No Free Refills: The Starbucks Clawback Clause

Despite some pushback during public comment, Metro’s Industrial Development Board narrowly approved the state’s $30 million FastTrack economic development grant for Starbucks during today's meeting. When complete, Starbuck's new regional headquarters will be in Nashville. The $100 million investment in Music City involves a 250,000 square feet build out at Peabody Union.

“These are state of Tennessee dollars. They are not Metro dollars," clarified James Weaver, a partner at Holland & Knight representing Starbucks. “This is not an appropriation by the Metro Council. This is not a grant being awarded by the mayor’s office. This is not a grant being awarded by the metropolitan government.”

The Agreement

The state’s FastTrack grant comes with a clawback clause tied to the company’s commitment to create 2,000 corporate jobs over five years. Those jobs don’t have to go exclusively to existing Tennessee residents. Instead, positions filled by workers recruited locally or relocated from outside the state count. It’s also worth mentioning that the jobs aren’t retail positions like barista jobs. Starbucks will be bringing corporate jobs with weighted-average salaries of about $125,000 per year. If the commitment is fulfilled, the state will have invested roughly $15,000 per new job created.

The Clawback

The grant comes with a 10-year accountability period, during which Starbucks must report its job numbers annually and maintain its employment commitments. The clawback provision allows the state to recover some or all of the grant money if Starbucks falls short.

If the coffee giant creates less than 50 percent of the promised jobs, it will have to pay the entire incentive back to the state. If only 50-90 percent of the jobs are created, it will owe a proportionate amount of the money back. Even after Starbucks reaches 2,000 jobs, it must maintain them through the end of the accountability period or risk repayment.

Investment in Permanent Infrastructure

Starbucks can only use the state's $30 million grant as reimbursement for eligible construction and build-out costs, rather than getting an upfront cash payment that can be used toward anything. Only permanent infrastructure and construction can be reimbursed by the grant dollars. “Starbucks agreed to make these commitments and agreed to the accountability requirements that accompany that support, including reporting obligations, performance standards, and clawbacks,” said Weaver.