Business and Economy NewsTracker

Volkswagen Layoffs Loom Amid Questions Over New ‘Clawback’ Rules

Some policy watchers worry change in law will have little effect

Earlier this spring, executives with Volkswagen announced their plan to cut hundreds of jobs at their Chattanooga manufacturing facility due to slower-than-expected sales of their midsize Passat model.

The company confirmed this week that 500 contracted employees are being eliminated.

The job losses put the German automaker in line to become the latest in a string of companies to yield disappointing results after taking large, state-funded corporate incentives including tax-breaks and free land.

Volkswagen’s cutbacks come at the same time that the state is getting set to implement new rules that the governor and many state lawmakers say are aimed at holding companies responsible if they fall short on jobs promises in Tennessee. But some policy watchers worry that the law change will have little effect.

Senate Bill 605, which had huge bipartisan support in the General Assembly and was signed by Gov. Bill Haslam last month, would require the state Department of Economic and Community Development to include a so-called “clawback provision” – no jobs, no money – in future agreements with companies that accept taxpayer cash to expand their businesses in Tennessee.

During a committee hearing on the bill well before Volkswagen announced its intended layoffs in Tennessee, Senate sponsor Lowe Finney, D-Jackson, described the premise behind the law with some seeming prescience:

“In the past, we have allocated money in budgets that would go to specific economic development projects, for instance a Volkswagen or a Hemlock or whoever the case may be…If you’re five years into an agreement – and you still have another so-many-millions of dollars to pay – and let’s just say some company says, ‘We’re not bringing those 450 jobs like we said we would.’ Well, that’s kind of why we passed that budget to begin with, to bring those 500 jobs.”

“I think it’s at least reasonable to let the (ECD) commissioner have that authority so he can at least have that discussion when they’re talking with those companies,” Finney continued.

But it’s unclear how much of a guarantee the new rules will actually provide. While new agreements will have clawback measures on paper, the final version of SB 605 was watered down to give ECD officials the last say on whether or not to actually enforce them.

House Majority Leader Gerald McCormick told TNReport in early April that he was confident the bill is balanced enough to avoid scaring off businesses while protecting taxpayers.

“[ECD officials] need to keep as much flexibility as they can, but I think the will of the General Assembly and of the people is to put as many clawback provisions in their as possible,” the Chattanooga Republican said. “We don’t want to run off 10,000 jobs either but I think, in most cases, companies are going to agree to some kind of clawback provision.”

But for those who question the state’s aggressive attempts to lure certain companies to Tennessee using taxpayer money, the scale seems to still be tipped too far in favor of companies, leaving the state’s taxpayers on the hook.

Reached via email, Trey Moore at the free-market Beacon Center of Tennessee told TNReport that “while the intent of the bill seems to be good, the final language appears to give ECD the discretion of whether to ‘clawback’ funds in the event a company reneges on its end of a deal. Since discretion is susceptible to political influence, a mandatory clawback provision is more appropriate when you’re dealing with taxpayer money.”

The new legislation goes into effect in July but would not apply to deals reached before then, including that between the state and Volkswagen.

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