Putting Business Incentives On A Leash

"For decades, states and local governments have doled out grants and tax breaks to companies that say they will move in and create jobs. But officials are getting tired of businesses that renege on their promises or simply pick up stakes after collecting their cash."

"Now governments are making sure that their incentive plans come with a catch. Many are using "clawback" provisions that let governments recover their money if companies leave town or go belly-up. In other cases, governments don't pay companies until they actually create jobs. One city is even proposing a "no poaching" agreement to get more leverage over businesses, where neighboring cities promise to limit the use of incentives to lure companies from each other."

"The reasoning behind tightening up incentives is sound enough. But much like shareholders trying to rein in executive pay, states have had a tough time breaking their cycle of easy incentives.

Part of this is groupthink: With so many communities offering economic incentives, it's hard for neighbors to resist offering the same thing as the other guy. Also, companies have gotten more sophisticated in seeking incentive deals, often by hiring consultants that play one community against another to extract more money. And states that do have clawbacks are often reluctant to enforce them because it can make them appear antibusiness."