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Case

Briefings


State Incentives in North Carolina

Roots


The roots of political discourse about economic development and incentives lie deep in North Carolina. The interim report by the incentives task force of the Economic Development Board cites a certain Mr. Fisher who, before the North Carolina House of Commons in 1828, raised the need for some form of state-condoned industrial recruitment strategy to ensure that North Carolina fulfill its destiny as "a region of country well adapted to manufactories." [GO TO FISHER'S COMMENTS.]

The amicus curiæ brief of the John Locke Foundation filed in the recent Maready case declares, "In every administration and legislative session into the last century the issue has come up in one form or another." [GO TO LOCKE BRIEF] The Locke brief goes on to define the tri-partite economic policy statement reiterated by Governors throughout the century, one that initially proclaims successes in industrial recruitment, then bemoans continuing economic distress, and finally concludes by proposing new initiatives meant to capture more capital.

[CONTENTS]

Industrial Recruitment Strategies

Initiatives specifically targeting industrial recruitment typically make up only a portion of a state's overall economic development efforts. For example, North Carolina's package of activities geared towards boosting new industries funded directly by the state accounted for some 10 percent of the overall appropriations for economic development in fiscal year 1995, according to the Interim Report of the Incentives Task Force.

Direct appropriations of state funds for such incentives as cash grants and low-cost debt financing provide only one part of a potential package of state offerings. Incentives can also be minted through the use of the tax code, providing tax credits and exemptions to eligible industries. To proponents of incentives, an effective incentive policy can have weight far beyond on-the-barrel offerings to specific companies; it holds the promise of shaping the economy's overall trajectory.

[CONTENTS]

North Carolina's Experience

Ever since the progenitor of modern industrial recruitment programs, Mississippi's Balance Industry with Agriculture initiative, began in the 1930s, industrial recruitment incentives have played a particularly important role in the economic development strategies of southern states. Nowhere in the Southeast has the economic transformation from agriculture to industry been more complete than in North Carolina, which can lay claim to the title of the nation's most "industrial" state. A higher proportion of North Carolinian workers -- one out of four -- are employed in manufacturing than any other state. [GO TO INTERIM REPORT]

North Carolina's use of state-level incentives during this transformation has been modest relative to that of most other states. The Incentive Task Force articulated what it found to be the state's "Implicit Policy on Incentives," contrasting this policy with those of other states.

As described by Rick Carlisle and others, North Carolina's current approach at the state-level has evolved from a traditional emphasis on worker-training and transportation to include a modicum of other incentives, such as industrial bonding programs and tax credits to companies locating in the 50 "most distressed" counties.

[CONTENTS]

The Competitive Fund


In 1993, newly-elected Governor Hunt established a cash fund, called the Governor's Industrial Recruitment Competitive Fund, that for many marked North Carolina's entry into the 1990s round of economic development warfare. Following up on a campaign promise to place the creation of jobs among his top priorities, Governor Hunt, a Democrat, won approval from a predominantly Democratic State House and Senate for a special pool of grant monies to help "close deals" with desirable firms. The use of such gubernatorial war chests was already commonplace in many other states - and other governors could boast of far higher sums than the $14 million Hunt received during the first three years of the fund. Nonetheless, the fund departed from the state's de facto strategy of focusing incentive efforts on encouraging jobs in rural areas.

Creation of the competitive fund came as part of a package of economic development initiatives Hunt had placed before the legislature in an attempt to attract Mercedes. However, Alabama's success - offering a package worth twice that of North Carolina's - caused many to question North Carolina's involvement in inter-state bidding wars at the same time as they were taking pride in the limits set by the package offered by the state. In such an atmosphere, the competitive fund came under close bi-partisan scrutiny, which only increased when Republicans gained control of the State House following the 1994 elections. [GO TO GOVERNOR'S FUND LINKS BELOW]

[CONTENTS]

The Task Force

Doubts about a departure from North Carolina's long successful "take it or leave it" strategy towards investment capital, paralleled mounting competition among states for new business. States deployed ever-more elaborate arsenals of incentives not solely aimed at the "trophy" projects, but geared more towards the range of projects economic development officials encountered daily. [GO TO BRIEFINGS: THE ART OF THE DEAL]

This potential collision of interests led the Governor to assign the state's Economic Development Board the task of "reviewing the state's current competitive position in attracting new investment." The review was conducted by a task force of half a dozen board members along with 10 others from business and local government around the state. The Governor's Chief Economic Policy Advisor, Rick Carlisle, served as lead staff.

Among the most interesting products of the work of the task force was a comparison of statutory incentives across 7 southeastern states. The comparison drew on actual corporate data to model the incentive packages that could be offered to 4 different companies. [GO TO INTERIM REPORT: APPENDIX D]

After five meetings over seven months, the task force offered the Governor and the legislature a range of options for a "modest expansion" of the state's incentive programs. The recommendations focused on expanding the use of tax credits in an attempt to begin to match the statutory provisions in effect in other states.

