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@NCCapitol

Lost Mercedes deal unlikely to speed action on incentives

Posted January 7, 2015

Image courtesy Mercedes-Benz USA

— A day before Mercedes-Benz USA passed on North Carolina sites and opted to move its headquarters to Atlanta, Gov. Pat McCrory urged legislators to act quickly when they return to Raleigh in the coming weeks to shore up the state's job incentive programs.

But state lawmakers don't appear to be in a hurry.

For months, McCrory and leaders from the North Carolina Department of Commerce have said they need better tools to recruit large companies to the state and boost job growth. McCrory reiterated Monday that lawmakers needed to move fast to at least extend the state's Job Development Investment Grant program, or JDIG, which is set to expire in 2015.

"I need you to help me work with the General Assembly to get a new strategic program in place, and this has to be done in literally a matter of weeks if we're going to continue to have success," McCrory told executives gathered at an economic forecast forum. "This has to be the No. 1 priority in the first two weeks of this legislative session."

Lawmakers will be back in Raleigh briefly next week before returning in earnest for the 2015-16 long session in late January.

State Rep. Julia Howard, R-Davie, said that, when the House and the Senate get back to work, priorities such as Medicaid and education will likely take precedence over incentives.

"Is it going to happen in the next two weeks?" Howard said. "No. Nada."

Between JDIG and the One North Carolina Fund, the two largest incentive programs, state officials have committed to paying out nearly $800 million to companies through 2027.

Howard said any decision about renewing a commitment of that size will take time.

"That’s a billion dollars that’s done good things, bringing industry and jobs into the state," she said. "But at the same turn, that’s a billion dollars of revenue the state is not receiving."

Senate plans in-depth review of programs

In the Senate, the issue of economic incentives is likely to face similar questions.

"There are some folks who say JDIG has delivered good results, and you measure that in economic growth and job creation," state Sen. Bob Rucho, R-Mecklenburg, said. "But it’s time for the General Assembly to take a good look at it and make sure it is indeed a program worthy of being continued."

Rucho said the Senate's Republican leadership has seen far more value in lowering tax rates for individuals and corporations. The General Assembly lowered the state's corporate tax rate in 2013 to stay more competitive with the rest of the Southeast. But he said broadening those reductions remains the priority, rather than providing incentives to particular companies.

"What we're trying to do by moving to a lower rate for everyone is to stop government from picking winners and losers," he said.

Economic incentives will at least be on the table early, according to state Sen. Harry Brown, R-Onslow. He noted that the Senate did pass a bill that would have extended JDIG and add a "catalyst fund" to help the governor close big deals, but it failed in the House over a number of unrelated additions.

"We would like to get a better feeling of where the House is on some of these issues," Brown said. "I think most of the senators feel like we've got to be in the game."

That's a common refrain both inside the legislature and among incentive proponents at the Commerce Department, who have touted the programs as necessary to lure new job growth to the state and beat out competitors such as South Carolina and Georgia.

Mercedes announced Tuesday that it would move its current New Jersey headquarters to Atlanta starting in July, affecting about 1,000 of its workers. North Carolina was one of several states competing for the project, Brown said, which would have been a "tough win for us regardless."

Commerce Department spokeswoman Kim Genardo would not comment Wednesday on what North Carolina offered Mercedes or who else was competing for the project.

Although the new headquarters would have been good news for North Carolina, Brown said, the state would have had to offer a much larger incentive package than Georgia to compensate for factors such as Georgia's proximity to the luxury car manufacturer's Alabama plant.

"It would have to be so much money they couldn't turn it down," Brown said. "That's a poor position to be negotiating."

Questions remain over 'catalyst' fund details

Among the unanswered questions about the future of the state's incentives programs is whether the governor will seek the catalyst fund he pursued in 2014.

What jobs cost EXPLORE THE DATA: How NC's job incentives perform

Before she left her post late last year, former Commerce Secretary Sharon Decker said the department was working on a new proposal for the closing fund, which common competitors such as Georgia, Texas and South Carolina set up years ago.

McCrory said new Commerce Secretary John Skvarla, now in his first week on the job after transitioning from head of the state's environmental regulatory agency, would brief lawmakers soon on the new proposal.

Genardo said Tuesday she had no details yet on the plan or when Skvarla planned to update members of the General Assembly.

Rucho said he will welcome Skvarla's thoughts on the proposal, but he said any proposal for a new closing fund would have to be strategic and ensure a return on the taxpayer investment.

