The News & Observer

Raleigh, N.C.

September 19, 1995

Relocating firms get fewer incentives in N.C.
Poll finds other states much more generous

Dudley Price, Staff Writer

Copyright © 1995, The News & Observer

A new poll of corporate executives says North Carolina lags behind most other states in offering economic incentives to lure new companies.

Corporate Finance magazine says 33 states offer more generous incentives than are available here, but offers a mixed review of the value of excessive largess.

The fall edition of the quarterly magazine published a survey of 203 senior corporate executives by KPMG Peat Marwick. The executives were asked to rank states by availability of incentives in five categories: income tax and franchise tax credits, job training grants, sales tax exemptions, property tax exemptions, and help in finding and guaranteeing financing.

The magazine reported the results in an article entitled "Gauging the Open-Arms Race." It says states such as Alabama, which two years ago offered incentives of between $230 million and $300 million to land a Mercedes-Benz plant, are faring better than North Carolina in building a reputation among business planners as top relocation targets.

North Carolina is "not out in the marketplace, based on what these executives say, like a state like Alabama is," said Doug McIntyre, editor-in-chief of Financial World, which is Corporate Finance's parent company. "The second question, which I can't answer, is 'Do you want to keep up with the competition?' Some of these states may be giving away too much."

States' willingness to offer financial perks to lure businesses seemed to have little to do with where they were located. The states ranked as being most generous were all over the map: Alabama, California, Delaware, Idaho, Indiana, New Jersey, Ohio and West Virginia. So were the four least generous states: Arizona, Maryland, South Dakota and Wyoming.

Some people say the incentives also can prove harmful to the companies by causing them to make bad decisions.

In an article that accompanies the survey, Watts Carr, formerly the chief industrial recruiter for the state Department of Commerce, argues that "incentives are muddying the water and companies are making decisions colored by incentives instead of where is the best place to be located.

"If this were not a common practice, businesses would make their decisions based on labor force quality, wage rates, quality of work and transportation," said Carr, president of the North Carolina Partnership for Economic Development.

North Carolina historically has appealed to new companies because of its low union presence, geography and climate. And two years ago, Fortune magazine ranked the Triangle as the best place in America to do business, largely thanks to the quality of its work force.

The incentive issue may be rendered moot anyway, thanks to a decision last month by a Forsyth County judge who ruled that using tax dollars to recruit companies was unconstitutional.

While companies love the money, which they often use to leverage better deals from competing states, a Winston-Salem lawyer challenged the practice of using public money for private development and the judge agreed.

State Attorney General Mike Easley is helping Forsyth County appeal the decision to the state Supreme Court. The decision has no impact outside Forsyth County, but Ed Regan, deputy director of the N.C. Association of County Commissioners, has predicted local governments will be more cautious about what they offer to attract industries until the matter is clarified by a higher court.

Even the state's largest business advocacy group isn't pushing for more incentives. One reason is that new companies may compete with other industries that are already here.

"Most of our members think the state is doing a fairly good job," said Anne Griffith, vice president for government affairs of the N.C. Citizens for Business and Industry, which represents about 1,800 companies.

"We feel some states are doing too much," Griffith said. "You don't want to bring in companies when it takes 25 years to break even. If none of the states did anything, it probably would be the best idea."

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Copyright © 1995, The News & Observer.

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