The News & Observer

Raleigh, N.C.

May 26, 1995

Tax breaks prompt anti-foreign ads

Ken Berger, The Associated Press

Copyright © 1995, The News & Observer

MONTGOMERY, Ala.- The debate over incentives to attract industry has taken a nasty tone in Alabama, where a new radio ad refers to World War II in denouncing tax breaks for German and Japanese companies.

The 60-second ad, which begins, "I thought we won the war," is part of a backlash against a state tax incentive law that helped lure Mercedes-Benz to Alabama last year and may help attract a steel company partly owned by Sumitomo of Japan.

"It's probably the biggest corporate welfare plan we've ever had in the state of Alabama," said Mark Williams, director of the Alabama State Employees Association, which is running the ad.

The practice of wooing industry is alive and well in many other states, and so is the debate over whether financial giveaways are worth their economic while.

Republican Gov. Fob James has complained that the state, under his Democratic predecessor, gave away too much to land Mercedes. The German automaker was promised some $253 million in incentives and tax breaks. Some incentives were one-time-only, such as $90 million to train workers, but other tax breaks were made part of Alabama law to attract other businesses.

Among those that may reap the benefits is Trico Steel, a limited partnership owned by Sumitomo, British Steel and LTV of America.

The possibility of Trico's getting tax breaks has offended competing steel companies already located in Birmingham and Gadsden.

Mark Tomasch, Trico's communications director, said the negative ads will not affect its selection of a plant site.

Mercedes spokeswoman Linda Paulmeno said the automaker felt welcome in the state and wasn't bothered by the ad.

James has promised to honor the Mercedes deal and proposed a $145 million bond issue to help pay for it. To pay off the bonds, James has proposed taking $13 million a year for 30 years from earnings on Alabama's oil lease trust fund - money that normally goes to pay state employees and state government programs.

"Now I hear the Legislature and governor are giving our state's trust fund money to German and Japanese companies to get them to bring their factories to Alabama," says the speaker in the new ad. "Our companies are going to be forced to lay off people so these foreign companies can take our money back to their people with our tax dollars. I'm mad about it.

"That money ought to be used to take care of our elderly, our poor and to keep prisoners locked up."

States have long been trying to outdo one another to attract big business. Amarillo, Texas, is offering some $8 million in incentives to about 1,300 companies if they promise to create 700 jobs. St. Louis, Mo., has offered the Los Angeles Rams an economic development package estimated to cost state and local taxpayers as much as $720 million.

Mercedes looked at 170 sites in 30 states, including North Carolina, before selecting the farming community of Vance in north-central Alabama. The company is building a $300 million plant that will employ about 1,500 workers by the time it starts producing its sport-utility vehicle in 1997.

Paulmeno said Alabama will be cashing dividends from that decision for years in the form of jobs, tax revenue and prestige. "To reap the rewards," she said, "you have to make an investment."

Critics say giveaways don't always add up.

Art Rolnick, a top official at the Federal Reserve Bank in Minneapolis, was co-author of a March article that urged states to stop pouring tax dollars into projects whose economic benefits may be overstated. He called the practice "inconsistent with good economics."

Williams said he wants to wake lawmakers up to incentives' costs.

"It's just a massive giveaway," he said.

Used with permission.
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Copyright © 1995, The News & Observer.

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