EconWar




A Conversation with Gary Carlton

Director of Business and Industry Development
Department of Commerce
State of North Carolina


March 9, 1996

As the Department of Commerce's Director of Business and Industry Development, Gary Carlton is often called North Carolina's chief recruiter. Carlton has worked in banking in the Carolinas for over three decades, most recently serving as president of Southern National Corporation in Winston-Salem prior to joining state government last year.

Contents

Competitive Strengths
The Troubles
North Carolina's Answer
Foot in the Door
Losing Ground
Looking Forward


Competitive Strengths

When I was in banking, I often worked with companies coming into the state, so I'm well aware of their motivation. It's always been the same things: the workforce, the fact that we're a right-to-work state, the climate, the infrastructure, and the availability of water and power.

Among the biggest positives I kept hearing was the availability of a skilled workforce because of the number of outstanding universities in this state: Duke, North Carolina State, UNC/Chapel Hill, Wake Forest State among many, many others.

Another big advantage has always been the state's fiscal conservatism along with its financial strength. The fact that our state constitution requires a balanced budget coupled with the state's triple-A bond rating means companies feel more secure that the state isn't going to have to increase the tax burden on businesses as quickly as might occur otherwise.

We also have had a big head start in two other areas: providing a good environment for technology-driven companies and offering a receptive location for international firms. This state started working on Research Triangle Park over 30 years ago. IBM was the first big anchor to go into that park, and we've been able to bring many, many other companies into that park because of the research and development that goes on there. As far as foreign firms, we have a wide range of European, Canadian and Japanese industries represented here.

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The Troubles

Within the last three years, incentives have come to play an ever-increasing role in our discussions with firms looking at North Carolina. In the late 1980s, a lot of jobs were going away throughout the U.S. due to mergers, off-shore manufacturing, reductions in middle management. At the same time, the global competition for companies heated up tremendously. You would see countries in South America, Africa, Malaysia and Europe offering free land and no taxes to get other companies to locate in their borders.

Consequently, in the southeastern U.S. and throughout the country, some states began offering more and more packages of various kinds to get or keep businesses. In the early 1990s, for example, South Carolina and Virginia had gotten very competitive with some very lucrative incentives, offering free land or offering substantial tax abatements for long periods, up to 15 or 20 years, or passing legislation as in South Carolina that opened the whole state up as an enterprise zone.

And companies got hooked. Even companies that didn't need incentives began to expect them as a matter of course. Now, it's just good business sense: if everyone else is getting incentives, why shouldn't we take advantage of it? If we don't look into it, maybe our board of directors is going to say, "Aren't you smart enough to get the same type of benefits when we relocate or expand that other companies are getting?"
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North Carolina's Answer

Now we had traditionally and, as I said earlier, successfully done without certain types of incentives because of all the positives our state offered. We've never done tax abatements. We've offered help with infrastructure at the city and county level and with highway improvements through the state transportation department. I guess our biggest incentive has been our capacity to do industrial training for companies through our system of 52 community colleges. We'll allow them $500 a job to train their people through the community college program.

However, three years ago, the competition had become so fierce that we had to do other things than just training to attract companies, to be competitive. In 1993, the Governor asked for a Governor's Industrial Recruitment Competitive Fund. He received $7 million the first year, $5 million the second, and $2 million last year. He has used that money very carefully to give incentives to companies that were considering North Carolina for expansion. It's $1,000 a job to be matched by the county that they're locating in. Sometimes we limit it to $100,000, but there have been grants up to a million dollars for companies. Over half, 55%, of that $14 million has been used to help companies that are already in North Carolina expand. The remainder went to companies looking into sitings in North Carolina for the first time. The fund has helped 59 companies so far.

Some people question getting in the game at all. Granted, you don't have to have incentives, and you will still get some companies. But your unemployment rate will probably go up. We have a comfortable three to four percent; it may go up to six, seven percent. You are still going to have to help the unemployed, spending state dollars to do so.

The people who question whether we should give any incentives are not realists. They have a job. They are not one of the 360 people who were just laid off by Sara-Lee Corporation in Lumberton, North Carolina. They are not one of 480 people with Fieldcrest Mills just laid off in Concord, North Carolina. These are not the people questioning incentives.
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Foot in the Door

I think that some state residents and law-makers have been spoiled by what we had to offer up until three years ago. It was so easy to attract companies when incentives were not the buzzword, that we pretty much thought, "We can win this one." When all the textile companies moved from the Northeast to North Carolina, South Carolina, Georgia, and Alabama, we were the state of choice. When other manufacturing came to the South, we had the good roads, good climate, good infrastructure. When telecommunications and pharmaceuticals began to arrive, we thought we were all set. And when the competition started becoming fierce, we didn't get as much as we had in the past, but we still did very well.

