The Charlotte Observer

October 17, 1994

Recruiting study
Get more for N.C. bucks

Dan Chapman, Staff Writer

Copyright © 1994, The Charlotte Observer

Tucked into the mountainous northwest corner of North Carolina, Sparta rarely gets a look when companies shop for manufacturing sites. So when Virginia's Bristol Compressors sniffed around last year for a place to build a $40 million plant employing 750, folks in Alleghany County saw a once-in-a-lifetime chance to reverse the region's economic slide.

If it weren't for $750,000 taken from the governor's business-recruitment fund, however, Sparta's future would've remained bleak.

``It was absolutely key to the entire project,'' Patrick Woodie, executive director of the Alleghany County Chamber of Commerce, said Friday. ``Without the (money), we would not have been able to put together the package that ultimately lured Bristol Compressors to Sparta.''

Whether Gov. Jim Hunt and other leaders will be able to help the Spartas of the future is now being reviewed. Today in Raleigh, a Hunt-appointed task force releases a report on how best to use the Governor's Industrial Recruitment Competitive Fund. The N.C. General Assembly awarded Hunt $7 million this year, up from $5 million the year before, to help convince companies they should settle or expand in North Carolina.

The report is expected to call for tightening the guidelines on how the discretionary fund can be used. Its proponents say it should be a small, yet important step toward greater sanity in the mad, mad world of incentives one-upmanship played between job-hungry states.

``This (will help) to ensure that we're investing public money out of necessity and where it needs to be invested,'' said Watts Carr, the state's top business recruiter with the N.C. Commerce Department who contributed to the study. ``We need to be more restrictive and not more flexible.''

Still, Carr and others say it wouldn't hurt if the legislature would add a few million bucks to the competitive fund to help land even more companies. Sources say the commerce department will request $10 million for 1995.

It's no secret North Carolina is at an incentives disadvantage when it competes against South Carolina, Alabama, Kentucky and other southeastern states for new or expanding businesses. Many of those states offer lower corporate income tax rates, fees-in-lieu of taxes and other goodies that North Carolina is prohibited from giving.

While the criteria for employing the discretionary fund is rather specific, it's not always adhered to. It is supposed to be used solely to finalize a deal. Sometimes, though, industrial recruiters around the state offer the governor's money to prospective clients early in the recruitment process.

If a company is wavering between North Carolina and another state, then Hunt can dip into his kitty to sweeten the pot. The money can be used to build roads, extend water or sewer lines, purchase equipment or a host of other needs.

It clinched Bristol Compressors.

Bristol was set to choose Wise, Va., as the site for its refrigerator and air conditioner compressor plant, until commerce department recruiters upped the ante. Hunt's $750,000 will build a pretreatment sewage plant.

``The CEO of this company said . . . You don't have anything to offer in the way of incentives,' ``Carr recalled. ``With that challenge, we were able to bring the competitive fund to the table.''

At today's press conference, task force members will report that Hunt has spent about half of the $12 million allocated the last two years to finalize deals involving 40 or so companies. Hunt spent $65,000 last November, for example, to help bring a Nippon Paint plant to Charlotte.

The report will recommend that the discretionary fund be used primarily to lure ``exceptional firms,'' ones that pay well and offer quality jobs, according to Rick Carlisle. Carlisle, the governor's economic policy adviser, says the report calls for making the money available to companies considering sites in distressed urban areas now ineligible for the incentives.

One way to ensure companies meet these criteria, Carlisle and Carr say, is to establish a screening mechanism to weed out, early in the process, companies that don't provide above-average salaries, for example. Too often, the state's development pros say, too many companies automatically demand access to the governor's money.

The report will also insist that the money be used solely as a deal-closer and not as just another incentive.

``We want quality over quantity,'' said Carlisle. The report ``will help us make sure that we use the incentives . . . for companies that are going to ratchet us up in terms of the state's economic performance.''

Bristol Compressors would most likely qualify under the new guidelines, too, since Alleghany County is an economically depressed rural area and the wages Bristol will pay - $6.50 an hour - are higher than the county average of $6.24 an hour.

The new criteria ``should have a lot to do with the quality of the company, the quality of jobs, the pay, the benefits and whether the area the company is looking at is distressed or not,'' said Sparta's Woodie. ``On criteria like that, we would (still) come out very well.''

Once the governor signs off on the task force's recommendations, it will be up to the legislature to decide if the more stringent incentives guidelines are necessary. That's where problems may arise. Legislators may balk, especially when jobs and investments are at stake.

``In any kind of political system, there will be lots of pressure to loosen these guidelines,'' said Daphne Clones, a senior policy analyst with the Washington-based Corporation For Enterprise Development which studies state development policies. ``But you can't please everyone. There's only a limited amount of money and you have to have rules to decide where it's best to (steer companies). It shouldn't be based on who screams the loudest or who has the most political clout.''

James Smith, a professor of finance at UNC-Chapel Hill's Kenan-Flagler Business School, says the N.C. General Assembly has a rare opportunity to bring sanity to the incentives battlefield that pits one state against another.

``This just shows how much smarter we are than other states,'' Smith said. ``Kentucky, Tennessee, Alabama and South Carolina are just throwing away money and hurting taxpayers. (This report) is a good indicator that we are not crazy.''

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Copyright © 1994, The Charlotte Observer.

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