EconWar



The News & Observer


Raleigh, N.C.


February 16, 1996

If Maready wins
(Editorial)



Copyright © 1996, The News & Observer



State officials may be overstating the consequences if incentives used to attract new industry are found to be unconstitutional. North Carolina has many other qualities to offer businesses.

It's little wonder that North Carolina economic development officials worry about a lawsuit over the use of taxpayer-funded goodies to hook new industry. William Maready, the Winston-Salem lawyer who filed the suit, has a strong case. He could very well persuade the state Supreme Court, hearing arguments today, that the practice amounts to a misuse of the public's money, which the state constitution says may be spent only for public purposes.

But a win by Maready is not likely to bring on the economic doomsday that Commerce Secretary Dave Phillips warns of. For all Phillips' faith in the power of grants and special benefits to produce jobs, the evidence is scarce that if the court puts its foot down, North Carolina actually would suffer the "enormous damage" he foresees.

Economists increasingly say that direct financial incentives actually have scant influence on the decisions businesses make about where to locate. According to the Federal Reserve Bank of Atlanta, they are most swayed by "long-term profitability criteria."

And what are those criteria? "Access to high-powered universities, transportation, quality of public education, general business climate, infrastructure quality, energy supply, political and physical stability and personal preferences of corporate decision makers." In most of these areas, North Carolina easily holds its own in competition with other states.

The irony is that as more public money is given away to selected businesses, less is available to make improvements in these other, critically important areas. But businesses have become so adept at playing states and localities against each other, many officials feel they have no choice but to join in the bidding game.

That seems to be the situation in North Carolina. Governor Hunt favors a nationwide halt to incentives, but he is not about to abolish them here as long as other states make them available. At least Hunt has not gone as hog wild over incentives as some governors. Though he has spent $12 million in cash incentives to specific businesses, he also emphasizes programs that benefit the public and industry in general, such as worker training and education.

But if the court rejects Maready's arguments and upholds incentives, Hunt may have a hard time resisting demands by savvy industry executives for increasingly expensive giveaways. Just this week, he enthusiastically endorsed a plan by the N.C. Economic Development Board to expand incentives. And local governments, which pay for about 80 percent of the incentives within the state, are also being pressed to spend more on favors for industry.

The ultimate solution then may have to be national in scope, with all states prohibited from providing cash and special breaks to businesses. Hunt and other state leaders ought to be at Congress' door, begging for such a ban. If the states were left to compete for business on the basis of their broader qualities, North Carolina would have little to fear.




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Copyright © 1996, The News & Observer.


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