The News & Observer

Raleigh, N.C.

February 17, 1996

State Supreme Court reviews industrial recruitment case
Justices hear arguments on incentives

John Wagner, Staff Writer

Copyright © 1996, The News & Observer

If business incentives were outlawed in North Carolina, state Commerce Secretary Dave Phillips would be left fighting to recruit new industries with one hand tied behind his back. It would be like asking a basketball coach to compete with only four players on the floor. Companies - and the jobs that come with them - would routinely go elsewhere.

Such were the arguments served up Friday to the N.C. Supreme Court by state Attorney General Mike Easley and a team of lawyers trying to fend off a challenge to the widespread practice of using city and county taxpayer dollars to lure new companies to town.

They were pitted against William Maready, a Winston-Salem attorney who convinced a Forsyth County judge last summer that such taxpayer-financed inducements violate the state constitution.

On Friday, Maready told the justices that offering incentives to corporations amounts to "Robin Hood in reverse" and isn't necessary.

"If [new companies] are worthy of us, they will come here anyway," Maready said. "We can still compete with the best."

The hourlong oral arguments represented both sides' last chance to make their case to the high-court justices, who agreed to review the Forsyth County ruling because of its potentially far-reaching implications.

The Supreme Court could take up to several months to make a decision. The questions that the justices asked of lawyers Friday provided few clues as to which way they're leaning.

The case centers around vastly different interpretations of whether spending government money on business incentives amounts to a "public purpose," as the North Carolina Constitution requires.

Maready has challenged $13.2 million in inducements that Winston-Salem and Forsyth County officials offered between 1990 and 1995 to help 24 companies buy land, pay rent, build parking lots and find work for employees' spouses.

He argued Friday that a 28-year-old Supreme Court case makes it clear that such taxpayer help does not amount to a public purpose. In the 1968 case, the court found that one economic development tool, industrial revenue bonds, violated the constitution's "public purpose" clause. But lawyers on the other side argued that the case Maready cited did not speak to the right issues.

Moreover, they said, the concept of a "public purpose" has evolved over time. Easley argued that because so many other states are offering even larger incentives, it is now a "public purpose" for North Carolina to make them available as well.

Easley's appearance marked the first time since his election in 1992 that he has personally argued before the Supreme Court.

Proponents of incentives say they are a good investment because within a few years of the arrival of a new business, local governments typically get more money from new property taxes than they paid out in incentives.

But Maready said additional children often accompany the arrival of new employees, and that requires building new schools - which can cost millions to build and operate. More and more economists are questioning whether communities get their money's worth when using incentives, he said.

Last August's ruling applied only to Forsyth County. But if the judge's decision is upheld by the Supreme Court, it would undermine local incentives across the state because of the constitutional issues involved. Some state-level incentives - including Gov. Jim Hunt's "competitive fund" - would be in jeopardy as well, legal experts say.

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Copyright © 1996, The News & Observer.

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