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ECD Drafting ‘Clawback’ Clauses for Subsidy Agreements

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.

Reagan Administration Economist Arthur Laffer Speaks at GOP Retreat

Economist Arthur Laffer, widely known as the “father of supply-side economics,” spoke to House Republicans during their retreat this week at Tims Ford State Park.

Laffer, a member of President Ronald Reagan’s economic policy team, talked to the group about Tennessee’s economic assets, said Rep. Debra Maggart of Hendersonville, the House Republican Caucus chair.

“Dr. Laffer has a wealth of data, research, knowledge and experience about how the different states compare with one another,” she said.

“One of the focuses he worked on with us was how Tennessee ranks with other states and what makes Tennessee so attractive to people to live here. We’re in a central location, we don’t have a state income tax, we are a right-to-work state, and states like that tend to have favorable economic outcomes.”

In addition to listening to Laffer and other guests, Republicans discussed ways to improve communications with their constituents and various items constituents are concerned about, including reaction from teachers about the state’s new teacher evaluation process, Maggart said.

The retreat, which is held every two years, was paid for with caucus funds, Maggart said.

Maggart didn’t have an exact number of lawmakers who attended the retreat Monday and Tuesday, but she said she had 55 RSVPs committed to attend at least part of the event and that it looked like most of those showed up, including Speaker of the House Beth Harwell and House Majority Leader Gerald McCormick of Chattanooga.

The Republicans have a 64-34-1 majority in the House.

Maggart, who was guarded about sharing what legislators discussed, said the lawmakers did not formally talk about redistricting, a subject of much political speculation. The discussions did include attempts to dramatically reduce the number of bills filed in the Legislature, she said.

“We talked about next year (an election year). I’m not going to unveil what we’re doing,” Maggart said.

Tennessee Republican Party Chairman Chris Devaney has said the state GOP’s goal is to produce a “walkout-proof” majority in the Legislature, meaning enough of a majority that Republicans would have a quorum even without the presence of Democrats in meetings. Republicans have a Senate majority of 20-13. Two more Republican seats in each chamber would be needed to meet Devaney’s goal.

Maggart said the Republicans have been working on their legislative package for next year, although she said she was not ready to unveil that now.

“We’ll be giving that information out when we get it ready,” she said.

Republicans have already been public about at least visiting issues such as changing workers’ compensation laws, oversight of the Court of the Judiciary, halting the extension of unemployment benefits, further monitoring regulations that may hamper business and enacting more tort reform measures next year. But Maggart made clear the party still believes jobs cannot be legislated, a position that puts Republicans at odds with Democrats, who presented a list of jobs bills this year with complaints that they were not seriously considered. Unemployment in the state is 9.8 percent.

Democrats have also scheduled a Jobs Tour for Sept. 19-24, and the state Democratic Party took exception Wednesday to the rosy picture painted by Gov. Bill Haslam and Lt. Gov. Ron Ramsey about their presentation to the major bond rating agencies in New York.

A release from the Tennessee Democratic Party quoted Chairman Chip Forrester as saying, “This bond rating dog and pony show for Wall Street executives looks obnoxious to the 300,000 Tennesseans who are struggling to find work and provide for their families.”

Maggart maintains that jobs cannot be legislated.

“We’re going to continue to concentrate on paving the way for job creation. The Legislature does not create a single job,” she said. “We want to do what we can to make Tennessee the most attractive state for small businesses to thrive. We want to decrease regulation on small business people.”

Maggart gave the handling of the new photo ID law, requiring photographic identification in order to vote, as an example of how the number of bills filed in the Legislature can be decreased.

“Freshmen didn’t know I was working on it for five or six years, so we can cut down on the number of people filing the same bill,” she said.

Republicans have drawn up a process, spearheaded by Harwell, where lawmakers can consult freely about their bills in a process that normally holds even the filing of legislation as a matter of attorney/client privilege. McCormick has also spoken publicly about reducing the number of bills.

On the teacher evaluations issue, Maggart said members are hearing about it from their districts.

“Teachers are concerned about it. They have questions,” Maggart said. “That was pretty much across the board. I shouldn’t say everyone, but a lot of people had heard from teachers concerned about the process.

“You know it’s going to be a concern because it’s new. It has never been done before. Certainly you’re going to have people who have questions.”

The state adopted a system where teachers will be evaluated based on a formula that relies heavily on classroom observation and student growth under the state’s value-added assessment scores.

Laffer is one of the authors of Rich States, Poor States, released by the American Legislative Exchange Council and issued in its fourth edition this June. Other authors of the book are Stephen Moore, senior economics writer for the Wall Street Journal, and Jonathan Williams, director of the Tax and Fiscal Policy Task Force for ALEC.

“He (Laffer) uses IRS data. That’s such a great data resource, because the IRS knows so much about you. They’ve got your address, know how much you make, how much your deductions are. He has been analyzing people who move, like him, and what the state’s economic status is. Ours is good. People move here from other states,” Maggart said.

“He contrasted all the good things about Tennessee and how we keep moving forward on those things.”