The existence of the competitive fund and other incentives has been crucial to our continuing ability to attract new business. North Carolina uses incentives in a very conservative manner, like a carrot that you dangle in front of a prospect. The consultant calls and says, "Are you an incentive-driven state?" We can respond, "Yes, we are. We have incentives." We don't say to what magnitude. The real test comes after we bring the clients through the state and they see what we have to offer. Then we put what we do offer on the table. Many times it's not as large as some of our neighboring states. But oftentimes along with everything else we can offer -- workforce, quality of life, the client will say, "You're not quite there, but doggone it, we really want to locate here." You've got to have incentives to get your foot in the door.

If South Carolina or Virginia really wants a company, they'll give free land and tax abatements, which can blow us out of the water. With the competitive fund and the things that we have right now, we're able to get our foot in the door, but we may not necessarily win an incentive war. If we had no incentives at all, many companies may not even have looked at North Carolina.
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Losing Ground

We keep up with who's looked here and what we lose. We probably have a dozen or more major companies we've lost over the past year because of incentives. For example, Wal-Mart was looking to build a new distribution center. We had a county in the southeastern part of the state that felt they had the deal sown up. Then Wal-Mart learned they could go six miles across the state line to South Carolina, get 100 acres of free land, get tax abatements, and get other perks. Naturally, Wal-Mart elected to go there. That's 450 employees that went to South Carolina because of incentives. Two weeks ago, R.R. Donnelly chose Virginia. $5 million in incentives. We couldn't reach it. We had four sites in North Carolina that they liked, but they chose Virginia.

I spent the $2 million allocated the Governor's competitive fund this year in a matter of two hours. I already had 20 applications on my desk when the funding came through, and I spread that money carefully. Now I'm out of money. And the Governor of Virginia is upset because his legislature just cut his economic development fund from $38 million over the next two years to $28 million. That's our neighboring state!

I don't want to give the state away to attract new business. That's the furthest thing from my mind. Nobody along this hall wants to give away the state in order to land a client. [Carlton gestures down the hallway that holds the offices of the 25 state recruiters]. Over the past five years, we've either been first, second, or third in new companies landed by Site Selection magazine. We've been very successful. It's not like we're 47th. But, how long can it continue, without us being competitive, or more competitive, in the incentive game?
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Looking Forward

The recommendations put forward by the Economic Development Board are on the level of keeping our foot in the door. They're not going to be something that would put us over the top in relation to incentive offerings in other states. We're not going to win very many incentive wars with what we have.

The governor was very discouraged yesterday when we gave him an estimate of what the new incentives could do to attract a specific company he's actually working with. The Governor, by the way, is our top closer. He is the best economic developer that we have in the state. But in this case our competition is South Carolina. After he went over what incentives we could offer if the recommendations were in effect, he looked at me yesterday morning and he said, "Gary, this won't do the job." I said, "Governor, I know that it won't beat South Carolina, but it's a heck of a lot more than we have going for us right now."

Something has to be done in the short session [the upcoming session of the legislature beginning in May to keep businesses visiting the state. We want to be prudent, but we also want to get looked at.

I continue to hear interest in taking another look at incentives from legislators. I can't say that interest is from all camps, but I am being asked more and more, "How can we help you?" Now that the incentive wars are underway and the Maready case has been publicized, legislators and the public at large are increasingly aware of what we have to do as a commerce department in order to get companies to locate in the state. Quite frankly, the Maready case has made more people aware of what we are having to put up with to bring jobs into this state than anything we could have done.

I don't know where other states are headed over the next 12 to 18 months, but I know we have to continue to examine what they offer and what we offer. I've always advocated for some type of tax abatement. A tax abatement for a company is not necessarily a drag on the economy when they're bringing in enough jobs and creating enough income for the state. Some type of tax abatement would be an interesting concept for us to consider in the long run to help put us in a very competitive position with the other states. Of course this would require legislative action .

Right now, with the competitive fund depleted and the task force recommendations pending, we are still playing as though it were 1993. We are still playing catch-up. I don't think that we want to be like the other states. But we can't be like we were in 1993. We've got to land somewhere in the middle.


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