement that companies must meet 70 percent of their jobs commitment within the first year or two. Five companies have already returned their incentives to the center after acknowledging they couldn’t hit that threshold. The center is investigating eight others.

The Life Sciences Center also publicly identifies those companies that fall short of their promises, which serves as both a reminder and source of embarrassment for the companies.

Susan Windham-Bannister, the center’s chief executive, said she thinks the 70 percent standard “is a reasonable target’’ and doesn’t require any changes.

“I do believe it is working,’’ she said. “I think it makes companies a little more conservative in their projections and a little more thoughtful about whether they are ready to make this commitment.’’

Some other agencies don’t have a fixed target. For instance, Kate Plourd, a spokeswoman for the Massachusetts Clean Energy Center, said the agency’s clawback requirements “vary from deal to deal.’’

Greg LeRoy, the executive director of Good Jobs First, a research group in Washington, D.C., that tracks economic development subsidy programs, said states have gradually been implementing tougher clawback provisions since the late ’80s. But LeRoy said the issue is particularly topical now because many so companies closed plants or laid off workers during the recession.

“As you would expect in a recession, there is an increase in enforcement’’ of the provisions, LeRoy said. “Clawbacks are more accepted.’’

Good Jobs First is compiling results of a survey of economic development programs across the country, and so far has found that most government programs offer companies at least a little wiggle room — letting them keep a subsidy if, for example, they miss their jobs target by 10 percent or less.

Bialecki said he has no problem with the proposal to require companies to meet 90 percent of their job commitment to keep all their tax incentives. But if the Legislature sets the standard that high, he said, companies should still be allowed to keep some of the incentives if they only create a portion of the jobs they promised.

“Partial performance may still mean a lot of jobs,’’ Bialecki said.

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