Laffer Associates, an economic research and consulting firm, is in Nashville. An effort Wednesday seeking comment by Laffer on the Republican retreat was unsuccessful.

Other speakers at the retreat included Clint Brewer, assistant commissioner for communications for the Department of Economic and Community Development; a presentation on communications for lawmakers by a consulting firm; and a presentation by Public Opinion Strategies, which handles polling.

Southerland Holding Out Hope for NE TN Megasite

State Sen. Steve Southerland sounds enthusiastic about the possibility of Upper East Tennessee landing a TVA megasite like the ones taxpayers provided for Volkswagen and Hemlock Semiconductor.

But the Morristown Republican’s enthusiasm may be more a matter of a legislator cheerleading than an indication of any substantive action. Other officials, including some community leaders in the region itself, say they see no hint of a megasite headed to the area, for a variety of reasons.

State Economic and Community Development Commissioner Bill Hagerty said recently he had heard the subject come up in regard to Upper East Tennessee, but he downplayed the potential.

“In terms of a new large-scale megasite like West Tennessee, I think there is a lot of optimism we might be able to do that in other parts of the state, but there is nothing along that magnitude on the drawing board right now,” Hagerty said.

Alan Palmieri, mayor of Jefferson County, said he has heard the subject raised for his region — but only “for years and years and years.” Mayor Bill Brittain of Hamblen County, which includes Morristown, said this week he has not heard the matter come up.

But in talking to a reporter at a recent event in Morristown, Southerland made it sound like efforts are underway for landing a megasite.

“We’ve got sites in the area that could be a megasite,” Southerland said. “It has a good possibility, because our counties are working together. We know it has to be a joint, regional project.

“We approved three megasites. We’ve got one in West Tennessee, Middle Tennessee and then one in Chattanooga. But we have not received one for Upper East Tennessee. It’s our turn. We spent the money down there. If the people are willing to work together up here and we have somebody wanting to come this way we’re going to go for it.”

Megasites have been noteworthy for several reasons recently. Tennesseans have begun to see the fruits of preparing large tracts of land and infrastructure, with Volkswagen opening its manufacturing plant in Chattanooga and Hemlock making an impact in Montgomery County, including ties with Austin Peay State University.

A third megasite, in Haywood County in West Tennessee, has begun to get more attention from government officials, but it remains vacant.

Gov. Bill Haslam has taken some of the glimmer off the headline-grabbing practice of attracting large businesses to the state, pointing out that most of the job growth comes from existing businesses, not high-profile relocations.

Nevertheless, Haslam has repeatedly said that doesn’t mean the state has abandoned the big relocation approach. At an economic development meeting in Morristown, Haslam said the administration is still ready “to move heaven and earth” to get such investments.

Southerland picked up on that line.

“Just like he said, we’d move heaven and earth to get another Volkswagen here,” Southerland said. “When you look at Hamblen County, we’re like a hub for other counties bringing in automotive jobs.”

Taxpayer bill can reach hundreds of millions of dollars

State and local taxpayers typically can end up contributing hundreds of millions of dollars to the development of a megasite.

In the case of the Enterprise South industrial site that attracted Volkswagen to Hamilton County, the government’s bill, including tax breaks, was estimated in one report at $500 million. Volkswagen made an investment of $1 billion, roughly the amount Hemlock put into the megasite in Montgomery County.

Arrangements for the sites can involve help from federal, state and local governments. After that, the value of the investment is widely open to debate. Economic development officials routinely have said the kinds of businesses attracted by the megasites are giant winners for the locations. But increasingly, questions exist as to the return on the investment in attracting jobs, as states have become highly competitive.

Haslam has expressed surprise at what some companies want in return for creating jobs in Tennessee, although he has said his administration remains interested in attracting the types of investments made by Volkswagen and Hemlock.

“In this state, the funding for the megasites has been a combination of local government money and state government money, with some participation from TVA funding the certification process,” said Clint Brewer, spokesman for the Department of Economic and Community Development.

In Montgomery and Hamilton counties local governments handled the purchase of the land. For the Haywood County megasite, where local governments lack such resources, the state has purchased most of the land. Theoretically, private entities could have to assemble the property at a megasite.

“The local communities pay for the site’s due diligence and improvement, such as environmental reviews, infrastructure improvements, etc.,” said Mike Bradley, of the TVA news bureau in Knoxville, by e-mail Thursday. “This sometimes is done even after the site has been certified as a megasite. The effort is usually championed by a local economic developer.”

The Tennessee General Assembly this year passed legislation (SB1239) to allow the East Tennessee Regional Agribusiness Marketing Authority, or ETRAMA, to issue bonds.

The idea of economic development in the region is to enhance development along the I-81 corridor.

Two issues face the region on infrastructure for business development: hooking up a sewer system to accommodate large capacity and getting connectors in place for major rail lines in the region. Plans for the sewer line would involve trunk lines that would feed wastewater into a plant in Lowland, which is in Hamblen County.

The vacant megasite in Haywood County has 1,720 acres. Another vacant TVA megasite in Hopkinsville, Ky., has 2,100 acres. Those kinds of numbers may work against mountainous Upper East Tennessee.

