The News & Observer

Raleigh, N.C.

March 9, 1996

Court allows business incentives

John Wagner, Staff Writer

Copyright © 1996, The News & Observer

The state justices rule that local governments have the right to use taxpayer money to attract new companies.

RALEIGH - The N.C. Supreme Court ruled Friday that cities and counties can continue using taxpayer-funded incentives to lure new companies to town.

The court's 5-2 ruling turned back a challenge brought last year by William Maready, a Winston-Salem trial lawyer who argued that spending public money to attract private businesses violated the state Constitution.

State officials were clearly relieved by the decision, which allows local governments to keep offering inducements such as rental assistance, construction of access roads and free water and sewer lines.

"Now we can get back to the business of going after jobs for our people," said Democratic Gov. Jim Hunt, who had predicted that a ruling in Maready's favor would cripple economic development efforts across the state.

Maready said he was "extremely disappointed" by the ruling, which the court returned just 21 days after hearing arguments in the case -- far more quickly than either side expected.

"I'm disappointed for myself, and I'm disappointed for the people of this state," Maready said. "I'm still convinced these incentives are wrong."

Maready had challenged $13.2 million in inducements that Winston-Salem and Forsyth County officials offered between 1990 and 1995 to help new and expanding companies buy land, pay rent, build parking lots and find work for employees' spouses. Maready contends the handouts amount to "corporate welfare."

But writing for the majority, Associate Justice Willis Whichard said that such incentives serve a "public purpose," as required by the Constitution, because bringing new businesses to an area translates into jobs and other public benefits.

"While private actors will necessarily benefit from the expenditures authorized, such benefit is merely incidental," Whichard wrote.

In a biting dissent, Associate Justice Robert Orr argued that the majority's reasoning raised some troubling possibilities.

"If a potential corporate entity is considering a move to Winston-Salem, but will only come if country club memberships are provided for its executives, do we sanction the use of tax revenue to facilitate the move?" Orr wrote.

Orr said he saw nothing in the majority's opinion to prevent that, as long as the new company promised to create jobs and increase the community's tax base. Orr was joined in his dissent by the only other Republican on the seven-member court, Associate Justice Beverly Lake.

With its decision, the high court reversed a Forsyth County judge, who sided with Maready in August. While the August ruling only affected the use of incentives in Forsyth County, the state attorney general's office intervened in the case because of the Constitutional issues involved and appealed to the Supreme Court to resolve the matter.

Hunt and other state officials argued that the potential implications of the case were dramatic because local governments pay for about 80 percent of the incentives offered to businesses in North Carolina.

In addition, if Maready had prevailed, legal experts said, several state incentive programs could have been undermined, including Hunt's highly touted, multimillion- dollar "competitive fund."

"This was a clear victory for the state, and for the people on the local level," said state Attorney General Mike Easley, who argued the case in front of the Supreme Court last month.

The decision affirmed a state statue authorizing city and county government to offer incentives.

While the ruling marked the end of Maready's legal challenge, the debate over whether incentives are a good use of taxpayer money seems certain to continue.

"This just becomes a political issue in '96 and a legislative issue in years to come," said John Hood, president of the John Locke Foundation, a Raleigh-based think tank. "The case has stirred up a debate on an issue that hadn't received that much attention before."

While some localities have spent millions on incentives in recent years, others, such as Raleigh, have avoided using them altogether. Raleigh officials reason that the area has so much else to offer new companies -- such as good roads, world-class universities and a well-educated labor pool -- that business incentives aren't necessary.

The major Republican candidates for governor have also criticized Hunt's use of incentives. Many other states are far more aggressive in courting businesses than North Carolina, and Hunt has said the state needs to offer inducements to remain competitive.

Meanwhile, Maready and a growing number of policy-makers have come to believe that communities would be better off using funds spent on incentives to repair aging schools, fill potholes and hire more police.

Maready said he would probably continue to press his opposition to incentives through the General Assembly and other elected bodies, and he added that he's considering a run for office himself.

"I think some of the current officeholders are also going to think about incentives more now, and I find some solace in that," he said.

State Commerce Secretary Dave Phillips said his department is working hard to spread the word of the Maready decision to companies considering a move to North Carolina. With the case pending, many companies had been hesitant to come to the state, he said.

"This is a great day," Phillips said. "This decision sends a message around the world that we're open for business again."

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Copyright © 1996, The News & Observer.

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