The Charlotte Observer

March 9, 1996

Incentives ruled OK
Tax funds can lure business

Taylor Batten, Staff Writer

Copyright © 1996, The Charlotte Observer

North Carolina is back in business.

Seven months ago, a judge virtually froze economic development in the state by declaring financial incentives unconstitutional. On Friday, the N.C. Supreme Court disagreed - and instantly put local recruiters back to work.

The state's highest court ruled that using taxpayer dollars to attract business serves a public purpose by creating jobs and increasing the tax base for local governments. William Maready, a Winston-Salem lawyer, had challenged the incentives, saying they were gifts to private business that did not serve a public purpose, as the N.C. Constitution requires.

``We're looking forward to aggressively promoting this community and getting some of the projects we've lost in the last six months re-interested in us,'' said Bob Leak, Winston-Salem's top recruiter and a defendant in Maready's lawsuit.

The ruling means that local governments and the state are free to continue spending tens of millions of taxpayer dollars to attract private corporations to the state.

Maready lamented the decision.

``I'm truly disappointed for the people of North Carolina who pay taxes,'' he said. ``I think North Carolina has fallen into the trap of doing something which is foolish, and spending tax monies in a very unwise fashion.

``If an educated work force is the No. 1 incentive corporations look for, it strikes me as bordering on the insane for us to be spending money on other things and neglecting our schools and our crime rate and our environment.''

Maready argued that financial incentives - from paying to train a company's employees to outright cash - violated the ``public purpose'' clause of the state constitution because they primarily benefit private, not public, interests.

In August, Forsyth County Superior Court Judge Julius Rousseau agreed. Dozens of counties put their incentive programs on hold, and the state said it lost several businesses to other states.

The high court ended all that. The justices ruled quickly, issuing a decision three weeks after oral arguments. The five Democrats on the bench said the incentives were constitutional; the two Republicans dissented.

``The public advantages are not indirect, remote, or incidental; rather, they are directly aimed at furthering the general economic welfare of the people of the communities affected,'' Justice Willis Whichard wrote for the majority.

And in an argument that seemed more practical than constitutional, the court said that North Carolina needs to have incentives because other states have them.

In a strongly-worded dissent, Justice Robert Orr, with Justice Beverly Lake Jr. joining, wrote: ``While economic times have changed and will continue to change, the philosophy that constitutional interpretation and application are subject to the whims of everybody's doing it' cannot be sustained.''

Orr worried the decision would allow the most extreme incentives. Some of the incentives challenged by Maready paid relocation expenses for executives' spouses, and for a parking deck used only by employees of a given company.

If a company will come to North Carolina only ``if country club memberships are provided for its executives, do we sanction the use of tax revenue to facilitate the move? . . . Under the holding of the majority opinion, I see no grounds for challenging such an expenditure . . . ,'' Orr wrote.

Gov. Jim Hunt, Secretary of Commerce Dave Phillips and Attorney General Mike Easley applauded the court's ruling. But Phillips said his job isn't done.

``Just that this case is occurring in North Carolina is sending a sour message worldwide that maybe we are not as pro-business as we once were,'' Phillips said. ``What we need to do now is get this word out around the world that we are pro-business.''

The battle may not be over. The N.C. legislature and local governments could still curb incentives.

``The Maready case has served to energize lots of opponents . . . , `` said John Hood, president of the conservative John Locke Foundation in Raleigh. ``I think the prospects (for legislative action) are very good.''

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Copyright ©1996, The Charlotte Observer.

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