Lost jobs deal raises questions about state incentives
Posted November 23, 2011
RALEIGH, N.C. — North Carolina is consistently ranked one of the most business-friendly states in the country. But the state jobless rate, at 10.4 percent, is well above the national average of 9.1 percent, and the state only added 700 private sector jobs last month.
Nearly twice that many jobs slipped away last month because state leaders disagreed on what those jobs were worth.
A deal, code-named Project Soccer, with Continental Tire was on track to bring a new plant and 1,300 jobs to Brunswick County, but state leaders couldn't agree on an incentive package, and the jobs went to South Carolina instead.
Politicians blamed each other when the deal fell through. Senate President Pro Tempore Phil Berger, R-Rockingham, blamed "pay-to-play politics" by Gov. Bev Perdue for the loss.
But emails between lawmakers and Perdue officials show that politics didn't have much to do with it. What killed the deal was its bottom line. The state and local incentives that the company wanted added up to about $100 million – about $77,000 per job.
That's not the most the state has ever paid. In 2007, Google got nearly $1 million per job. But Google has to keep its employees for many years to recoup that money through tax breaks.
Continental Tire wanted an unprecedented $45 million up front to help build its new plant. Had it failed to produce the jobs it promised, the state would have had difficulty recouping the money.
Berger said no, and the deal fell through.
State Commerce Secretary Keith Crisco says states compete aggressively for new jobs, and North Carolina can't afford to "unilaterally disarm."
"It's just a decision we have to make as jobs continue to be precious and competition's revved up," he said. "Do we meet competition?”
States, however, don't even know what other states are bidding. Only the company knows what each state is offering. That's because records for economic development deals aren't made public until the deals are closed.
Berger declined to be interviewed for this story, but has previously said that he "didn't think it was the best use of taxpayer dollars" in a tight budget year.
North Carolina Institute for Constitutional Law director Jeannette Doran couldn't agree more.
"These specially crafted backroom deals – that's crony capitalism, and it stinks to high heaven," Doran said.
Doran's group fights incentives in court. She says that the state shouldn't be handing out money to a few chosen businesses while taxpayers foot the bill.
"That's fundamentally unfair, and the public knows it. I think other businesses know it," she said. "If the state thinks that the way to stimulate the economy and promote job growth is some kind of incentive program, then one would think they'd want to offer that incentive to everybody."
Doran says economic development programs like the One North Carolina Fund and the Job Development Investment Grants are fairer because anyone can apply for them.
Other critics of incentives, including presumed 2012 GOP gubernatorial contender Pat McCrory, say the state should put the money it spends on incentives into cutting tax rates for all businesses instead.
Commerce Secretary Crisco agrees that a tax cut would help the state recruit businesses. "But to say we’ll do that and nothing else, and ignore every other factor in economic development, would be a mistake," he said.
The big question, Crisco says, is what future companies will ask for in return for new jobs.
"If this trend continues," Crisco asked, "if it goes 20 more years, what’s the end game? I don’t know. We need to have that discussion."