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
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
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
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.
All rights reserved. No part of this article may be
reproduced, translated, or transmitted in any form or by any means without
permission in writing from the Greensboro News & Record.
Copyright ©1996, Greensboro News & Record.
| Click here to go to the Greensboro News & Record homepage. |
| Case Home
| Out-Box |