“I was told years ago because of our geography it’s hard to collect 500 flat acres,” said Rep. Tony Shipley, R-Kingsport. “Maybe we don’t get a megasite. Maybe we get a mega-area.

“The same amount of money is being spent in Chattanooga, West Tennessee and the Nashville basin area. Maybe that same amount of money could come here, because we are distinctly different.”

Palmieri, the Jefferson County mayor, makes a similar observation.

“You look at the land, and you say, ‘Where are you going to locate this?’ Terrain would be part of the process because whatever you do, you’ve got to make it economically feasible. If you’re going to have to go in and take down mountains and blast and everything else, it’s going to add to the cost, which everybody wants to avoid.”

In another way, however, geography is a plus for the region. State and local government officials point to the fact the region is within driving distance of a large portion of the nation’s population.

Like Disney World theme park, talk of megasite ‘just conversation’

Palmieri has heard talk of a megasite but sees little in the way of real progress.

“I know various mayors have talked about it for many years. Various chambers (of commerce) have talked about it. Nothing has really developed outside the fact it’s just conversation,” he said.

“Where would you go? Who’s going to bring in something that massive today? It’s probably been put on the back burner, but it’s been going on for I guess probably the last 10-12 years.”

Southerland sees other factors.

“We know with the earthquake in Japan and the value of the U.S. dollar that Japan will be looking more at investing in the United States in automotive plants. And we’re hoping to get one of whatever comes this way,” Southerland said. “You’ve got to be prepared because when they come they’re going to be looking for somebody that’s already ready to go.”

Palmieri said that for years there was talk that the people from Disney World were going to put a theme park in Cocke County.

“I heard that for 20 years,” he said. “That was a hot one there for awhile. It was going to be just a regular theme park, like a Disneyland or Dollywood. That was before Dolly owned Dollywood.”

But if the region were to get a large plant, Palmieri says the automotive or airline industries would make good sense. He said the area’s workforce, which has experience in production lines, would be good for a manufacturing base.

When asked why the airline industry would be a good fit, Palmieri said, “Everything they have is predominantly in a high-tax area. What they’re having to pay the workforce there is probably three or four times what they could have to pay a workforce here in Jefferson County or East Tennessee.

“Transportation-wise, with the Interstate and everything else, easy access in and out, I can see where they could save a lot of money, and it’d be much more profitable for their company.”

Aircraft maker Boeing has recently been involved in a dispute with the National Labor Relations Board over a plant it plans to build in South Carolina. Palmieri said Tennessee should get a look.

“If Boeing ever took a serious look, they could come in, acquire property and build buildings and have a workforce ready to go, and they would save money almost right off the bat,” he said. “South Carolina is more expensive. They have payroll taxes and everything else. I don’t understand that.

“I have family there. It’s a beautiful state. I can’t stand Steve Spurrier (the South Carolina football coach). But why would you go to South Carolina when Interstate access, transportation needs, centralization, taxes, everything is so much better right here in East Tennessee? I don’t understand that.”

Veteran Journalist, Former Think Tank Director Tapped to Speak for State Economic Development Agency

Press Release from the State of Tennessee, July 19, 2011:

Award-Winning Reporter, Editor and Publisher to Lead ECD’s Communications and Marking Efforts

NASHVILLE — Tennessee Economic and Community Development Commissioner Bill Hagerty today named veteran journalist Clint Brewer as Assistant Commissioner, Communications and Creative Services.

“I’m pleased to have someone with Clint Brewer’s depth of experience joining our economic development leadership team,” said Commissioner Hagerty. “As a former business owner and media executive, Clint Brewer will effectively lead our department’s communications and marketing efforts.”

“I’m grateful to Governor Haslam and Commissioner Hagerty for this opportunity,” said Brewer. “Tennessee is one of the very best places in this country to do business, and I am excited to help spread that message.”

Brewer comes to ECD with more than 15 years experience in the Tennessee media as an award-winning reporter, editor and publisher. He was previously at The Tennessean in Nashville as the newspaper’s political editor. He has also previously served as editor of the daily Lebanon Democrat and of Nashville’s City Paper. Brewer started his own company in 2000 where he owned the Mt. Juliet News, a weekly newspaper in Wilson County.

Prior to his tenure at the Tennessean, Brewer was executive director of the Tennessee Center for Policy Research, a non-profit, free market think tank.

Brewer is a native of Knoxville, Tenn. and a graduate of the University of Tennessee-Knoxville. He was national president of the Society of Professional Journalists in 2007-08, where he led a lobbying effort in the U.S. House and Senate to see a national reporter shield law passed. He is a former board member of the Tennessee Press Association, and served as the co-chair of TPA’s Government Affairs committee during the last legislative session.

In his current role, Brewer will lead all communications and marketing efforts for ECD, including oversight of the department’s press and creative services teams. ECD’s Communications and Creative Services division keeps staff, legislators, other state and city departments, local agencies, the media and the general public informed of ECD services, programs and activities. The division also provides strategic communications planning for the department and the coordination and execution of all ECD public events.