Greensboro News & Record

March 9, 1996

High Court Rules in Favor of Incentives

Justin Catanos, Staff Writer

Copyright © 1996, Greensboro News & Record

The N.C. Supreme Court finds that the use of taxpayer money to offer economic incentives is legal.

In a surprisingly quick decision, the N.C. Supreme Court ruled Friday that the use of taxpayer money to recruit business and industry does not violate the state constitution. The decision removed a legal cloud that hung over the use of such incentives since last summer.

The 5-2 ruling overturned a lower court decision from last August in Winston-Salem. That ruling found that using public money to attract private industry did not qualify as a public purpose and was therefore unlawful.

But Associate Justice Willis P. Whitchard, writing for the majority, found that when tax dollars help create new jobs and expand the state and local tax base - even when directed at a private company - the public interest is served.

And in a nod to the common argument that all other states offer incentives so North Carolina must too, the majority opinion noted:

''The pressure to induce responsible corporate citizens to relocate or expand in North Carolina is not internal only, but results from action from other states as well. . .it would be unrealistic to assume the state would not suffer if the incentives programs are discontinued.''

The practical impact of the ruling means that communities across the state that have been hesitant about offering incentives to prospects for new roads, site improvements and worker training can now continue the practice without worrying about asking for the money back.

Top leaders throughout state government, including Gov. Jim Hunt, have watched the case closely and lobbied publicly for its reversal. They exulted in Friday's ruling.

''What we are going to be able to do is tell the world that we are back open for business,'' said Commerce Secretary Dave Phillips. ''We have lost a lot of good opportunities in the past year with this situation hanging over our heads, and our competition has used it against us.''

Phillips claims that companies that otherwise would have invested in North Carolina and brought jobs were instead lured to states such as South Carolina and Virginia, which offer a rich menu of economic incentives.

The ruling, which wasn't expected until May, came just three weeks after the justices heard arguments in the case, illustrating its politically sensitive nature.

Although it was brought against Winston-Salem public officials, Attorney General Mike Easley presented arguments on behalf of the Commerce Department before the justices on Feb. 16.

The state Supreme Court's five Democrats constituted the majority. The two Republicans - I. Beverly Lake Jr. and Robert F. Orr - dissented.

In his dissent, Orr wrote that while $ 13 million in incentives in Winston-Salem had helped create 5,500 new jobs and expand the local tax base by $ 238 million, both the employment and tax base expansions had only a slight impact on county-wide totals. Thus, he argued, the public benefit was minimal at best and not enough to justify the expenditure.

Orr also labeled as ''distasteful'' the practice of recruiting industries by ''forcing communities and states to bid against each other with the promise of government subsidies.''

The case originated more than a year ago in Winston-Salem when attorney William Maready grew tired of his city offering millions in tax money to such rich established companies as PepsiCo, Wachovia, Southern National Bank and R.J. Reynolds Tobacco Co. for private parking decks, site improvements and relocation expenses.

He filed a lawsuit on his own behalf against Winston-Salem, Forsyth County, the economic development firm Winston-Salem Business Inc., arguing that the use of incentives was unfair and violated state law. A Forsyth Superior Court judge later agreed with Maready.

''I'm extremely disappointed,'' Maready said Friday. ''I brought the action on behalf of the citizens of this state who pay the taxes, which I think are being spent irresponsibly.

''I have dread fears about the unchecked, unbridled following of this practice and what it will do for our local government and state government. I regret that the matter is now a political issue, instead of a judicial issue.''

Having spent the past 13 months fighting the use of incentives and spending what he estimated to be about $ 15,000 of his own money on the cause, Maready said, ''I'm going to get over it.''

But the issue is far from over.

At Commerce, Secretary Phillips said Friday that the high court ruling should embolden state legislators to pass laws that liberalize the state's ability to offer incentives.

Unlike neighboring states, North Carolina cannot offer tax abatements or give land away for free.

''The legislature, both Democrats and Republicans, need to find how to make North Carolina more competitive,'' Phillips said.

Used with permission.
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Copyright ©1996, Greensboro News & Record.

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