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70 Ind. L.J. 1009 (1994-1995)
The Use of Penalty Clauses in Location Incentive Agreements

handle is hein.journals/indana70 and id is 1015 raw text is: The Use of Penalty Clauses in Location
Incentive Agreements
In October, 1980, the State of Tennessee provided Nissan Motor Manufac-
turing Company with $33 million in financial incentives to induce the
company to locate its first U.S.-based assembly plant in Smyrna, Tennessee.'
The incentive package, valued at $11,000 per Tennessean employed at the
plant, included funds for worker training and road improvements.2 In
December, 1986, the State of Indiana offered more than $86 million in
financial incentives to Isuzu Motors Ltd. and Fuji Heavy Industries, Inc. as
an inducement to locate their planned joint venture in Lafayette, Indiana.3
Indiana's incentive package, which included $55 million directly from the
state budget and $5 million from the local city and county governments for
infrastructure improvements, cost state taxpayers $50,588 per worker
employed at the Fuji-Isuzu plant.4 In October, 1993, the State of Alabama
provided Mercedes-Benz AG (Mercedes) with a package of financial
incentives worth more than $300 million.5 The package, valued at $200,000
per job created at the plant, included an interest-free loan of more than $42
million, construction of a $35 million training center, and an agreement to
purchase more than 2500 Mercedes vehicles for state use.6 Finally, Alabama
agreed to pay the salaries of Mercedes employees during their training at the
state-built training center.7
These direct financial incentives offered by state and local governments to
attract and retain businesses are essentially investments in a speculative
venture by the taxpayers of a community! Public officials anticipate that the
investments they make on behalf of the local citizens eventually will cause the
community to prosper due to the newly created jobs and the ripple effect on
incomes, land values, and increased demand for goods and services. Public
officials' willingness to gamble with public funds has caused an expensive
bidding war pitting state against state, county against county, and township
* J.D. Candidate, 1995, Indiana University School of Law-Bloomington; B.S., 1992, University
of Michigan. I wish to thank Professor Sarah Jane Hughes for her assistance and comments on earlier
drafts of this Note.
1. H. Brinton Milward & Heidi H. Newman, State Incentive Packages and the Industrial Location
Decision, 3 ECON. DEv. Q. 203, 211-13 (1989).
2. Id.
3. Susan Pastor, Fuji, Isuzu Plan U.S. Auto Plant, N.Y. TIMES, Dec. 3, 1986, at DI.
4. Id.; see also Milward & Newman, supra note 1, at 218.
5. E.S. Browning & Helene Cooper, Ante Up; States' Bidding War Over Mercedes Plant Made
for Costly Chase, VALL ST. J., Nov. 24, 1993, at At.
6. Id.
7. Id.
8. See, e.g., IND. CODE § 4-4-8-12 (1993) (labeling location incentive packages as investments).


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