The Business Journal - Too many projects lost may trigger N.C. incentives

The Business Journal

Charlotte, N.C.
January 1, 1996

Too many projects lost may trigger N.C. incentives
J. Lee Howard and David Harris, Staff Writers

Copyright © 1996, The Business Journal (Charlotte, N.C.)

Charlotte-area economic forecasters and development boosters are looking optimistically toward 1996 as a year when North Carolina will expand its tool kit for recruiting new business.

If development officials get their wish, those additional tools will include expanded tax breaks and some clearly defined -- and legal -- financial incentives for luring industry.

"From all signs we see, 1996 is going to be another good year," says Jeff Edge, Charlotte Chamber vice president of industrial development. "I think the legislature is going to address a couple of incentive issues and see how we can be more competitive."

Incentives, and North Carolina's inability to offer many of them, have been an especially hot topic during the past year. Drawn at least in part by South Carolina's more lucrative recruitment offers, AMP Inc. and Sudzucker AG picked York County sites south of Rock Hill for production plants worth a combined $240 million-plus. Wal-Mart Stores Inc. chose the Pageland area of Chesterfield County, S.C., for a $35 million distribution center. All three of those companies considered N.C. sites before moving south of the state line.

Compounding the issue was an Aug. 7 N.C. Superior Court ruling in favor of Winston-Salem attorney William Maready in his challenge to the use of public funds for economic development in Forsyth County.

If the Maready ruling is upheld on appeal -- and the state Supreme Court is expected to decide the case in mid-May -- it will broaden the Forsyth ban on local government incentives statewide.

The state does have a few financial avenues to help with recruitment, including tax breaks on production machinery and money for worker training and road improvements, notes Terry Orell, Charlotte Chamber vice president of business growth.

"North Carolina must not only permit the state to participate in the incentive issue, but local government as well. Incentives are a fact of life," says Orell, who is also president of the N.C. Economic Developers Association.

Competing states often misrepresent what North Carolina can offer, especially in light of the Maready case, he says. "Competitors say North Carolina does not have any incentives, when in fact we do."

The incentive question is as significant for rural areas as it is for urban centers, Orell says, expressing hope that the N.C. Supreme Court will overturn the Superior Court's Maready ruling. "We all agree that this issue needs to settled as soon as possible."

Economic developers and lawmakers aren't merely sitting and waiting on a ruling.

In November, a task force of the state Economic Development Board recommended creation of an Infrastructure Trust Fund to help finance water and sewer deals for new companies, establishment of a training and retraining tax credit, along with reduction of the state's corporate tax rate from 7.75% to the 1991 level of 7%.

"It doesn't sound like much, but every little bit helps," Edge says of the proposed tax rate change.

The state Senate Finance Committee already is studying a proposal to expand tax credits for job creation statewide.

Under existing law, the 50 counties that are deemed the most "economically distressed" are eligible for a $2,800 state tax credit per job created by new or expanding industry. The other 50 counties aren't eligible for a cent in job tax credits. A proposal initiated by the N.C. Commerce Department would provide some level of tax credits in all counties, with the amount increasing to $4,000 per job in the 25 poorest counties.

"I think there's a new understanding that if you extend the jobs tax credit to all counties, it will give us a more competitive edge and enhance North Carolina as a whole," Edge says. That change and a reduction in the corporate tax rate "would be two significant bullets in our gun."

In the meantime, some local economic developers also are finding creative ways around North Carolina's restrictions on financial enticements.

An example is Cabarrus County's financial assistance in landing The Stanley Works' $35 million distribution center in Kannapolis.The package of state and local incentives that brought the Connecticut-based toolmaker to Cabarrus County totaled more than $2 million in cash and services.

The package included $847,500 from the county, based on anticipated new property tax revenues from the Stanley project at Dogwood Industrial Park.

The county will make payments to Stanley as the company submits building permits for construction and installation of equipment at the site. The money will help cover the cost of such construction. Stanley will repay the money to the county when it pays its property taxes, Cabarrus officials say.

Other government assistance used in the project included Community Development Block Grant funding for water, sewer and grading and money from the N.C. Department of Transportation for road improvements.