"If it’s just an outright giveaway just to close a deal and say, 'We give you $25 million, you come to North Carolina,' that’s not fair for every other business and for every other citizen that has to pay higher taxes to entice that business to come here," Rucho said.

He said it's important that North Carolina's existing grants, including JDIG, are performance-based so companies can claim payments only if their hiring meets projections.

Yet, more often than not, companies fail to deliver those jobs.

A 2014 WRAL News analysis of awards granted under former Gov. Bev Perdue found that years after these jobs were announced, a majority of them failed to fully materialize.

The investigation also showed the grant awards were concentrated in urban areas and away from the state's most impoverished counties, where new jobs make the biggest economic impact.

Brown said that rural-urban divide is a concern he's hearing more often – and one that's sure to come up as the debate over incentives continues.

"There's a concern that we're developing two North Carolinas," he said, "that's the wealthy and the not-wealthy counties."

'Prosperity in the future'

This isn't the first time North Carolina has lost out on new jobs with Mercedes-Benz.

In 1993, Democratic Gov. Jim Hunt was in hot pursuit of the company, which eventually opted for Alabama and its millions of dollars in incentives.

In a September 1993 statement, Hunt said he was proud of North Carolina's offer, which was based largely around skills training for workers, and he said he couldn't envision needing the kind of incentives Alabama offered.

"The competition is getting stiffer, and we've got to work harder to stay ahead," Hunt said. "But we do not need to risk the future of the franchise to recruit star players. We already have star players."

The loss of the Mercedes plant sparked a two decade-long buildup of incentive programs in the state.

Read the 1993 letter from Mercedes-Benz project President Andreas Renschler to Hunt after the decision.

19 Comments

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  • tbg0519 Jan 12, 2015

    If McCrory had offered more incentives he'd have been demonizing as giving money away to big business. He didn't, they opted for Atlanta and he's demonized for not landing the deal. Gotta love no-win situations. Mercedes played NC to get more $$ from GA.

  • jshankle Jan 10, 2015

    Why am I not surprised!!!!!!
    Only in NC!!!!!!

  • dlnorri Jan 10, 2015

    The incentive programs are bad news, bad, bad, bad. The corps just play one state against the other for a big wad of cash in their pockets. We already have explosive growth and problems dealing with population (school, road, infrastructure growth). Hot-Lanta is nowhere near as bad as the smelly pit that exists in NY/NJ, but it is a far cry from living in Raleigh. If they want to do that to their Employees, it is their decision.... (they should count the number of folks that get on an airplane to commute to work from Raleigh every week and compare that to Atlanta....)

  • xylem01 Jan 9, 2015

    Well they threw the movie industry under the Mercedes and now Mercedes has waved goodbye and told McCrory to do some tail kissin' - no rocket science there that's for sure!

  • miseem Jan 8, 2015

    View quoted thread


    I'm trying to figure out how these low tax states can afford to pay these high bribes for companies relocating. Particularly when a lot of the bribe includes forgiveness of taxes and covering development expenses like roads and utilities that cost taxpayers money. With most of those taxpayers receiving none of the benefit of those bribes. Maybe those low tax states are not really that low in taxes. They just get it from a different tax source. I know that Texas, Alaska and some states currently big in fracking have royalty payments to offset taxes, but this does not fit with SC, Georgia and many other states. And I'm sure if you check news websites in those states, you have just as many complaints about high taxes there. I'm also wondering why NC has ranked so high for years in business friendliness and relocations if the taxes were chasing them away.

  • ncsuweatherboy Jan 8, 2015

    I'm confused and would like to know more about why Governor McCrory said he doesn't know what tools he has available for recruiting business. That's a poor excuse Governor McCrory.

  • 42_wral_mods_suck_i'm_gone Jan 8, 2015

    FYI the Keystone pipeline gives US companies between $1 billion and $1.8 billion in tax breaks to buy equipment to process the tar sands. Does the GOP and tea party still support it? Why doesn't the free market buy the new equipment?

  • Lee Howell Jan 8, 2015
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    The RDU area has one of the highest concentrations of people with higher education degrees in the nation. Yes, I realize that it is drastically different in the rest of NC but there is still a tremendous and appealing workforce right here in this state to bring in big companies.

  • 68_dodge_polara Jan 8, 2015

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    I feel the same about special tax breaks. What one doesn't pay someone else has to.

  • Eq Videri Jan 8, 2015
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    And that's not what happens here. State and local incentives typically are *partial* reductions in future tax liability in return for creating new jobs and investing here. We still come out ahead.

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