EconWar



The News & Observer


Raleigh, N.C.


March 18, 1996

Favors for business . . .
(Editorial)



Copyright © 1996, The News & Observer



Business recruiters have found five friends on the North Carolina Supreme Court: the five justices who bought the argument that public officials do a good thing by handing out tax dollars as "incentives" for industries to relocate or expand.

Their majority opinion, written by Justice Willis Whichard, gave short shrift - really no shrift -to the view of critics, who say such giveaways have little or no public benefit.

The state and its communities, however, would make a mistake to celebrate this ruling with a spending frenzy in the name of economic development. The court majority may believe that incentives, such as cash grants, land, buildings, parking lots and on-the-job training, serve a "public purpose" under the state constitution. But this is not the same as saying they inevitably are a net plus to the public and should be allowed to grow unchecked.

William Maready, the Winston-Salem lawyer whose lawsuit led to the ruling, lost his case but still raised valid questions about how much the public gains when incentives are bait for industry. Despite Whichard's ruling, there is little evidence that incentives create jobs that wouldn't exist otherwise or that growth in the tax base is greater than the costs of new schools and other services for employees.

In fact, spending tax dollars on business incentives may leave less money for broader investments that truly serve all citizens.

What's also troubling about the incentives game is how it encourages communities to bid against each other, while industries wring out all the advantage they can. Justice Robert Orr, dissenting in the Maready case, was justifiably bothered by "the economic loss and devastation to smaller North Carolina communities that lose valued industry to larger, wealthier areas."

Though the court case addressed only incentives offered by local governments, the same zero-sum situations occur when states compete. In fact, recruiters in North Carolina always mention the need to keep up with other states as the main reason for spending millions in tax dollars on private industry. Now some companies no doubt will take the recent ruling as an invitation to press for even costlier packages.

The state and its localities need to resist. Governor Hunt was right last year to agree to restraints on the incentive money in his "competitiveness fund" to make sure companies live up to their job-creation promises. Local governments would be wise to adopt similar guidelines for their own incentives.

Meanwhile, for its own sake, the state ought to press for a national solution to this problem. Until then, this ruling is not likely to silence Maready and other skeptics - nor should it.




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Copyright © 1996, The News & Observer.


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