There's No There There: Avoiding Government Finance Program Risks

Two stories play on repeat in economic-development work. In the first, a business finds a program that looks perfect — only to learn it’s past deadline, expired, or unfunded. In the second, a company that won support later trips a program requirement and suddenly hears words like “clawback” and “recapture.” Both are avoidable with diligence, and both are more survivable than they first appear. The lesson: verify before you rely, and when something goes wrong, don’t assume the money is simply gone.

”Found a program” isn’t the same as “qualifies for a program”

Most people doing economic-development work have a couple of stories that go like this: a client calls, says they found a program they want help getting into — and you have to tell them, “Not so much.” You found a reference to something that fits what you want to do, and now it’s your consultant’s job to help you monetize those benefits, right? The problem, invariably, is that the program is past an application deadline, expired, or unfunded. That’s most often the case federally, but state programs are similarly creatures of legislatures subject to competing priorities over time. Funding does occasionally reappear — but if you’re counting on a program you need right away and haven’t diligenced it, you’re likely to be disappointed.

Compliance failures land on the private partner

The second most common story: “We didn’t meet the program requirements — what now?” A great question, and likely one we briefed you on back when we got you the money. While failure is an orphan, the failure of an economic-development agreement is not — it lands on the private enterprise that received the support. Whether the failure is the business’s fault or not, the outcome is the same: some government entity will be on your doorstep using words like “clawback” or “recapture.” In a rebate or reimbursement program (common for sales & use tax breaks or conduit benefit programs), a breach can render you ineligible for some or all of the remaining benefit package. Beyond the negative attention and the explanations you’ll owe your Board or shareholders, the real-world consequence is that you have to disgorge the funds or go without the reimbursement — money the business relied on when it budgeted and planned.

Never say never

Here’s the encouraging part: don’t lose hope. We can’t always sweep in at the 11th hour and save the day, but there are things we can do in either situation to move the needle — negotiating a standstill agreement with the enforcement authority to buy time (lenders like to call that “extend and pretend”), a revised ED agreement, or simply an end-run to the regulator or legislature. There are still ways to preserve your benefits instead of just handing back the money.

To recap: not all that shimmers is gold, and forewarned is forearmed.

Related reading

• It’s Always Government Finance Season
• The New Grant Criteria Aren’t ‘Check-the-Box’
• Economic Development as a Path to Policy Change

Prosody diligences programs before you commit and steps in when a deal is at risk — protecting the benefits you’ve already earned. This is practical program advisory, not legal advice. Talk to us about your project →