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More Cities Clamp Down on Corporate Tax Breaks

January 5, 2010

Companies that promised local communities hundreds of jobs in exchange for tax benefits are finding that those tax breaks are being rescinded these days if the companies don’t deliver.

Chalk it up to the financial crisis, the increased need for tax revenue on the state and local level, or the tight job market, but more companies are finding that local communities don’t have such short memories when it comes to making good on promises.

One recent example was the retailer Target Corp., which promised at least 500 jobs at a local distribution center it set up in DeKalb, Ill., according to an Associated Press article on the trend. The company only hired 444 workers last year, though, and was promptly informed that it would be hit with a $600,000 spike in its next tax bill, over half of it going to the local school district.

Communities are also getting smarter about including “clawback” provisions in their tax break agreements with companies, specifying that if they don’t provide the promised number of jobs, they will forfeit a portion or all of their tax abatements. Some communities are worried that the tough attitude may discourage new businesses from taking advantage of tax breaks and setting up shop there, so they aren’t eager to publicize the givebacks, but it appears as if some communities have wised up after one too many broken promises.

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