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States Tighten Up Tax Lures

Budget crises have some states cutting back on tax breaks for attracting and retaining businesses. New Jersey Governor Jim McGreevey is proposing a one-year hiatus for a $38 million incentive program aimed at luring businesses to the state.

Budget crises have some states cutting back on tax breaks for attracting and retaining businesses. New Jersey Governor Jim McGreevey is proposing a one-year hiatus for a $38 million incentive program aimed at luring businesses to the state. In California, Governor Gray Davis is proposing to sunset all tax breaks and to make them subject to review every five years.

States also are looking at reforming their incentive programs or attaching more strings to them. In Nebraska, which has been offering businesses income- and sales-tax credits since 1987, the legislature is adding a requirement that companies getting the break pay workers at least $8.25 an hour. Other changes expected to pass include requiring that companies flouting environmental or labor laws repay their tax credits, and a disclosure provision aimed at making it easier to track how much in credits companies are given and how many jobs they create in exchange.

Disclosure is key to reforms expected to pass in Illinois, where Motorola closed a cellular phone plant in April. Just nine years ago, Motorola played Illinois against Wisconsin in competition for the plant, winning $36 million from Illinois in tax credits and road improvements. Now state Representative Jack Franks is pushing for tighter disclosure of tax breaks, and for so-called "clawbacks" requiring companies to repay the state if they leave. "If we make this kind of investment," Franks says, "we have a reasonable expectation that the employer will stick around."

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