Such assistance is still dwarfed by what some competing states can bring to the table. In landing the AMP and Sudzucker projects, for example, York County and the state of South Carolina put together incentive deals totaling tens of millions of dollars. In both cases, the companies are eligible for the state's enterprise zone designation, meaning they'll be able to keep up to 5% of their annual payroll allocations as a tax credit.

Meantime, a $38 million package has been presented to a consultant who's studying possible sites for a new arena for the Charlotte Hornets.

South Carolina law permits broad latitude in spending public money to recruit business, but S.C. officials say they need such tools because of substantially lower business taxes in North Carolina and Georgia.

Incentives are seldom the principle factor in a company's decision, says Shelby real estate broker John Barker, who specializes in industrial projects. Proximity to customers, quality of life and road and water systems are also crucial, along with the availability of a "high quality" work force, Barker says.

With unemployment rates low -- and getting lower -- in border counties such as York and Spartanburg, the lure of incentives may have a more limited impact on South Carolina's future development, he says.

While Edge says he's hopeful for major company relocations to Charlotte in 1996, big projects may be the exception to the rule this year, he predicts. "It's probably going to be a year of nuts and bolts. There are a lot of blockbuster deals looking, but from an announcement point of view, I'm not expecting it to be a marquee year. It'll be a good, steady year."

Mike Schneiderman, Charlotte Uptown Development Corp. president, says he's been working with chamber officials to promote the use of tax-increment financing to spur more growth.

The tool works like this: A developer agrees to build a new building and then gets local government to pay for a parking deck or other amenity to complement the project. The local government then floats bonds to pay for the parking deck. The debt on the bonds is paid by the property taxes on the new building.

Such an incentive would be valuable in North Carolina, Schneiderman says. But referenda calling for tax-increment financing have failed twice in the past 15 years, he says, because the voting public erroneously thought the measures would increase taxes.

"The incremental tax is an incentive for the developer to build," Schneiderman says. "It works and is a proven commodity. It's like a lot of tools other states have that we don't have and it puts us at a disadvantage.

"Hopefully, the state can come up with programs that will be beneficial," Schneiderman says. "If not, we will continue to pursue alternative means," including continued reliance on the private sector. "We're lucky in North Carolina to have the kind of banks and lending sources we do. Could you imagine if North Carolina didn't have the financial institutions to help with its development?"

Developer Johnny Harris of The Harris Group says North Carolina's ability to compete will be sharpened in large part by the kind of projects developers build.

Harris points to his 2,000-acre Ballantyne mixed-use development as a model of economic strategy.
"It ought to be a magnet to continue attracting the kind of quality infill companies the Charlotte market needs to compete," Harris says.

Ballantyne is envisioned to be a city within a city, containing single and multifamily residential development, offices, a golf course and shops.

The project will be a lure for higher-end businesses that aren't looking for the simply functional industrial corridor, Harris says. "We're looking for the quality executive that will participate and make a positive impact on Charlotte," Harris says. "We're not trying to attract the industrial operation or the lower end user. We're competing with the Atlantas and the Miamis, the Nashvilles and the Tampas. We're looking for people who are going to look at Charlotte as a more urban environment."

Bob Farley, a partner at P.H.H. Fantus Consulting Co. in Bethesda, Md., says North Carolina needs to make a decision about whether it's going to be a state that offers incentives or not.

It's a fact companies are placing increasing emphasis on incentives in their relocation decisions, Farley says. States that offer such incentives bring more strength to the table. But states that waffle on the issue from year to year may be at a lower competitive advantage than states that offer virtually no economic lures, he adds.

"It hurts the state if it can't neutralize what its competitors can say they can do," Farley says. "But somebody needs to say they're going to get (incentives) on the table or they're not going to. Companies need some certainty."

The same scenario is true when it comes to keeping existing industries from scouting elsewhere, Farley says.

"The smarter states are the ones who figure out how to balance retention and attraction and not just pay lip service," Farley says.

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 The Business Journal.

Copyright © 1996, The Business Journal (Charlotte, N.C.).

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