The Charlotte Observer

November 19, 1995

Cash incentives for economic development are bribes

William F. Maready, Special to The Observer

Copyright © 1995, The Charlotte Observer

Our Constitution is there for those who know they know better. Since 1868, the N.C. Constitution has prescribed that our tax money will be used for ``public purposes'' only. It is clear language. It means that tax money is not to be contributed to private corporations for their corporate purposes.

We are a government of laws - not of those who believe they know better. In 1968, our state Supreme Court considered whether the state could spend tax money to provide incentives for economic development. The language of the court is plain and simple:

``If we are to bait corporations which refuse to become industrial citizens of North Carolina unless the state gives them a subsidy, the people themselves must so declare. Such fundamental departures from well-established constitutional principles can be accomplished in this state only by a constitutional amendment.''

The court held the practice unconstitutional as not being a ``public purpose.'' I do not believe that it is even arguable that this language means anything different from what it says, that is, that subsidies to corporations for economic-incentive purposes are illegal.

The Constitution itself doesn't define ``public purpose.'' We have one Supreme Court decision holding that it is unconstitutional to build a roadway for one property owner, but another decision, similar in basic facts, holding that it is all right to build a road to a plant because the general public, and the workers there, will be using the road. It seems likely that water and sewer lines fall in the same category if they serve the public in general.

We also have court decisions holding it permissible for a chamber of commerce to receive tax money to promote or advertise the city, the rationale being that it directly benefits the city - the public. It seems clear that the court would hold that specialized training at community colleges is an appropriate public purpose, even if the students are being trained for a particular industry.

But subsidies of private corporations are quite a different question. The never-say-die proponents of subsidies took up the challenge of asking the people to amend the Constitution. Just two years ago, the people voted on a constitutional amendment to authorize subsidies. The result was a massacre of the idea by the voters.

Regardless of their sound defeat in 1968, the professional recruiters and those who have a direct economic or political interest continued the chant and in recent years, incalculable millions of dollars of tax funds collected from the citizens of North Carolina under the force of law have nevertheless been expended directly to corporate America on the promise of economic ``incentives'' - more politely, ``subsidies,'' and more accurately, ``bribes.''


Bad government

Subsidies are also bad government. It is true that subsidies ordinarily increase the tax base. But this is not a fair consideration of the matter. The recruiters who advise our politicians never address the problems of the added costs of government that invariably result. ``New'' industries create the need for new schools (some $10 million or so to build each, and up to $2 million per year to operate), new highways, expanded government services, environmental services and a host of other things. In most cases, the costs exceed any benefit the public will ever receive. If indeed such an increase in the tax base is ``good,'' then our property taxes should be going down.

A growing number of economists conclude that taxpayers are coming out on the short end of the stick. The Federal Reserve Board has received a report which concludes that incentives interfere with normal market forces and should be eliminated.

And it is not true that North Carolina suffers by not being able to compete with other states. Corporations that take North Carolina off the list because of a few hundred thousand dollars are not something we need. Those same companies will be gone when a higher bidder comes along. And sometimes they do not even follow through on their promises in terms of jobs to be created, payroll to be paid, property tax base to be augmented.


Growing list of horrors

There is a growing list of horror stories of misspent tax dollars. Responsible companies continue to move to and expand in North Carolina because we are a great place to be. And as long as we spend our money on the right things - a good educational system, a clean environment, adequate roads and other government facilities and reducing our crime rate - they will continue to do so.

Ask the promoters of subsidies to give the names of the corporations that have truly turned North Carolina down because we did not bribe them with subsidies, and they turn bleary-eyed. The fact is that such subsidies are a remote factor at best. Corporations take subsidies because they are there and because they have learned to play off one community against the other.

Government subsidies are also plain unfair. Every company in our private enterprise system competes with another, either in the cost of products produced or in the cost of labor, or both. If one company has a million dollars of tax funds in its pocket, it can easily sell its products cheaper and at the same time outbid the competition in the labor market. What is the fairness of our government subsidizing a wealthy corporation with tax funds? What about established businesses in that area struggling to keep up - and paying the taxes to fund its competition?

There is also an insidious problem. Corporate America does not negotiate in the public eye - and for good reason. Consequently, when government is negotiating, government boards too often meet in closed session and discuss deals involving the spending of tax dollars in secret. Government in secret is not just distasteful, it strikes at the heart of our system.

Our political leadership is not getting the message. John Q. Citizen is opposed to tax money being spent as subsidies. It is better to hear the bell now, rather than later.

William F. Maready, an attorney with the Winston-Salem firm of Robinson, Maready, Lawing & Cromerford, is the plaintiff in a lawsuit charging that taxpayer subsidies like the N.C. Industrial Recruitment Competitive Fund are unconstitutional.

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Copyright © 1995, The Charlotte Observer.

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