The News & Observer
February 16, 1996
If Maready wins
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.Used with permission.
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
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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