Greensboro News & Record

February 16, 1996

High Court Tackles Incentives Debate

Justin Catanos, Staff Writer

Copyright © 1996, Greensboro News & Record

The long debate over the use of economic incentives finally reaches the state Supreme Court today.

When a controversial case concerning the use of economic incentives gets argued before the N.C. Supreme Court today, justices will have to resolve just two key questions:

Does using tax dollars to attract new companies to the state, or help existing companies expand, constitute a public good? Or does it violate the state constitution?

Winston-Salem lawyer William Maready believes he knows - and he has a lower court ruling that says he's right. Maready's contention that incentives violate the state constitution began a year ago as a quirky citizen challenge, then quickly grew to have statewide implications.

Since Maready's challenge, the use of economic incentives has slowed dramatically in North Carolina. Business recruiters swear the state is losing out on millions in investments and thousands of jobs. And everyone from Gov. Jim Hunt to Commerce Secretary Dave Phillips wants that lower court ruling overturned.

Attorney General Mike Easley will argue for the state - and for the use of economic incentives - before the justices today. A ruling isn't expected for two or three months.

''To me, a resolution one way or another is an improvement over where we are today,'' said David Copenhavor, vice president for economic development for the Greensboro Area Chamber of Commerce. ''At least we'll know where we stand.''

Despite the controversy surrounding economic incentives nationwide, apparently no one, anywhere, has challenged a city or state's authority to use public money to assist private industry. Until Maready.

Throughout 1993 and 1994, the 63-year-old litigator watched as his city gave millions to such huge, profitable companies as Pepsi-Cola, Southern National Bank, R.J. Reynolds Tobacco and Wachovia to help them expand, build parking lots, train employees, even help with moving expenses.

Maready thought it was a gross misappropriation of funds, and inherently unfair to average citizens who would never qualify for such public largesse. But rather than simply grumble about it, Maready researched state law and came to believe that the use of economic incentives violates the state constitution.

A year ago, he filed a lawsuit on his own behalf in Superior Court in Winston-Salem. The suit demanded that Winston-Salem stop paying incentives and that $ 6 million obtained by private companies be paid back to the public treasury.

Last August, in a week-long hearing, Judge Julius Rousseau ruled in Maready's favor. Rousseau halted the use of incentives in Winston-Salem, but did not require a repayment of funds. The decision was immediately appealed. To speed the process, both sides agreed to bypass the appellate court and going straight to the state's high court.

Before long, Maready, whose battle was first deemed quixotic, found himself the object of scorn among state business leaders and something of a folk hero among citizens who relished his taking on big government and big business - and winning.

Maready soon was featured in The Wall Street Journal, as well as newspapers across the state. And he has been in hot demand to speak to civic and business groups all over the Triad.

Through it all, Maready - who says the effort has cost him$ 12,000 of this own money and is seeking no damages for himself from the suit - has stuck to this mantra: Tax money is for schools and parks and streets.

He's also fond of saying: ''If a company is going to pass over North Carolina for a few hundred thousand dollars, let them. We don't need them here.''

Business recruiters, of course, see it differently. They argue that if North Carolina communities cannot offer economic incentives, they cannot compete with states such as Virginia, South Carolina and Georgia, which have far more aggressive incentives policies.

''We don't give tax credits, we don't have enterprise zones, we don't offer cash grants like our neighboring competitors,'' said Gary Carlton, the Commerce Department's chief economic developer.

'' North Carolina has to have a carrot - something - to dangle in front of these companies. If we don't have a carrot, we don't have a chance of getting them to come to our dance.''

Has the Maready case had an impact on recruiting? It's hard to tell.

Last fall, the Guilford County Board of Commissioners voted 6-5 against awarding $ 150,000 in incentives to PPG, a company that planned to spend $ 25 million on a factory upgrade near the airport. Several commissioners cited the Maready case as the primary reason.

Yet the Greensboro City Council approved $ 120,000 in incentives for PPG, and the company stuck by its plans to build in the the city. (PPG has agreed to forgo the incentives if Maready prevails.)

Trade publications continue to rank North Carolina among the top states in the country in industrial relocation. Yet the state has also seen some multi-billion projects it had the lead on - Motorola's big new computer chip-making plant, for example - head to Virginia instead for $ 90 million in incentives. Motorloa had considered a site near Durham.

Carlton stressed that '' North Carolina is not going to sell its soul to attract new business.'' But he added that corporate downsizing - and the loss of thousands of jobs - puts that much more pressure on state economic developers to attract new industries.

Recently, the Commerce Department noted that 43,000 new jobs were created in North Carolina last year. That compares with more than 100,000 new jobs created in both 1994 and 1993.

''Nobody can say specifically that it was a result of incentives, '' said Copenhavor, the Greensboro chamber recruiter.

''But think about it - it has to be a contributing factor.

''Last year was an excellent year in the Southeast. For those (jobs) numbers to be down so far, it is at least indicative that the incentive cloud may have had an impact on the state.''

None of that worries Maready, who maintains: ''Good companies will continue to come to North Carolina because this is a good place to do business.''

Carlton, who has much at stake in the outcome of the case, tries to be philosophical.

''Mr. Maready has caused a lot of interest in incentives, and I don't think it's as damaging as some people say,'' Carlton said.

''It has raised awareness. Do we try to stay competitive, and at what price? Or do we put incentives aside and sell the state on its merits? These are tough questions.''

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. |

| Top | Case Home | Roundtable | Briefings | Guide | Out-Box |