The full Economic Development Board approved the recommendations of its task force just two days before the state Supreme Court was to begin hearing arguments in the Maready case, a sense of timing widely interpreted as a riposte to Maready's challenge. The Raleigh News & Observer reported that prior to approving the recommendations, the Board heard a "fiery speech" from Commerce Secretary Dave Phillips, who proclaimed, "This is a week that's going to define the future of economic development in this state."

[CONTENTS]

The Way Forward

The immediate threat posed by the Maready challenge is now past. On March 8, 1996, the Supreme Court ruled incentives legal, overturning a lower court's ruling. "The Maready case has served to energize lots of opponents," John Hood, president of the John Locke Foundation, was quoted as saying in the Charlotte Observer. "I think the prospects for (legislative action) are very good." Secretary of Commerce Dave Phillips had other ideas about legislative action in reaction the Court's decision, however, telling the Greensboro News & Record, ''The legislature, both Democrats and Republicans, need to find how to make North Carolina more competitive.''

For a moment, state policy regarding industrial recruitment incentives seemed irrelevant in the face of the constitutional challenge of the Maready case. With the Supreme Court's decision, however, the question of incentives was thrown back into the policy arena. Many competing issues, not just the singular issue of legality, would have to be weighed in the balance as the state struggled to define its stance towards incentives in the 1990s.

[CONTENTS]

Key Links - Incentive Policy

Economic Development Board Incentives Task Force Reports

Final Report, March 4, 1996
Interim Report, November 8, 1995
Appendix D: A State-by-State Analysis of Estimated Incentive Packages and Taxes

News articles

Cutting corporate welfare in North Carolina, Marketplace radio broadcast, Apr. 11, 1996 (Length: 7:34)
   [ Transcript ]
   [ RealAudio 2.0, 14.4 kbps file ]

State board approves business incentives, Raleigh News & Observer, Feb. 15, 1996
Incentives Battle Lines Drawn, Charlotte Observer, Feb. 14, 1996
Too many projects lost may trigger NC incentives, Business Journal - Charlotte, Jan. 1, 1996
State incentive plan mulled, Raleigh News & Observer, Nov. 9, 1996

The Governor's Industrial Recruitment Competitive Fund

News Articles
The jobs gambit (Editorial)
, The Charlotte Observer, Jan. 20, 1996
DOC Responds to Observer (OpEd),The Charlotte Observer, Jan. 20, 1996
Firms pledge jobs; NC doesn't check, The Charlotte Observer, Jan. 12, 1996
Incentives pay off, study says, Raleigh News & Observer, Aug. 17, 1995
Goodyear's flipside a downside, Charlotte Observer, Aug. 10, 1996
NC incentive rules changing, Business Journal - Charlotte, Mar. 20, 1995
Jobs fund put under new rules, Charlotte Observer, Mar. 16, 1995
Why not first in integrity (Column), Charlotte Observer, Aug. 21, 1994
Competitive Fund Advisory Panel study, The Charlotte Observer, Oct. 17, 1994
Mercedes, have we got a deal for you, Charlotte Observer, Jul. 26, 1993
Creating jobs for NC (OpEd), Charlotte Observer, Jun. 16, 1993
Dangling the wrong carrot (Editorial), The Charlotte Observer, Feb. 25, 1993
Similar funds in other states: Virginian-Pilot Governor Allen's Opportunity Fund

State-level Incentive Offerings

A State-by-State Analysis of Estimated Incentive Packages and Taxes, Appendix D, Incentives Task Force Interim Report, Nov. 8, 1995.
Incentives: North Carolina's Application, Incentives Task Force Interim Report
Evolution of Incentives, Rick Carlisle, Roundtable
Overview of NC Economic Development Policy, Amicus Brief, John Locke Foundation

News Articles
No bait to fish for Volvo, Raleigh News & Observer, Jan. 24, 1996
Is incentives race slowing? Greensboro News & Record, Dec. 17, 1995
Whole hog for business (Editorial), Charlotte Observer, Nov. 19, 1995
Invest in industry and jobs (OpEd), Charlotte Observer, Nov. 19, 1995
Incentives are bribes (OpEd), Charlotte Observer, Nov. 19, 1995
Business Subsidies Booming, Charlotte Observer, Oct. 28, 1995
Incentives game: What's next move?, The Charlotte Observer, Sep. 25, 1995
The incentives game (Editorial), Greensboro News & Record, Aug. 12, 1995
Smart way to play incentives game (OpEd), Greensboro News & Record, Jun. 12, 1994
Mystery of phantom jobs, Charlotte Observer, May 14, 1994
Mercedes, have we got a deal for you, Charlotte Observer, Jul. 26, 1993
Creating jobs for NC (OpEd), Charlotte Observer, Jun. 16, 1993
The new buffalo hunt (Editorial), Charlotte Observer, Apr. 11, 1993

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